Background

Although estimates of the employment rate for individuals with disabilities vary, researchers and advocates agree that it is much lower than the employment rate for the U.S. workforce as a whole, particularly for individuals whose impairments are severe enough to affect their ability to work. The purpose of the provisions of section 14(c) of FLSA, as stated in the legislation, is to prevent the curtailment of employment opportunities for individuals with disabilities. An individual with a disability eligible to be paid special minimum wages is defined in the regulations as someone “whose earning or productive capacity is impaired by a physical or mental disability, including those relating to age or injury, for the work to be performed.” Determining the impact of the legislation on the employment opportunities of individuals with disabilities severe enough to be eligible to be paid special minimum wages, including whether the purpose of the legislation to not curtail employment opportunities for these individuals is achieved, however, is difficult.
Most individuals with disabilities who are employed are not paid special minimum wages under the provisions of section 14(c) of FLSA. Many workers with disabilities cannot be paid special minimum wages because their impairments are not severe enough to affect their ability to perform their jobs; others receive accommodations and special support services that allow them to earn at least the minimum wage. Individuals with disabilities work in many different types of employment settings, including jobs in businesses where they work mainly with individuals who do not have disabilities and in work centers where they often work primarily with other individuals with disabilities. Some individuals with disabilities work in jobs with no special support services. In such cases, they generally are not paid special minimum wages under the provisions of section 14(c) because they are able to perform the work at a fully productive level. Individuals with impairments severe enough to affect their ability to perform the work, however, often require support services such as job coaches or special on-site supervision in order to obtain and retain their jobs and many are paid at special minimum wage rates.
Many of the work centers that employ individuals with disabilities are nonprofit organizations established to provide support services and training as well as employment opportunities for these individuals. Many of these work centers were established by groups of parents of individuals with disabilities and by vocational rehabilitation specialists. Work centers receive much of their funding through state and county agencies from funds provided for support services and vocational training for individuals with disabilities. State and county agencies usually provide funds to work centers in the form of grants or reimbursements for services.
To carry out Labor’s oversight of the provisions of section 14(c) of FLSA, the Secretary issued regulations that define the requirements of the law and delegated authority to WHD for the administration of the special minimum wage program. WHD staff review and approve employers’ applications for new 14(c) certificates and renewals that allow them to pay individuals with disabilities less than the federal minimum wage, which is currently $5.15 an hour. Work centers and hospitals are required to renew their 14(c) certificates every 2 years; businesses and schools must renew their 14(c) certificates annually. Because most 14(c) employers are work centers that have employed 14(c) workers for many years, most of the 14(c) certificate applications that WHD staff review are applications for renewal. In states that have a higher minimum wage rate than the federal minimum wage, the state rate takes precedence. Employers are required to establish the special minimum wage rate(s) for each worker they employ under the act and to show how they established these rates in the certificate application packages they submit to Labor.
The process of establishing special minimum wage rates is complex. First, employers must identify the prevailing wage in their geographic area for experienced workers who do not have disabilities that affect their ability to perform the work and who perform the same or similar work. They must then measure the actual productivity of the workers for each job they perform as compared to the productivity of experienced workers who do not have disabilities. Finally, employers must calculate the special minimum wage rate by applying the worker’s productivity rate to the prevailing wage for the job and factoring in the quality of the work performed. For example, if a 14(c) worker’s productivity for a specific job is 50 percent of that of experienced workers who do not have disabilities that affect their work, and the prevailing wage paid to experienced workers for that job is $6.00 an hour, the special minimum wage rate for the 14(c) worker in performing that job would be $3.00 an hour. Workers are paid either hourly rates of pay or piece rates for the number of pieces they produce. Most service jobs are paid at an hourly rate, while most assembly work is paid at a piece rate.
Employers are also required to obtain a 14(c) certificate in order to pay workers with disabilities less than the hourly wage for contracts covered under the Service Contract Act and the Walsh-Healey Public Contracts Act. These rates are often higher than the federal minimum wage, particularly for work performed under the Service Contract Act. Therefore, 14(c) workers employed under these contracts may earn more than the federal minimum wage. For example, a worker who has a disability might work under a contract covered by the Service Contract Act for which the contract rate is $15.00 an hour. If a 14(c) worker is only able to perform the work at 50 percent of the productivity level of workers who do not have disabilities that affect their ability to perform the work, he or she would be paid $7.50 an hour.
Labor monitors and enforces employer compliance by reviewing employers’ 14(c) certificate application packages and by conducting investigations of employers. The 14(c) certification team in WHD’s Midwest Regional Office verifies that employers have correctly computed the special minimum wages of their workers by reviewing the documentation in their 14(c) certificate application packages. WHD selects employers for 14(c) investigations either through complaints filed on behalf of workers (by the workers themselves or by their parents or guardians) or by conducting self-initiated investigations of employers selected through criteria developed by WHD officials. The WHD Regional Administrators, with guidance from WHD’s national office, set the priorities for investigations of employers. Labor’s WHD investigators are responsible for enforcing compliance with all aspects of FLSA, including the provisions of section 14(c). When Labor determines through a review of an employer’s certificate renewal application package or an investigation that an employer has underpaid its 14(c) workers, it requires the employer to compute the amount of back wages owed to these workers for a period of 2 years prior to the date of Labor’s review.
In addition to monitoring and enforcing compliance through its reviews of employer’s 14(c) certificate renewal applications and investigations of employers, Labor ensures employer compliance through its training and outreach efforts for its own staff and 14(c) employers. Because the process of establishing special minimum wage rates is complex, Labor considers these efforts to be an important aspect of its oversight responsibilities for the special minimum wage program.

	Most Employers Are Work Centers That Provide Employment and Support Services to Individuals With Disabilities

The majority of 14(c) employers are nonprofit work centers established to provide support services and employment to individuals with disabilities. The centers provide jobs for 14(c) workers most often in light assembly work done by hand or in service-oriented jobs such as grounds maintenance or janitorial work. Most of these jobs are carried out under contracts with government agencies and private companies. The major sources of funds for work centers are state and county agencies and contracts. While virtually all work centers offer one or more support services designed to help 14(c) workers perform their jobs, the range of services they are able to provide depends on the availability of funding and the eligibility criteria established by the funding agencies.

		The Majority of 14(c) Employers Are Work Centers

About 5,600 employers were paying workers with disabilities special minimum wages under certificates issued under the provisions of section 14(c) at the time of our survey in 2001 (see table 1). About 4,700 (84 percent) of these employers were work centers. Work centers employed about 95 percent of all 14(c) workers. More than 80 percent of the work centers were private, nonprofit entities; 13 percent of the work centers were state or local government organizations. Businesses accounted for 9 percent of the employers, hospitals or other residential care facilities accounted for 5 percent, and less than 2 percent were schools.
The work centers primarily employed workers who have disabilities, 90 percent of whom were 14(c) workers. On average, each work center employed 86 workers at special minimum wages. The work centers mainly employed workers with mental retardation or other developmental disabilities. Some work centers focused on employing workers who were blind or had other visual impairments, although they comprised a relatively small number (50 work centers).

