Federal and State Subminimum Wage Legal and Policy Framework

State Exchange on Employment & Disability

Federal Legal and Policy Framework

Under Section 14(c) of the Fair Labor Standards Act, employers are authorized, after receiving a certificate from the Wage and Hour Division, to pay subminimum wages (SMWs)—wages less than the federal minimum wage—to workers who have disabilities “for the job being performed.” The certificate also allows the payment of wages that are less than the prevailing wage to workers who have disabilities for the work being performed on contracts subject to the McNamara-O’Hara Service Contract Act (SCA) and the Walsh-Healey Public Contracts Act (PCA).

According to the U.S. Department of Labor Wage and Hour Division (WHD), a worker who has disabilities “for the job being performed” is one whose earning or productive capacity is impaired by a physical or mental disability, including those relating to age or injury. Section 14(c) does not apply unless the disability actually impairs the worker’s earning or productive capacity for the work being performed. The fact that a worker may have a disability is not in and of itself sufficient to warrant the payment of a SMW. The following, taken by themselves, are not considered to be disabilities for purposes of paying subminimum wages: education disabilities, chronic unemployment, receipt of welfare benefits, nonattendance at school, juvenile delinquency, and correctional parole or probation..

NOTE: Section 511 of the Rehabilitation Act and implementing regulations require that workers with disabilities who are age 24 or younger (youth) complete various requirements designed to improve their access to competitive integrated employment, including transition services, vocational rehabilitation, and career counseling services, before they are employed at SMWs. Section 511 also requires that all workers with disabilities who are paid SMWs, regardless of their age, receive regular career counseling and information about self-advocacy, self-determination, and peer mentoring training opportunities in their local area, every six months during the first year of employment and annually thereafter. These requirements supplement, and do not replace, requirements of section 14(c).

WHD devotes an entire webpage providing Materials for Employers with Section 14(c) Certificates. The webpage includes links to laws, regulations, guidance, and tools. In addition, the webpage includes guidance and tools related to Section 511 of the Rehabilitation Act.

On April 27, 2021, President Biden issued Executive Order 14026, increasing the minimum wage for Federal contractors. The EO includes workers whose wages are calculated in accordance with special certificates issued under Section 14(c).

On October 12, 2021 The Committee for Purchase From People Who Are Blind or Severely Disabled published a Notice of Proposed Rulemaking proposing to require each nonprofit agency that seeks to qualify or maintain its qualifications under the AbilityOne program to certify that it will not pay subminimum wages using special wage certificates authorized under section 14(c) of the Fair Labor Standards Act to employees on all contracts or subcontracts awarded.

On November 22, 2021, the U.S. Department of Labor issued a Final Rule (effective on January 30, 2022) increasing the minimum wage to $15.00 per hour for federal contractors. The Final Rule implements Executive Order 14026 (April 27, 2021), which raises the minimum wage paid by those contractors to $15.00 beginning January 30, 2022 and beginning January 1, 2023, and annually thereafter, an amount determined by the Secretary of Labor. Workers with disabilities whose wages are governed by special certificates issued under section 14(c) of the Fair Labor Standards Act must also receive no less than the full EO minimum wage of $15.00.

State Legal and Policy Framework

As of December 31, 2021, 14 states eliminated, phased out, or modified the authority of employers to pay subminimum wages (SMWs) to specified persons with a disability–12 states enacted legislation; 1 state issued an Executive Order; and 1 state issued a regulation.

The Alaska Department of Labor and Workforce Development adopted regulations (2018) repealing authority to pay subminimum wages for workers with disabilities.

