Subminimum Wage Changes Catch States ‘Flat-Footed’
MINNEAPOLIS — After years of deliberation, state workforce regulators in Minnesota and across the nation are preparing to enforce tough new limits on paying people with disabilities less than the minimum wage, a practice that has long been decried by civil rights advocates as discriminatory.
More than 15,000 people with disabilities in Minnesota alone work for employers who take advantage of a loophole in federal labor law that allows them to pay below the minimum wage, often in cloistered workplaces known as sheltered workshops.
Across the state, some large workshops pay people with disabilities as little as 50 cents an hour for basic tasks, such as packaging products, shredding paper or picking up trash, a Star Tribune investigation found.
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Now, these employers must satisfy a series of new federal rules before paying these workers less than the minimum wage. Under the rules, which took effect late in July, individuals with disabilities who are younger than 24 must go through an assessment process before they are eligible for a job at less than the minimum wage at a sheltered workshop or similar workplace. Those who already work for subminimum wages must be provided with regular career counseling and information about more integrated work options in the community.
“This has the potential to be transformational,” said Kim Peck, director of vocational rehabilitation services at the Minnesota Department of Employment and Economic Development (DEED).
Throughout Minnesota, disability service providers bring in people with a wide range of intellectual and developmental disabilities to package products and do other light assembly work on contract for large companies. Many of these providers hold special certificates from the U.S. Department of Labor that exempt them from the federal minimum wage and allow them to pay workers with disabilities based on productivity, instead of a fixed hourly rate. Often, this special payment system, known as “piecework,” amounts to just pennies an hour.
A Star Tribune investigation last year found that many workers with disabilities feel trapped in these settings, because they are cut off from mainstream workplaces and lack transportation and other support services that would enable them to succeed outside of the workshops. Their low wages often keep them well below the federal poverty line.
While the new regulations will not eliminate subminimum wages, they are expected to help many with disabilities migrate from segregated workshops to mainstream jobs that pay at least a living wage. The rules are also expected to curtail the pipeline of young workers entering workshops from high school.
Yet there are concerns that Minnesota’s workforce agency is unprepared to enforce the new rules. While President Barack Obama signed the law limiting subminimum wages two years ago, DEED has yet to formally notify sheltered workshops and other employers of how they are expected to comply with the new rules and the state’s process for enforcing them.
The absence of a blueprint has unnerved agencies that employ people with disabilities; many said they are still unsure of how to engage workers in regular conversations about work options in the community.
Since the rules took effect, many providers who pay less than a minimum wage “went into a panic,” said Peck, inundating the workforce agency with requests for guidance. State officials said they did not realize the scope of the new rules until the Labor Department released its official guidance in late July. The rules applied to a far larger group of workers than officials had anticipated — about 15,400 statewide — who work at about 120 sheltered workshops, day treatment centers and other employers stretching from Faribault to Duluth.
According to DEED, it will cost at least $1 million in the first year to make initial contact with these workers, and it could cost significantly more in the ensuing years depending on the number of people who request vocational services to help them work more independently in the community. Yet the state agency received no extra funding and may be forced to limit vocational services for others to implement the new rules, officials said.
“We’re in the final hour — this is now the law — and everyone is shocked and amazed,” said Kelly Nye-Lengerman, a researcher with the University of Minnesota’s Institute on Community Integration, which advocates for integrated employment. “But we all knew this was coming. The consistent messaging for years has been that states have to move toward integration and away from segregated workplaces that pay less than minimum wage.”
The regulatory changes are supported by people like Scott Rhude, 34, of Willmar, who has Down syndrome and has spent most of the past 15 years in sheltered workshops. Rhude has done a wide range of menial jobs, from collecting garbage at a landfill to packaging boxes of tape dispensers — sometimes for as little as $2 an hour. This summer, he got a rare shot at a job in the community, weighing turkey parts at a Jennie-O plant in Willmar for $8 an hour. But he said he was let go on his second day because he was not fast enough for the assembly line.
Now, Rhude is back at the sheltered workshop, which he says often lacks enough work to keep him fully occupied during his shift. Some weeks, his pay amounts to less than $10, he said. “I’m getting to the point where I’m getting really frustrated,” he said. “I need something more challenging, but it’s really rare that anyone ever talks to me about what I want.”
Now those conversations will be obligatory. The new regulations mandate that no person with a disability can continue to be paid a subminimum wage without being provided with career counseling and information about training opportunities annually. This counseling must be provided by entities that are independent from the employer, which might have a vested interest in preventing a person from pursuing a competitively paid job in the community.
The upshot is that trained staff funded by the state are now preparing to fan out across Minnesota to meet with workers and assess how many of them would like a job in the community and might need additional services. “It’s a staggering volume of individuals who need to be assessed,” said David Hoff, program director of the Institute for Community Inclusion at the University of Massachusetts Boston. “Minnesota is not the only state caught flat-footed.”
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