		Most Work Centers Provide Assembly or Service Jobs Through Contracts With Government Agencies and Private Companies

Work centers offer individuals with disabilities a variety of work, most of which involves assembly or is service-related. (See table 2.) Assembly jobs generally involve uncomplicated one- or two-step processes that are mainly performed by hand. For example, 14(c) workers at a work center in Illinois that we visited assembled small plastic automobile parts, while 14(c) workers at a New York work center snapped together plastic pieces to assemble a lint remover. The service-related jobs involved basic tasks, such as mopping floors and picking up trash. For example, 14(c) workers from a California work center maintained restrooms at public beaches under contracts with local city governments.
Work center managers balanced their understanding of what work was feasible for their 14(c) workers with their knowledge of the work available in the area. Work center managers also considered where jobs were located. Most jobs in assembly, production, sorting, and collating could be easily performed in the work center. However, jobs such as grounds maintenance and janitorial work had to be performed off-site. If a work center was not located within a reasonable commuting distance, work center managers might decide that these jobs were not feasible for their 14(c) workers. For example, managers at a work center in Illinois did not pursue jobs in neighboring communities that posed a difficult commute for their workers.
Most work centers provided jobs through contracts with government agencies and private companies. Work center managers at some of the sites we visited told us that they were most likely to contact local companies to find jobs that could be done by their 14(c) workers. According to the director of a work center in Virginia, contracts with private companies, particularly for products, were often for tasks in a production process that would not have been cost-effective for the company to automate. In addition, a manager at a California work center said that several of their contracts came from small companies that were marketing new products and did not yet have enough data to know how much their production costs would be. These companies found that work center contracts could be used to do test runs of a new product at a relatively low cost. Overall, we found that 22 percent of the work centers had preferential contracts with state or local governments, and 17 percent of the work centers had contracts with federal agencies. The photos in figure 1 depict examples of the types of jobs performed by 14(c) workers and the types of products they assemble.

		Work Centers Provide a Range of Support Services to 14(c) Workers

In addition to providing employment opportunities, work centers also offer a number of support services for 14(c) workers designed to enable them to obtain and perform their jobs. Depending on the type of support services needed by the 14(c) workers, work center staff either provide the services themselves or help to obtain these services from other sources. Essentially all (99 percent) of the work centers provided or helped obtain one or more of a wide range of support services that enabled 14(c) workers to obtain or perform their jobs. (See table 3.) For example, some workers with mental retardation could not drive and were unable to use public transportation without assistance. We found that almost all (97 percent) of the work centers provided or helped obtain transportation for their workers. They also provided support services such as psychological counseling and speech therapy to help 14(c) workers function more effectively both on and off the job.
Most work centers also provided one or more accommodations consistent with the definition of reasonable accommodation in the Americans with Disabilities Act of 1990. Our survey showed that 95 percent of the work centers provided work schedule modifications, 85 percent provided job restructuring, and 72 percent provided specialized equipment not required by workers without disabilities. In many cases, work centers accomplished these accommodations through the support services they provided to their 14(c) workers. For example, job restructuring, an example of a reasonable accommodation, could be accomplished using task adaptation, such as breaking a complex task into several small tasks performed by more than one worker, or job station adaptation, such as lowering the height of a table to accommodate someone in a wheelchair.
From our site visits, we found that the state and county agencies that provided funds to the work centers to pay for support services had different levels of funding available and different eligibility criteria for these services. State policies and criteria for reimbursements and grants varied across the states we visited. According to work center managers, the availability of state grants or reimbursements for services, and the centers’ or their workers’ ability to meet state eligibility criteria for these funds dictated the type and level of support services their centers provided. For example, for one program at the work center in California we visited, the state required workers to work at least 20 hours a week, have an attendance rate of 85 percent, and have a productivity level of at least 10 percent. Another program at the work center designed to prepare workers to move from the work center to jobs in the community was limited to 30 slots because of state funding limits.

		Work Centers Obtain Most of Their Funds From State and County Agencies and Production Contracts

To pay for their operating costs, including the provision of support services, work centers obtain funds from two primary sources, government agencies and contracts. From the survey, we found that, on average, nearly half (46 percent) of the funds received by work centers were grants and reimbursements from third parties—mostly state and county government agencies—primarily for the provision of support services. The other major source of funding for work centers was contracts for the production of goods and services, which accounted for about 35 percent of their funding. Figure 2 shows the sources of the funding for all work centers.
Each site we visited had several sources of funding; the proportion of funds from each source varied for each location. (See table 4.) For example, while the Virginia work center received most of its funds from its production contracts, the center in Georgia received almost all of its funds from state and county agencies.

		Without Section 14(c), Work Centers Would Have to Find Additional Funds to Maintain Their Current Operations

According to some of the work center managers who responded to our survey and managers at the sites we visited, without the provisions of section 14(c), work centers would need to obtain additional funds to continue to operate at their current levels. Work centers’ payroll expenses would increase, significantly in some cases, if they were required to pay their 14(c) workers the federal minimum wage of $5.15 an hour. For example, at one of the work centers we visited in New York, the total wages of the 14(c) workers would increase from about $77,000 to about $289,000 if the work center paid all of its current 14(c) workers at the federal minimum wage rate. (See table 5.)
We also found from our site visits that the work centers’ funding from production of products and services did not cover all costs associated with production. For example, one of the New York work centers obtained about $275,000 from its production contracts. This amount did not cover its costs which, in addition to the wages of its 14(c) workers, included additional direct expenses of about $690,000 for the salaries of its supervisors and support staff and other expenses, such as the cost of materials.

	Most 14(c) Workers Have Mental Retardation and Earn Very Low Wages

From the survey, we estimate that most 14(c) workers have mental retardation or another developmental disability as their primary impairment and earn very low wages. For more than half of the 14(c) workers, low productivity results in an hourly wage rate that is less than half the federal minimum wage. In addition, the majority of 14(c) workers work less than full-time. The 14(c) workers are primarily from 25 to 54 years of age and have been employed in the work centers for several years. At the sites we visited, we found that many 14(c) workers received federal cash disability benefits in addition to their earnings. We also found that the workers at the sites received nonmonetary benefits from being in a work environment, such as training designed to help them become more independent in their interactions with individuals in the community.