California enacted SB639 (2021). The legislation:

Prohibits new special licenses from being issued after January 1, 2022.
Permits a license to be renewed only for existing license holders who meet requisite benchmarks.
Makes the above-described provision authorizing a lesser minimum wage for an employee who is mentally or physically disabled inoperative on January 1, 2025, or when the multiyear phaseout plan is released, whichever is later.
Commencing on the later of January 1, 2025, or when the plan is released, prohibits an employee with a disability from being paid less than the legal minimum wage or the applicable local minimum wage ordinance, whichever is higher.
Requires the State Council on Developmental Disabilities, in consultation with stakeholders and relevant state agencies, to develop a multiyear phaseout plan with stakeholder involvement, by January 1, 2023, which must contain specified components, including benchmarks and desired outcomes for each year of the plan and a list of resources to ensure employees with disabilities can receive services based on their needs.
Collect data (track) outcomes of employees with disabilities who are transitioned out of subminimum wage employment.

Colorado enacted SB 039 (2021). The legislation specifies that:

On or after July 1, 2021, if an employer does not hold a special certificate issued before June 30, 2021, the employer shall not pay an employee a wage rate that is below the highest applicable minimum wage.
On or after July 1, 2021, an employer shall not hire any new employees at a wage rate that is below the highest applicable minimum wage.
An employer that holds a special certificate issued on or before June 30, 2021, shall submit specified data and a transition plan detailing how the employer plans to phase out subminimum wage employment by July 1, 2025 and support individuals in subminimum wage jobs to pursue competitive integrated employment supported employment, or integrated community activities.
On and after July 1, 2025, an employer shall not pay an employee with a disability less than the highest applicable minimum wage regardless of whether the employer was issued special certificate.
On or before April 1, 2022, the Employment First Advisory Partnership shall develop actionable recommendations for addressing structural and fiscal barriers to phasing out subminimum wage employment and successfully implementing competitive integrated employment

Delaware enacted HB122 (2021). The legislation specifies that:

Commencing January 31, 2024, an employer that has a special certificate may not employ or agree to employ or otherwise remunerate or compensate an individual with a disability at an hourly rate lower than the effective minimum wage rate.
The Employment First Oversight Commission shall oversee the development and implementation of a plan to phase out on or before January 31, 2024 authorization to pay an individual with a disability less than the minimum wage.
The plan shall be developed by a task force.
The plan shall include, among other things, benchmarks and expected outcomes and a means of tracking the effect of transitioning to integrated and meaningful employment and a means of tracking meaningful alternative programming.

Hawaii enacted SB 793 (2021). The legislation specifies repeals the exemption from the minimum wage requirement for persons with disabilities.

Illinois Governor Pritzker issued Executive Order No. 2021-26 (October 4, 2021), which specifies, effective immediately (October 4, 2021), all current and future contracts entered into by the State of Illinois with a not-for-profit agency that is qualified to participate in the State Use program shall provide for payment of no less than the applicable local, if higher, or Illinois minimum wage for all employees performing work on the contract, notwithstanding any provision that would permit payment of a lower wage rate. This requirement shall apply to and include employees of any subcontractors performing work on the contract.

Maine enactedLD 1874 (2020), which specifies that an employer may not pay less than the minimum wage to a person by virtue of that person’s having a mental or physical disability. A special certificate authorizing the payment of less than minimum wage to a person with a mental or physical disability issued pursuant to a law of this state or to a federal law is without effect.

Maryland enactedHB 420 (2016). The legislation:

Phases out, beginning October 1, 2016, the authority of the Commissioner of Labor and Industry to authorize work activities centers or other sheltered workshops to pay a subminimum wage to an employee with a disability.
Restricts the authority of a work activities center or sheltered workshop to pay a subminimum wage and/or a subprevailing wage to an employee with a disability.
Beginning October 1, 2020, the Developmental Disabilities Administration may not fund providers that pay individuals less than the minimum wage under a specified federal certificate.
The Developmental Disabilities Administration and Department of Disabilities, in partnership with relevant state agencies, must develop and implement a plan to phase the authorization for payment of subminimum wage.
Each individual who is being paid a subminimum wage and the individual’s resource coordinator must develop a supplemental plan that addresses how community integration and employment will be accomplished.