		Characteristics of 14(c) Workers

Based on our survey and data obtained from Labor, we estimate that currently about 424,000 workers with disabilities earn special minimum wages. Over 400,000 of these 14(c) workers are employed by work centers. The remainder are employed by businesses, hospitals or other residential care facilities, or schools.
Workers paid special minimum wages by work centers have a wide range of physical and mental conditions that impair their ability to be fully productive at their jobs. (See figure 3.) From the survey, we estimate that the primary impairment of nearly three-quarters of all 14(c) workers employed by work centers was mental retardation or some other developmental disability. About 46 percent of the workers had more than one disability.
These impairments can affect a 14(c) worker’s productivity in several ways. Some workers with mental retardation, for example, need additional supervision to complete their tasks, something that, according to our survey, virtually all work centers provided. The level of supervision needed by workers with mental retardation, however, varies depending on the needs of the individuals. For example, the supervisor-to-worker ratio for most 14(c) workers at the California work center we visited was 1 to 15. However, this work center also had a special unit that provided an even higher level of supervision to those who needed it—1 supervisor to every 4 workers.
Some 14(c) workers with mental retardation also require special devices that enable them to perform tasks involving measuring and counting— activities that may be difficult for those with mental retardation to perform. The work center we visited in Texas, for example, devised a wooden jig with holes drilled to a specific depth so that 14(c) workers could automatically attach brass couplings to refrigerator coils at the correct position without having to measure them. The California work center devised a counting board for some of its 14(c) workers who packaged materials. The board was divided into 12 squares so that, by placing one item in each square and putting all of the items in a package after filling up the board, 14(c) workers would know the correct number of items to put in each package without having to count them.
Certain physical impairments, such as reduced visual acuity or cerebral palsy, also restrict 14(c) workers’ ability to perform tasks involved in performing their jobs. Workers with these types of impairments also receive special supports that enable them to work. For example, because some workers at an Illinois work center found it difficult to clip plastic automobile parts together using only their hands, supervisors built a lever that helped workers with less strength, or reduced manipulative ability, complete the task. At a work center that employed primarily the blind in New York, workers with limited or no vision used a wooden block as a form for folding visual testing equipment at the proper locations. The photos in figure 4 depict some of the special devices and support services that enable 14(c) workers to perform their jobs.
The wages of 14(c) workers employed by work centers nationwide were very low. From the survey, we found that more than half of the 14(c) workers (54 percent) earned less than $2.50 an hour because the productivity levels of the workers, as reported by the work centers, were so low.
In the survey, work center managers also reported that most of their 14(c) workers (70 percent) had a productivity level of less than half of that of workers without disabilities performing the same jobs. (See table 8.)
The low productivity levels of 14(c) workers result in the low hourly wages they are paid. For example, the average productivity level of 14(c) workers at the sites we visited ranged from a low of 11 percent at the work center in Georgia to a high of 42 percent at the work center in Texas. The average hourly wage rates for 14(c) workers at these sites, which were as low as $0.63 per hour to as high of $3.74 per hour, mirrored the productivity levels at the sites. (See figure 5.)
Most 14(c) workers (86 percent) worked part-time (less than 32 hours a week). Nearly half of these individuals worked less than 20 hours per week. (See table 9.)
Three-fourths of the 14(c) workers employed by work centers (75 percent) as of the date of our survey were from 25 to 54 years of age. The remaining one-fourth of the workers was evenly divided between those younger than 25 and those 55 or older. A slightly higher percentage of the workers were male (55 percent) than female (45 percent).
From the survey, we estimate that more than half of 14(c) workers (55 percent) employed by work centers had worked there for 5 years or more, while we found that some 14(c) workers at the sites we visited had worked there for more than 20 years. From employers’ responses to our survey, we also estimate that 13 percent of the 14(c) workers employed by work centers left the center during calendar year 2000. About 5 percent of the workers who left the center moved into jobs in the community. We do not, however, know whether these jobs were at special minimum wages or at or above the minimum wage. An additional 4 percent of the 14(c) workers remained at the work centers but moved from jobs that paid them special minimum wages to jobs that paid them the federal minimum wage or more.

		Some 14(c) Workers Receive Cash Disability Benefits That Exceed Their Average Monthly Earnings

At six of the work centers we visited, at least half of their 14(c) workers received federal cash disability benefits. Depending on the site, anywhere from about half to almost all of their 14(c) workers received Social Security Disability Insurance benefits or Supplemental Security Income benefits for severe impairments that affected their ability to work. At all of these sites, the average monthly earnings of their 14(c) workers were lower than the average monthly Social Security Disability Insurance benefit amount of $787 and, at all but one site, lower than the average monthly Supplemental Security Income benefit of $412. In addition, although federal disability benefits are reduced or eliminated when beneficiaries earn more than certain amounts, most of the 14(c) workers’ earnings at each of the sites we visited were too low to significantly reduce their disability benefits. Most of these workers also qualified for health insurance (Medicaid or Medicare) linked to their disability benefits. Some 14(c) workers also received food stamps and housing subsidies.

		Many 14(c) Workers Receive More Than Monetary Benefits From Being in a Work Environment

According to the work center managers and our discussions with a few 14(c) workers and parents or guardians of 14(c) workers at the sites we visited, the workers benefit from opportunities to develop self-esteem, exercise self-determination, and develop socialization skills that being in a work environment can provide. Many of the support services provided by the work centers give workers the opportunity to develop more than their vocational skills.
At each of the work centers we visited, staff worked with the 14(c) workers to develop formal plans with both employment and nonwork goals. Employment-related goals usually involved strategies to improve productivity on the current job and included plans to achieve the next step in a career path, such as transition from the work center to work in the community. Nonwork goals involved a variety of activities. For example, the work centers in California and Texas offered classroom training in personal and social adjustment. Training focused on basic topics such as appropriate communication and social behaviors and continued through more advanced topics such as management of finances.
Several of the work centers we visited also offered training designed to help 14(c) workers become more independent in their interactions with individuals in the community. For example, the work center in New York that primarily employed the blind offered training to its workers on the development of new skills and behaviors, such as problem-solving and assertiveness skills designed to help them, especially those who also had mental retardation, interact more effectively in the community. In addition, the center offered training to workers on how to shop, use banks, and eat in restaurants.
The work centers we visited also focused on enabling 14(c) workers to make their own decisions about their lives, that is, to exercise self- determination. For example, the California work center competed with at least two other training and employment providers for every new client. In most cases, the potential 14(c) worker made the final choice of provider, often with the help of family members. At the California work center, the 14(c) worker was an active participant in the development of his or her individualized plan and participated in all meetings to decide the next step in the plan. The decisions about whether to move from a job at the work center to work in the community or whether to work at all were also left to many of the 14(c) workers at the work centers we visited. For example, at the work center in Georgia, staff helped 14(c) workers plan alternative activities when they no longer desired to work. In addition, the work center in California offered a variety of social activities to 14(c) workers who had retired.

	Labor Does Not Effectively Manage the Special Minimum Wage Program

Labor’s management of the special minimum wage program is ineffective. Until recently, Labor gave the program low priority, including providing little training or guidance to its own staff or employers and conducting few self-initiated investigations of employers. Although Labor began to place more attention on the program in fiscal year 2000, the agency does not have the data it needs to manage the program and does not adequately ensure employer compliance with the requirements of the program. Labor does not have accurate data on the number of 14(c) employers and workers needed to assess the appropriate level of resources it should devote to the program, does not track the resources it devotes to overseeing the program, and does not compile information on the results of its efforts to ensure employer compliance. Labor also does not adequately ensure employer compliance with the program’s requirements because it does not systematically conduct self-initiated investigations of 14(c) employers and does not follow up when employers do not renew their 14(c) certificates. Finally, Labor does not ensure employer compliance by routinely providing guidance and training on the requirements of the special minimum wage program to its staff and 14(c) employers.

		Until Recently, Labor Placed a Low Priority on the Program

Labor officials told us that they have given low priority to the special minimum wage program in past years because WHD’s resources were focused on other enforcement responsibilities, such as detecting violations of child labor laws and protecting low-wage workers in the garment industry. Enforcement was primarily limited to WHD’s reviews of employers’ 14(c) certificate applications. Although WHD reviewed all complaints about employers filed on behalf of 14(c) workers, the agency conducted few self-initiated investigations and there was no mandate from WHD headquarters to conduct self-initiated 14(c) investigations. In fiscal year 2000, according to WHD headquarters and regional officials, Labor began to place renewed emphasis on the program, including reinstating the 14(c) specialist positions in its regional offices, increasing training of its own staff and employers, updating the written guidance provided to its investigators, and selecting employers for self-initiated 14(c) investigations. However, despite this renewed emphasis, Labor’s performance plan for fiscal year 2000 contained no mention of the special minimum wage program, although the plan contains specific goals for other WHD special enforcement programs, such as child labor and agricultural workers. In addition, Labor has not systematically reviewed the results of its increased emphasis on the program, including obtaining the data it needs to effectively manage the program or reviewing the results of its increased enforcement efforts.

		Labor Does Not Have the Information It Needs to Manage the Program

Labor cannot properly manage the program because it does not have accurate information on the number of employers or workers that participate in the special minimum wage program, the resources it devotes to overseeing the program, or the results of its oversight efforts, including its reviews of employers’ 14(c) certificate applications and its investigations of employers.

			Labor Does Not Have Accurate Data on the Number of 14(c) Employers and Workers

Labor is not able to provide accurate counts of the number of employers and workers participating in the special minimum wage program—the starting point for determining what resources it should allocate to the program. When asked to provide this information on employers, Labor gave us three different lists. The number of employers on these lists ranged from 4,795 to 8,493, and the number of workers ranged from 242,470 to 417,002. Although Labor officials were unable to explain these discrepancies, when we reviewed the information in its databases on 14(c) employers, we discovered that they contained out-of-date and duplicate information and that Labor overstated the number of 14(c) employers.For example, the databases contained information on 261 employers whose 14(c) certificates had expired between January 1, 2000, and August 31, 2000, but the database contained no indication that these certificates had been renewed. We followed up with some of these employers and found that, according to the employers, some of their certificates had actually been renewed, but Labor had not updated the information in the database. A few of the employers, however, told us they no longer employed workers at special minimum wages although Labor still counted them as current 14(c) employers.  We also found, through our attempts to mail out our survey, that some employers had gone out of business and should have been deleted from Labor’s list of current 14(c) employers. In addition, from the survey we found that about 8 percent of work centers and businesses with 14(c) certificates did not employ any workers at special minimum wages. Nonetheless, Labor included these employers in its count of current 14(c) employers.
We also found that Labor’s data on the number of 14(c) workers are inaccurate. When we compared the number of workers listed by employers on their 14(c) certificate applications to the number of workers on supplemental forms in their application packages, these numbers did not always match. These inconsistencies may have been caused by language in Labor’s application form that may be confusing to employers, as we reported in a previous correspondence to Labor. For example, the form requires employers to report the number of 14(c) workers they employ in two different places on the form. The instructions for both items, however, are confusing and, as a result, employers may report the wrong number of workers in one or both items on the form. WHD officials told us they are in the process of revising the 14(c) certificate application. They also indicated that, to improve the accuracy of the information in their database on 14(c) employers, they are in the process of verifying its accuracy by comparing the numbers of 14(c) employers and workers in the database to the numbers in employers’ 14(c) certificate application packages (the paper files maintained by WHD’s Midwest region). WHD officials told us they planned to complete this verification process in fiscal year 2001.

			Labor Does Not Track Staff Resources Devoted to the Program

In addition to the lack of data on the size of the special minimum wage program, Labor officials told us they do not compile the number of staff hours devoted to it. As a result, Labor cannot determine whether it is devoting an adequate amount of staff resources to the program. During 2001, there were about 15 WHD headquarters and regional staff members assigned to the program, but about half of them worked on the program only part-time. Because WHD officials do not routinely obtain reports from WHD’s investigations database on the amount of time spent on 14(c) investigations, they were unable to tell us how much time WHD investigators responsible for conducting various types of investigations spend on 14(c) cases, even though the investigators enter the number of hours they spend on 14(c) investigations into the database.

			Labor Does Not Have Accurate Information on Its Compliance Efforts and Does Not Use the Data It Collects to Manage Its Oversight of the Program

Labor does not have accurate data on the number, timeliness, or results of its reviews of employers’ 14(c) certificate applications, its primary method of ensuring employer compliance with the requirements of the special minimum wage program. Employers submit applications to WHD’s 14(c) certification team for new 14(c) certificates and to renew existing certificates. WHD’s 14(c) certification team reviews the paperwork submitted by employers to make sure it is complete and checks for and corrects errors in employers’ calculations of special minimum wage rates. If the 14(c) certification team detects errors in the computation of workers’ special minimum wages in employers’ renewal applications, it assesses back wages for a period of 2 years prior to the date of the application.
WHD officials told us that they do not collect information on the number of reviews of 14(c) certificate applications performed by the 14(c) certification team, the number of 14(c) certificates issued, or the timeliness of the process. This is information Labor needs to properly manage the workload of the team and to ensure that all employers who are required to have a 14(c) certificate in order to pay workers special minimum wages have a current certificate. For example, during our site visits, we found that one work center had not received its new 14(c) certificate 3 months after it had applied for renewal and had not been contacted by a member of the 14(c) certification team. WHD does, however, record information on the results of its reviews of 14(c) employers’ certificate renewal applications when employers are assessed back wages, although we found some problems with the accuracy of this information as noted below. WHD staff told us that many of its reviews of 14(c) certificate renewal applications were not recorded promptly and, in our reviews of WHD’s databases, we found that information on some of these reviews had not been correctly entered into the system.
Labor also does not compile information on the results of all of its reviews of employers’ 14(c) certificate renewal applications. According to data recorded by WHD’s 14(c) certification team on its reviews of employers’ 14(c) certificate renewal applications from fiscal years 1997 through 2000, WHD identified 811 instances in which employers had miscalculated the special minimum wage rates and, as a result, owed back wages to their 14(c) workers. We could not determine, however, what proportion of its reviews of employers’ certificate renewal applications that these 811 cases represented, because WHD does not track the total number of reviews performed by the certification team. In 42 instances, the 14(c) workers were underpaid by relatively large amounts: the back wages assessed for the 2-year period were over $200 per worker, on average. However, when we asked WHD officials for information from its investigative database on these reviews, data that they do not routinely compile, they provided us with information that indicated that many of these reviews were not recorded accurately in the database.
Labor does not have accurate data on investigations conducted of 14(c) employers, another method it uses to ensure employer compliance with the requirements of the special minimum wage program. We found that WHD’s database on investigations contains inaccurate information on its investigations of 14(c) employers. For example, when asked for the number of investigations conducted from fiscal years 1997 through 2000, data that Labor does not routinely compile, WHD officials gave us reports that showed that investigators completed a total of 234 14(c) investigations in that time period. However, after comparing the reports to records of the reviews of employers’ 14(c) certification renewal applications, we found that 93 of the investigations listed in the database were actually reviews of 14(c) certificate renewal applications.
In addition to not having accurate information on its compliance efforts, Labor does not track the rate at which employers incorrectly calculate special minimum wage rates and consequently underpay 14(c) workers. Labor needs this information to properly assess the level of resources it should devote to its efforts to ensure employer compliance and to evaluate the effectiveness of its oversight of the special minimum wage program.

		Labor Does Not Effectively Ensure Employer Compliance

Labor does not effectively ensure employer compliance with the requirements of the special minimum wage program. Labor does not monitor employer compliance with program requirements by systemically conducting self-initiated investigations of 14(c) employers, and does not follow up with employers when they do not respond to its 14(c) certificate renewal notices. In addition, Labor provides little guidance and training to its staff and 14(c) employers on the requirements of the special minimum wage program.

			Labor Conducted Few Self- Initiated Investigations of 14(c) Employers In the Past and Does Not Randomly Select Employers for Its Current Investigations

Despite the results of its reviews of employers’ 14(c) certificate renewal applications that show that some 14(c) workers are underpaid because employers calculated their special minimum wage rates incorrectly, for several years WHD investigators only conducted 14(c) investigations when someone filed a complaint about an employer. WHD officials told us that, prior to 2000, they had not conducted self-initiated investigations of 14(c) employers for several years. In 2000, WHD began conducting self-initiated investigations as part of its renewed emphasis on the special minimum wage program.
Unlike WHD’s reviews of employers’ 14(c) certificate renewal applications, self-initiated investigations are conducted at the employer’s work site. During these investigations, Labor reviews employers’ records for their 14(c) workers and verifies their measurements of workers’ productivity on which the special minimum wages are based. WHD officials told us they plan to conduct 70 self-initiated investigations of 14(c) employers in their Northeast Region during 2001 and use the results of these investigations to “discern compliance trends” in the special minimum wage program. According to these officials, they plan to investigate a nonrandom sample of five employers in each of the 14 districts in the region. In 2002, WHD plans to conduct 14(c) investigations in other regions, but it has developed no guidance for the regions on how to sample employers, how many to sample, how often these investigations will occur, or how to use the results of the investigations to calculate the employer compliance rate. Because Labor is not selecting employers for 14(c) investigations on a random basis, it will not be able to use the results of these investigations to estimate the rate of compliance for employers. In addition, because Labor currently has no plans to periodically measure employer compliance through self-initiated 14(c) investigations, it will not be able to examine trends in compliance over time.