Minnesota enactedHF33 (Section 14, pages 492-495) (2021). The legislation:

Establishes a Task Force on Eliminating Subminimum wages for individuals with disabilities to develop a plan and make recommendations to phase out payment of subminimum wages on or before August 1, 2025.
By February 15, 2023, the task force shall submit to the legislature a report with recommendations to eliminate by August 1, 2025 the payment of subminimum wage and any changes to statutes, laws, or rules required to implement the recommendations.
The Commissioner of Human Services shall establish a provider reinvention grant program to promote independence and increase opportunities for people with disabilities to earn competitive wages.

Nevada enacted AB456 (2019), which repeals the exception from the minimum wage policy for persons with severe disabilities who disabilities have diminished their productive capacity in a specified job and who are specified in a special certificate.

New Hampshire enactedSB 47 (2015), which prohibits an employer from employing any individual with a disability as an employee at an hourly rate lower than the minimum wage rate.

Oregon enactedSB494 (2019). The legislation:

Requires employers who are authorized to pay subminimum wages to individuals with disabilities to pay certain wage rates until June 30, 2023.
Requires employers to pay individuals with disabilities at minimum wage rate by July 1, 2023.
Removes individuals with disabilities from category of persons for whom employers may pay subminimum wage.

Texas enactedSB 753 (2019). The legislation applies to community rehabilitation programs participating in the State Use Program. The legislation specifies that:

The Workforce Commission shall assist community rehabilitation programs (CRPs) in developing plans to increase the wages paid to its workers with disabilities to the federal minimum wage not later than September 1, 2022 for work relates to the State Use program.
Each CRP shall, to the maximum extent possible, ensure that each worker with a disability remains employed by the program after it increases the wages.
If a CRP is unable to employ the worker with a disability after the program increases the wages, the CRP shall work with the Workforce Commission and others to seek and obtain suitable job training and employment services.
On request of the CRP, the Workforce Commission may extend the period for compliance for not more than 12 months (September 1, 2023) under specified circumstances.

Washington enacted HB 1706 (2019), which specifies that beginning July 1, 2020, no state agency may employ an individual to work under a special certificate issued under RCW 49.12.110 and 49.46.060 for the employment of individuals with disabilities at less than the minimum wage. Any special certificate issued by the director to a state agency for the employment of an individual with a disability at less than minimum wage must expire by June 30, 2020. For the purposes of this section, “state agency” means any office, department, commission, or other unit of state government.

Washington enactedSB 5284 (signed April 16, 2021; effective July 25, 2021), which specifies that:

After July 31, 2023, the director may not issue any new special certificates for the employment, at less than the minimum wage, of individuals with disabilities.
Special certificates that have not expired as of July 31, 2023, remain valid until the certificate expires.
The director may extend, no more than once and for no longer than one years, the duration of a special certificate that was valid as of the effective date under specified circumstances.
To the extent consistent with federal law and federal funding requirements, the department must prioritize individuals, utilizing the expiration dates of the special certificates, for the provision of individual technical assistance to an individual, prior to expiration date of the special certificate.
Prior to the expiration date of the individual’s special certificate, the department must provide written and verbal notification to the individual and their legal representatives informing them of all available waiver services and the processes for the individual to identify, transition to, and request any of the available waiver services.
By October 1, 2021 (and annually thereafter), the Department of labor and Industries, in collaboration with the Department of Social and Health Services must submit a report to the legislative committees regarding the number of special certificates remaining and other specified information.
The legislation expires December 1, 2024.

As of December 31, 2021, 7 additional states [GA (HB116), NC (S447), MO (SB582), NM

As of December 31, 2021, 7 additional states [GA (HB116), NC (S447), MO (SB582), NM (HB110), NY (S1828/A3103), SC (SB553) and VA (SB719/HB333)] have bills pending to eliminate, phase out, or modify the authority of employers to pay subminimum wages (SMWs) to specified persons with a disability.

As of December 31, 2021, at least 6 states (KY (SB41/HB55), MO (HCR39), NJ (A6172), NY (A5391), WIS (SJR69), and UT (HB361)] have bills/resolutions pending that reaffirm the continuum of choices (subminimum wage to competitive employment).

This document was updated on January 4th, 2022.