			Labor Does Not Follow Up When Employers Do Not Respond to Its 14(c) Certificate Renewal Notices

An indication that employers are not complying with the requirements of the special minimum wage program is their failure to renew their 14(c) certificates. WHD sends a renewal notice to employers about 2 months prior to the date their 14(c) certificates expire to remind them to submit an application for renewal. However, WHD does not follow up with employers when they do not respond to the renewal notices to make sure that they are not paying workers with disabilities special minimum wages without the authority to do so. WHD officials were not able to tell us how many employers fail to renew their 14(c) certificates because they do not track the number of employers that do not respond to the renewal notices. They told us they planned to develop this capability but had not done so at the time of our review.

			Labor Provides Little Training and Guidance to Its Staff to Detect and Prevent Employer Noncompliance

Until recently, Labor provided no formal training or up-to-date written guidance to its staff to prepare them to detect and prevent noncompliance, such as that caused by employer errors in the calculation of special minimum wage rates. The 14(c) certification team members who review employers’ application packages and issue the 14(c) certificates receive no formal training on the requirements of the special minimum wage program. Similarly, until fiscal year 2001, WHD investigators who conduct investigations of employer compliance with various provisions of FLSA received no formal training on 14(c) investigations. In addition, the 14(c) certification team and WHD investigators were working with guidance that had not been updated for many years. Until very recently, most of the sections of the Field Operations Handbook that described the requirements of the provisions of section 14(c) had not been revised since 1980, and portions of it were much older; the oldest section was last updated in 1963. Labor updated these sections of the handbook and officially issued the new version in June 2001.
To address the lack of training for investigators, WHD’s regional staff recently began developing and scheduling training sessions on 14(c) investigations. For example, WHD’s Northeast Regional Office developed a 1-day course on 14(c) investigations that it plans to use to train investigators and had begun conducting training sessions at the time of our review. In addition, WHD headquarters officials told us they were considering incorporating training on 14(c) investigations into the basic training curriculum for investigators, but they had not done so as of the date of our review.
Finally, several employers and consultants reported that employers had received inconsistent guidance from WHD staff on the provisions of section 14(c). For example, many employers received inconsistent guidance on the allowance factor for “personal, fatigue and delay” time used in computing piece rates for 14(c) workers. Although the employers had used one allowance factor for several years, many of them, starting in 2000, were told by WHD 14(c) certification team staff that the allowance factor they had been using was incorrect and, as a result, the employers owed back wages to their 14(c) workers. We asked staff in WHD’s Midwest Regional Office whether this was a change in policy and were told that this was not a change in policy but that its staff had not been properly applying the policy in previous years.

			Labor Provides Little Guidance or Outreach to Employers on the Requirements of the Special Minimum Wage Program

In addition to not providing training to its own staff on the requirements of the special minimum wage program, Labor has provided little written guidance or outreach to 14(c) employers, although Labor considers this an important part of its efforts to ensure employer compliance. Although some guidance is available on WHD’s Web site—such as a fact sheet on the employment of workers with disabilities at special minimum wages— the guidance does not provide specific information, such as how to compute special minimum wages. Although WHD officials prepared a computer-based presentation for employers that contains specific guidance on how to compute special minimum wages and prepare 14(c) certificate application packages, only two of the employer groups that we contacted had received a copy of it. WHD officials also told us that they had stopped distributing copies of the computer presentation to employers because the presentation needs to be updated to match the information in the revised Field Operations Handbook.
The guidance on the special minimum wage program Labor provides to employers is not sufficient. Reviews of employers’ 14(c) certificate application renewal packages by WHD’s 14(c) certification team showed patterns of errors. These errors included incorrect piece rate calculations, use of entry-level wages to determine prevailing wages, rounding errors, and failure to consider the quality of the work in computing special minimum wages. In addition, in the survey, 55 percent of the work center managers reported that they either received no guidance from Labor or considered the guidance they received on some requirements of the special wage program to be inadequate.
Because Labor has provided little written guidance to 14(c) employers, several employer groups and consultants developed their own guidance on the requirements of the provisions of section 14(c). For example, we obtained copies of written guidance developed by NISH, the National Industries for the Blind, Goodwill Industries, and two consultants, including handbooks for employers on how to prepare their 14(c) certificate application packages.
Recently, Labor developed plans to improve its written guidance to 14(c) employers. For example, WHD headquarters officials said that they plan to release the newly revised Field Operations Handbook to employers, possibly by posting it on WHD’s Web site, although they had not done so as of the date of our review. The officials also said that they have several other initiatives to increase technical assistance to employers, such as establishing a Web site for the special minimum wage program.
In addition to providing little written guidance to employers, Labor has done little outreach to employers to inform them about the requirements of the special minimum wage program. For several years, Labor provided no outreach to 14(c) employers. Staff at one of the work centers we visited told us that the regional 14(c) specialist in Atlanta used to provide training at conferences for 14(c) employers on the requirements of the special minimum wage program. However, after WHD eliminated the regional 14(c) specialist positions in 1996, this outreach to 14(c) employers ended. WHD officials told us that they have recently improved their efforts to provide outreach to employers, including reinstating the regional 14(c) specialist positions in 2000. Some of the regional 14(c) specialists have recently begun making presentations to employer groups in their regions. Some employers we spoke with confirmed that Labor had contacted them recently to offer technical assistance.

	Conclusions

Nationwide, the special minimum wage program provides employment opportunities to over 400,000 workers with disabilities who are not fully productive on the job. The vast majority of these workers are employed by work centers that also offer them a range of support services designed to help them perform their jobs and function more independently in the community. Virtually all work centers that employ 14(c) workers also are nonprofit. Consequently, if these centers were required to pay their 14(c) workers the federal minimum wage, it is likely that the funds they currently receive from contracts that generate jobs for these workers and from other sources would not cover the increase in their payroll costs.
Despite the benefits 14(c) workers may receive from the program, calculating special minimum wage rates for workers with disabilities is a complicated process that is prone to error. As a result, Labor’s oversight of the special minimum wage program is important in ensuring that 14(c) workers are not underpaid. Labor is not doing all it can, however, to provide this oversight, and Labor officials acknowledge that the special minimum wage program was given low priority in the past. While the agency is beginning to increase the resources it devotes to the program, it is doing so without adequately monitoring the effectiveness of its efforts. Labor does not know the program’s precise size, the resources currently devoted to it, the rate at which employers comply with program requirements, or the timeliness or results of its oversight activities. Without this information, Labor cannot be sure that it is giving the program the appropriate priority or gauge the effectiveness of its efforts to ensure employer compliance. Labor’s oversight of the special minimum wage program has consisted primarily of reviewing employers’ 14(c) certificate renewal applications and investigating complaints rather than systematically selecting employers for investigation. Labor also has done little to ensure that employers whose 14(c) certificates have expired do not continue to pay workers special minimum wages or to prevent errors in calculating special minimum wage rates by routinely providing training and guidance to its staff and 14(c) employers.

	Recommendations for Executive Action

In order to obtain the data needed to properly manage the special minimum wage program, we recommend that the Secretary of Labor implement the following: Improve the accuracy of its data on the number of 14(c) employers and workers by (1) deleting out-of-date and duplicate records in its database, (2) continuing to verify the accuracy of its database by periodically comparing it to information in Labor’s paper files and correcting any discrepancies, (3) identifying employers that indicate on their 14(c) certificate applications that they do not intend to employ any workers at special minimum wages and counting them separately from employers that do, and (4) implementing the suggestions in our April 6, 2001, letter to the Director of the Office of Enforcement Policy, Wage and Hour Division for improving the 14(c) certificate application form.
Track the number of staff hours WHD headquarters, 14(c) certification team members, 14(c) regional specialists, and investigators devote to managing the special minimum wage program, reviewing applications for new and 14(c) certificates and renewals, investigating complaints related to special minimum wages, conducting self-initiated investigations of 14(c) employers, and other tasks aimed at ensuring compliance with the requirements of the special minimum wage program and use this information to manage the program.
Collect and compile data on the number, timeliness, and results of WHD’s reviews of employers’ 14(c) certificate applications and use this information to set performance standards for the timeliness of this process and to determine the appropriate level of resources to allocate to the special minimum wage program.
Using the results of its reviews of 14(c) certificate applications and its investigations of 14(c) employers conducted in response to complaints, estimate the rate at which employers miscalculate 14(c) workers’ special minimum wage rates and use this information to determine the appropriate level of resources to allocate to oversight of the special minimum wage program.
In order to ensure employer compliance with the requirements of the special minimum wage program, we recommend that the Secretary of Labor carry out the following actions:   Conduct self-initiated investigations of a randomly selected sample of 14(c) employers in all regions and use the results to estimate the rate of employer compliance nationwide. After initially estimating the employer compliance rate, Labor should continue to systematically conduct self- initiated investigations of employers as indicated by the results of its compliance efforts, including its reviews of employers’ 14(c) certificate applications and its investigations.
Followup with employers that do not respond to 14(c) certificate renewal notices to ensure that they do not pay special minimum wages to their workers with disabilities without authorization and use the information obtained from its follow-up efforts on employers who no longer have 14(c) certificates to update the database on 14(c) employers.
Train staff in all of its regions on the requirements of the special minimum wage program contained in the newly revised Field Operations Handbook and incorporate this training into its standard curriculum for investigators.
Post the revisions of the sections of the Field Operations Handbook that relate to the special minimum wage program on Labor’s Web site so that they are available to employers.
Regularly conduct outreach sessions for employers in each region on the requirements of the special minimum wage program, with special emphasis on correcting errors identified in WHD’s reviews of employers’ 14(c) certificate renewal applications and investigations of employers.

	Agency Comments and Our Response

We provided a draft of this report to Labor for review and comment. Labor’s comments are contained in appendix V. Labor acknowledged that, in the past, it may not have given sufficient priority to enforcing the provisions of section 14(c) of FLSA, and generally supported our recommendations, noting actions it is taking to implement them. While we commend Labor’s decision to begin placing a higher priority on the special minimum wage program and its efforts to improve the management of the program and ensure compliance with the requirements of the provisions of section 14(c), some of its actions fall short of our recommendations.
Specifically, in its efforts to improve its information on 14(c) employers and workers, Labor stated that it intends to correct all database errors by September 30, 2001, and build safeguards into the system to maintain the accuracy and integrity of the data. The agency did not, however, specify what these safeguards would be, or whether it would periodically compare the information in its database to the paper files on 14(c) employers as we recommended. Labor also noted that it had revised the 14(c) certificate application form to include the suggestions contained in our letter dated April 6, 2001. Although Labor made some changes to the form in response to a draft of the letter that we provided to them in February 2001, none of the suggestions contained in the final letter have been made to the revised 14(c) certificate application form sent by Labor to the Office of Management and Budget for approval.
We understand Labor’s concern that excluding some employers with 14(c) certificates from its count of employers that participate in the special minimum wage program ignores the fact that there are legitimate reasons why employers may not continuously employ workers at special minimum wages. Including all employers with 14(c) certificates, however, particularly those that do not intend to employ workers at special minimum wages, is misleading because it overstates the number of employers that participate in the program and the accompanying resources needed to ensure that employers are correctly computing special minimum wages for their workers. Therefore, we revised our recommendation to state that Labor should distinguish between employers that indicate on their 14(c) certificate applications that they do not intend to employ workers at special minimum wages from those that do, and count them separately.
In response to our recommendation that Labor track the number of hours that WHD staff devote to the special minimum wage program, Labor stated that it is instituting a process for reporting time spent on the program by non-investigative staff and noted that it records the number of staff hours spent by WHD investigators. However, as noted in the report, WHD’s managers of the special minimum wage program do not use this information to manage the program. Therefore, we revised our recommendation to specify that, in addition to tracking the number of staff hours that WHD staff devote to the special minimum wage program, Labor should use this information to manage the program.
In response to our recommendation that Labor use the results of its reviews of 14(c) certificate applications and investigations of complaints about 14(c) employers to estimate the rate at which employers miscalculate special minimum wage rates, and consider this rate in making resource allocation decisions, Labor stated that the 14(c) certification team shares information regarding compliance determinations made during the certification process with regional and district staff. Labor gave no indication, however, that it plans to use the results of either its reviews of employers’ certificate applications or its investigations of complaints about 14(c) employers to compute the rate at which employers miscalculate special minimum wages as we recommended.
Moreover, Labor’s plan to use the results of its current self-initiated investigations of selected individual 14(c) employers to estimate the rate of employer compliance, rather than using a random sample of employers, as we recommended, is inadequate. Although Labor is conducting self- initiated investigations of 14(c) employers in one region and in each of several district offices, the employers investigated are not selected at random and, as a result, cannot be considered representative of 14(c) employers, in general, in any of those areas, much less the nation, or provide a credible estimate of the extent of noncompliance.
We support the emphasis Labor has begun to place on preventing violations of special minimum wage program requirements through increased training of investigators and more concerted outreach efforts to employers. However, we urge Labor to implement our recommendation to incorporate formal training on the requirements of the special minimum wage program into WHD’s standard training curriculum for investigators rather than simply “considering exposing Investigators to the Section 14(c) program during the Basic II Investigator Training Course” because it is unclear how this will provide investigators with the training needed to conduct investigations of 14(c) employers.
Copies of this report are being sent to the Chairman, Subcommittee on Workforce Protections, House Committee on Education and the Workforce; the Secretary of Labor; appropriate congressional committees; and other interested parties. The report is also available on GAO’s home page at http://www.gao.gov. If you have any questions concerning this report, please call me on (202) 512-7215. Other contacts and staff acknowledgements are listed in appendix VI.

Appendix I: Scope and Methodology

After determining that information on 14(c) employers and workers needed to meet the objectives of our review was not readily available from Labor or any other source, we elected to survey employers nationwide and conduct site visits of a few employers.

	Employer Survey

To identify employers that employ workers with disabilities at special minimum wage rates under the provisions of section 14(c) of the Fair Labor Standards Act (FLSA), we asked Labor to provide us with information on all employers with current 14(c) certificates. Labor provided us with two databases that contained information on employers with 14(c) certificates. We used information from both databases because neither database contained all of the information we needed.
We combined the two databases and eliminated records with duplicate certificate numbers and records with certificates that expired prior to January 1, 2000. We then verified the accuracy of this information by comparing the database records for employers in four states to the paper records maintained by the Midwest Regional Office of Labor’s Wage and Hour Division (WHD). Our analysis showed that the combined databases provided information that was sufficiently accurate to allow us to select a statistically valid sample of employers with current 14(c) certificates to receive our survey.
We divided the combined data into four groups using the certificate number and another data element that identified the type of employer. These four groups represented the four types of employers: (1) work centers, (2) businesses, (3) hospitals and other residential care facilities, and (4) schools. We selected our samples only from the first two groups: work centers and businesses. We did not select any of the hospitals or schools because they employ only a small number of workers under the provisions of section14(c) and because they are not typical of most 14(c) employers.
There were a total of 5,351 work centers and 729 businesses. Because of the special interest of our congressional requesters in how the special minimum wage program applies to individuals with visual impairments, we divided the 5,351 work centers into two subgroups: one for work centers that primarily employed 14(c) workers who are blind (visually impaired) and one for all other work centers. We selected work centers for the first subgroup by identifying work centers that either had the words “blind” or “visual” in the name of the work center or were listed in Labor’s database as having mainly workers whose predominate impairment was a “visual impairment.” We found 77 work centers that met these criteria. After deleting these work centers in the first subgroup, the second subgroup (all other work centers) contained 5,274 work centers.
We drew a random sample from the second subgroup of 5,274 work centers and from the entire group of 729 businesses. Because there were so few work centers for the blind, we selected all 77 of them for our survey. Each sample represented the entire population of work centers and businesses with current 14(c) certificates in calendar year 2000 (all work centers and businesses authorized by Labor to employ workers with disabilities at special minimum wages).
After selecting our sample, we found that Labor’s databases contained several duplicate records that had not been identified previously, and we deleted these records from our counts for each group of employers and from the sample. For the subgroup of all other work centers, we found that Labor’s databases contained 66 duplicate records (none that were included in the sample); for the subgroup of work centers for the blind, we found 1 duplicate record; and, for the businesses, we found 21 duplicates (12 of these records were included in the sample). Although we deleted the duplicate records, we did not redraw our sample because we determined that the adjusted totals did not affect the sample sizes.
In addition, we found from our survey results that some of the businesses and one of the work centers had gone out of business and that Labor had incorrectly categorized some of the employers. We found that nine of the businesses and one of the work centers from the subgroup of all other work centers had gone out of business. We also found that one of the businesses and two of the work centers, one of the work centers for the blind and one from the subgroup of all other work centers, had been incorrectly categorized by type of employer. These errors indicated that the size of the populations for both work centers and businesses were overstated. Therefore, we adjusted our numbers by making the assumption that, if we had contacted all work centers and businesses to which Labor had issued 14(c) certificates, we would have found additional instances in which the employers had gone out of business or in which Labor had incorrectly categorized them. We used the proportion of the initial number of work centers and businesses found to be out of business or incorrectly categorized to estimate the total number of work centers and businesses on Labor’s list that were out of business or incorrectly categorized. We eliminated this estimated number from each group of employers.
We adjusted the total numbers for each group and our samples to delete the duplicate records, work centers and businesses that were no longer in business, and those that were incorrectly categorized. After making these adjustments, the total number of all other work centers was 5,189 and the sample size for this group was 551. We received 443 responses for this group, a response rate of 80 percent. For the work centers for the blind, the adjusted total was 75 work centers. We sent out surveys to all of these work centers and received 63 responses, a response rate of 84 percent. For the businesses, the adjusted total was 690 and the sample size was 403.We received 284 responses from the businesses, a response rate of 71 percent.
In the survey, we asked work center and business managers for information about their facility and the workers they employed under their 14(c) certificates. We asked them to fill out the survey only for the certificate selected (the certificate number shown on the mailing label), not for any other facilities they managed, if any.
We mailed the survey to each work center and business selected to the address listed in Labor’s databases. In some cases, the work center or business gave the survey to another organization, such as a parent organization or work center responsible for completing the employer’s 14(c) certificate application package. See appendix II for a copy of the survey sent to the work centers.

		Estimates of the Number of 14(c) Workers with Various Characteristics

One of the objectives of our survey was to obtain a variety of information on the characteristics of 14(c) workers. During our pre-tests of the survey, however, we found that some work center managers had difficulty providing the specific information we requested, such as the number of 14(c) workers they employed at various wage levels. Work center managers told us that, while this information was available in each individual worker’s record, extracting and summarizing it specifically for 14(c) workers would be very time-consuming and would discourage them from responding to the survey. As a result, rather than asking work center managers to provide the precise number of 14(c) workers with a specific characteristic, we asked them to estimate the percentage of their 14(c) workers with the characteristic. We asked them to provide their estimates by checking one of six boxes with the following labels: “None (0%),” “Few (1-19%),” “Some (20-39%),” “About half (40-59%),” “Most (60-79%),” or “All or nearly all (80-100%).”
To provide an estimate of the total number of 14(c) workers at each work center with a specific characteristic, it was necessary for us to convert each percentage range estimate provided by the work center manager into a single percentage. To do so, we began by assigning a value to each estimate in the midpoint of the range. For example, for an estimate of “Some (20-39%),” we assigned a value of 30 percent. Then, for each of the eight questions asked in this manner, we summed the midpoint percentage values to determine whether they totaled 100 percent, thus accounting for all 14(c) workers employed at the center. If the values totaled more than 100 percent, we reduced each of the individual midpoint percentage values by the percentage by which the total would have to have been reduced in order to total 100 percent. For example, if the midpoint percentage values we assigned totaled 130 percent, this means that the total would have to be reduced by 30 percentage points, or 23 percent (30 divided by 130), in order to reach 100 percent. In this case, we reduced each midpoint percentage value by 23 percent. Conversely, if the midpoint percentage values we assigned totaled less than 100 percent, we increased each value by the percentage by which the total would have to have been increased in order to reach 100 percent. Thus, using this method, we arrived at a single percentage estimate for each of the eight questions on workers’ characteristics posed in this manner. For each question, we converted each percentage estimate into an estimate of the number of 14(c) workers with the specified characteristic by multiplying the percentage estimate by the total number of workers at the center.
Because of the manner in which we estimated the number of 14(c) workers with various employment and personal characteristics, the estimates should not be viewed as highly precise. They are much less precise than estimates based on accurate counts of 14(c) workers with the specified characteristics at each work center sampled. As stated previously, however, based on our experience during the pre-tests of the survey, we believed that it would not have been feasible to obtain such counts for the work centers. The businesses, however, were able to provide this information because they had so few 14(c) workers (three workers, on average) that they did not have difficulty providing this information. Thus, our estimates of the number of 14(c) workers employed by businesses with various employment and personal characteristics should be considered much more precise than those related to 14(c) workers employed by work centers.
We also compared employers’ responses to the survey by testing them to determine whether there were any significant differences. We compared the two subgroups of work centers—work centers for the blind and all other work centers—and compared all work centers and businesses. We calculated the estimates included in this report and in appendixes III and IV using only the number of cases in which there was a usable response to a question; we did not include nonresponses in our calculations.

		Statistical Precision of Estimates

Because the estimates we reported from the survey were based on samples of 14(c) certificates, a margin of imprecision surrounds them. This imprecision is usually expressed as a sampling error at a given confidence level. We calculated sampling errors for estimates based on our survey at the 95-percent confidence level. The sampling errors for percentage estimates cited in this report varied but did not exceed plus or minus 5 percentage points, unless otherwise noted. The sampling errors for our estimate of the number of work centers and businesses that employ 14(c) workers did not exceed plus or minus 138 and 27, respectively. The sampling errors for our estimate of 14(c) workers employed by work center and businesses did not exceed plus or minus 46,619 and 258, respectively.

	Selection of the Employer Sites

We used the data on 14(c) employers from which the survey samples were drawn to select the eight sites visited. We selected one work center each in California, Georgia, Illinois, Texas, and Virginia; two work centers in New York; and one business in California. We selected the sites on the basis of their geographic location, the predominant impairment of the facilities’ workers, and the number of workers paid special minimum wages. To ensure geographic diversity, we selected at least one site in each of Labor’s five regions. In each of the regions, we selected sites that were representative of states with the largest number of 14(c) employers. We also took into consideration the costs associated with visiting each potential site.
Because our preliminary analysis of the data showed that the majority of 14(c) employers were work centers, we selected primarily work center sites. We visited seven work centers and one business. Our analysis also showed that most work centers employed 14(c) workers whose primary impairment was mental retardation or other developmental disability. Accordingly, five of the seven work centers we selected primarily employed workers with mental retardation. In addition, because of the interest of our congressional requesters in the special minimum wage program as it relates to workers with visual impairments, we selected one work center that primarily employed workers with visual impairments. Finally, we selected one work center that primarily employed 14(c) workers with mental illness because this group was the second most frequently found in work centers.
Additional considerations for our site visit selection were the number of 14(c) workers and the type of work performed. From the information in Labor’s databases on the number of 14(c) workers employed by each work center and business, we determined that the median number of 14(c) workers at each work center was approximately 65 workers. We selected five of the seven work centers, in part, because the data showed that they employed about this number of 14(c) workers. The other two work centers employed a much larger number of workers. During our preliminary interviews, we learned that work centers provide jobs in both production and service-related work for their 14(c) workers. Therefore, we sought a mix of these types of jobs in selecting our sites. Because the Javits-Wagner-O’Day program is one of the sources of contracts for this work, we selected two sites that had contracts under this program, one site that produced products and one that provided service-related work.

Appendix II: Employer Survey Sent to Work Centers

Appendix III: Comparison of Work Centers for the Blind and All Other Work Centers

Because of the special interest of our congressional requesters in work centers that primarily employ 14(c) workers with visual impairments (work centers for the blind), we analyzed their responses separately and compared them with those of all other work centers that employ 14(c) workers. The following tables provide selected statistics that compare data on work centers for the blind with data on all other work centers.
We determined whether there was a statistically significant difference between the responses for work centers for the blind and all other work centers by comparing each category with the rest of the categories in the table combined. All of the cited differences are statistically significant unless otherwise noted. The sampling errors for the data in this appendix do not exceed plus or minus 6 percentage points.
Work centers for the blind represent about 1 percent of all work centers, and the centers employ less than 1 percent of all 14(c) workers in work centers. The proportion of 14(c) workers to total workers at work centers for the blind was much lower than at other work centers (table 10).
Nearly 80 percent of the 14(c) workers at work centers for the blind had a visual impairment as their primary impairment, compared with less than 4 percent at all other work centers. A much higher percentage of 14(c) workers at work centers for the blind had more than one impairment that limited their productivity—70 percent, compared with about 46 percent at all other work centers (table 11).
Work centers for the blind provided jobs more often in assembly work or production of a product and much less often in service jobs than other work centers. To provide these job opportunities, work centers for the blind were more likely to rely on contracts for products with federal agencies than other work centers and were much more likely to rely on preferential contracts with state or local agencies than other work centers (table 12).
Although work centers for the blind provided a higher proportion of jobs that paid a prevailing wage of less than $7.00 per hour than other work centers, a much higher proportion of these 14(c) workers earned $2.50 or more per hour. The 14(c) workers in work centers for the blind also had higher productivity levels and worked a greater number of hours each week than 14(c) workers at other work centers. Moreover, 14(c) workers at work centers for the blind tended to be older, and a greater proportion of them had worked 5 years or more for their current employer than 14(c) workers at other work centers (table 13).

Appendix IV: Comparison of Work Centers and Businesses That Employ 14(c) Workers

Although the majority of 14(c) employers are work centers, we also surveyed a random sample of businesses that employ workers at special minimum wage rates under the provisions of section 14(c) of FLSA. The following tables provide selected statistics that compare data for work centers that employ 14(c) workers with data for businesses that employ 14(c) workers. We only reported the data elements for which the differences between work centers and businesses were statistically significant; all the differences in the tables were statistically significant unless otherwise noted. The sampling errors for work centers did not exceed plus or minus 5 percentage points and for businesses it did not exceed plus or minus 10 percentage points, unless otherwise noted.
Approximately 10 times as many work centers employed 14(c) workers as businesses. Businesses, on average, employed 3 workers at special minimum wage rates, while work centers employed 86 workers (table 14).
Businesses were much less likely than work centers to provide work opportunities in assembly and production jobs. The businesses were also less likely to provide accommodations to 14(c) workers to help them perform their jobs, although this difference may relate to differences in the types of work provided (table 15).
A greater proportion of 14(c) workers employed by businesses than work centers earned $2.50 or more per hour and their productivity levels, in general, were higher than that of 14(c) workers employed by work centers. However, 14(c) workers in businesses tended to work fewer hours with nearly 70 percent working less than 20 hours a week as compared with 45 percent of the 14(c) workers in work centers (table 16).
A higher proportion of 14(c) workers employed by businesses than by work centers had mental retardation or another developmental disability as their primary impairment, while the primary impairment of a lower proportion or 14(c) workers employed by businesses was mental illness. Moreover, a lower percentage of 14(c) workers in business had more than one impairment that limited their productivity than workers employed by work centers. The 14(c) workers employed by businesses tended to be a younger and had not worked as long for their current employer as workers employed by work centers (table 17).

Appendix V: Comments From the Department of Labor

Appendix VI: GAO Contacts and Staff Acknowledgments

	GAO Contacts

	Acknowledgments

Other major contributors to this report are Beverly A. Crawford, Angela A. Miles, Katherine M. Raheb, Ellen L. Soltow, Linda W. Stokes, Ann T. Walker, Joel I. Grossman, Barbara W. Alsip, Corinna A. Nicolaou, and James P. Wright.

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Social Security Disability: Multiple Factors Affect Return to Work (GAO/T-HEHS-99-82, Mar. 11, 1999).
Social Security Disability Insurance: Factors Affecting Beneficiaries’ Return to Work (GAO/T-HEHS-98-230, July 29, 1998).
Social Security Disability Insurance: Multiple Factors Affect Beneficiaries’ Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 1998).
Social Security Disability: Improving Return-to-Work Outcomes Important, but Trade-Offs and Challenges Exist (GAO/T-HEHS-97-186, July 23, 1997).
Social Security: Disability Programs Lag in Promoting Return to Work (GAO/HEHS-97-46, Mar. 17, 1997).
Department of Labor: Challenges in Ensuring Workforce Development and Worker Protection (GAO/T-HEHS-97-85, Mar. 6, 1997).
People With Disabilities: Federal Programs Could Work Together More Efficiently to Promote Employment (GAO/HEHS-96-126, Sep. 3, 1996).
SSA Disability: Return-to-Work Strategies From Other Systems May Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996).
Social Security: Disability Programs Lag in Promoting Return to Work (GAO/T-HEHS-96-147, June 5, 1996).

Summary:
What GAO Found

To prevent the curtailment of employment opportunities for disabled persons, the Fair Labor Standards Act allows employers to pay individuals less than the minimum wage if they have a physical or mental disability that impairs their earning or productive capacity. The Department of Labor's Wage and Hour Division (WHD) administers the special minimum wage program. More than 5,600 employers nationwide pay special wages to workers with disabilities; about 84 percent are work centers established to provide employment opportunities and support services to individuals with disabilities. Businesses comprise about 9 percent of these employers; the remaining 7 percent are hospitals or other residential care facilities and schools. Seventy-four percent of the workers paid special minimum wages by work centers have mental retardation or another developmental disability as their primary impairment, and 46 percent have multiple disabilities. From the data received by employers on the productivity of their disabled workers, it is estimated that 70 percent of the workers are less than half as productive as workers without disabilities performing the same jobs. Labor has not effectively managed the special minimum wage program to ensure that disabled workers receive the correct wages because, according to WHD officials, the agency placed a low priority on the program in past years.