Bark’s Bytes #4 | Not Covered
For the minimum wage issue it seems useful to have a common frame of reference before reaching any conclusions. So, let’s begin with some history on the minimum wage issue with information obtained from the Department of Labor website (www.dol.gov/esa/whd/minimumwage.htm).
The federal minimum wage provisions are contained in the Fair Labor Standards Act (hereinafter “Act”) and go back to 1940 with an amendment that excluded Puerto Rico and the Virgin Islands from the statutory rates applicable elsewhere in the U.S. On May 14, 1947, the Act was amended by the Portal-to-Portal Act that resolved some issues as to what constituted compensable hours. In 1949, the minimum wage was raised from 40 to 75 cents an hour for all covered workers and coverage was expanded to include workers in the air transport industry. Also, a specific section was added granting the Department of Labor (DOL) authorization to control the incidence of exploitative industrial homework. In 1955, the year I was born, the minimum wage for covered hospital workers caring for my mother and I was raised to a whole $1.00 an hour!
The 1961 amendments greatly expanded the Act’s scope in the retail trade sector and increased the minimum for previously covered workers to $1.15 an hour effective September 1961 and to $1.25 an hour in September 1963. Retail and service establishments were allowed to employ fulltime students at wages of no more than 15 percent below the minimum with proper certification from the DOL. Congress further broadened coverage with amendments in 1966 that extended coverage to public schools, nursing homes, laundries, and the entire construction industry. Farms were subject to coverage for the first time if their employment reached 500 or more days of labor in the previous year’s peak quarter. The minimum wage went to $1.15 in February 1968, $1.30 in February 1969, $1.45 in February 1970, and $1.60 in February 1971.
In 1974, Congress included under the Act all non-supervisory employees of Federal, State, and local governments and many domestic workers. The minimum wage increased to $2.00 an hour in 1974, $2.10 in 1975, and $2.30 in 1976 for all except farm workers, whose minimum initially rose to $1.60. Parity with non-farm workers was reached at $2.30 with the 1977 amendments and established a new uniform wage schedule for all covered workers. The minimum went to $2.65 an hour in January 1978, $2.90 in January 1979 (the year I graduated from college and got my first fulltime professional job), $3.10 in January 1980, and $3.35 in January 1981. The amendments eased the provisions for establishments permitted to employ students at the lower wage rate, allowed special waivers for children 10 to11 years old to work in agriculture, and eliminated the overtime exemption for employees in hotels, motels, and restaurants.
A 1985 Supreme Court decision led to amendments that permitted State and local governments to compensate their employees for overtime hours worked with compensatory time off in lieu of overtime pay, at a rate of 1 1/2 hours for each hour of overtime worked. The 1989 amendments eliminated the minimum wage and overtime pay exemption for small retail firms. Thus, employees of small retail businesses became subject to minimum wage and overtime pay in any workweek in which they engaged in commerce or the production of goods for commerce. The minimum wage was raised to $3.80 an hour beginning April 1, 1990, and to $4.25 an hour beginning April 1, 1991. Finally, the amendments established an overtime exception for time spent by employees in remedial education and civil money penalties for willful or repeated violations of the minimum wage or overtime pay requirements of the law.
The 1996 amendments increased the minimum wage to $4.75 an hour on October 1, 1996, and to $5.15 an hour on September 1, 1997. The amendments also established a youth sub-minimum wage of $4.25 an hour for newly hired employees under age 20 during their first 90 consecutive calendar days after being hired by their employer; revised the tip credit provisions to allow employers to pay qualifying tipped employees no less than $2.13 per hour if they received the remainder of the statutory minimum wage in tips; and amended the Portal-to-Portal Act to allow employers and employees to agree on the use of employer provided vehicles for commuting to and from work, at the beginning and end of the work day, without counting the commuting time as compensable working time under certain conditions.
The 2007 amendments increased the minimum wage to $5.85 per hour effective July 24, 2007; $6.55 per hour effective July 24, 2008; and $7.25 per hour effective July 24, 2009. In its current form the Act permits: (i) youths under 20 years of age to be paid a minimum wage of not less than $4.25 an hour during the first 90 consecutive calendar days of employment (employers may not displace any employee to hire someone at the youth minimum wage); (ii) employers to pay employees on a piece‑rate basis, as long as they receive at least the equivalent of the required minimum hourly wage rate; (iii) employers of tipped employees (i.e., those who customarily and regularly receive more than $30 a month in tips) to consider such tips as part of their wages, but employers must pay a direct wage of at least $2.13 per hour if they claim a tip credit and meet certain other conditions; and (iv) the employment of the following individuals at wage rates below the statutory minimum wage under certificates issued by the Department of Labor:
Student learners (vocational education students);
Full‑time students in retail or service establishments, agriculture, or institutions of higher education; and
Individuals whose earning or productive capacities for the work to be performed are impaired by physical or mental disabilities, including those related to age or injury.
Many states also have minimum wage laws that provide greater employee protections and, in those cases, employers must comply with both. Referencing our State’s website (www.doli.state.mn.us/minwage.html), Minnesota has established the following minimum wage requirements: $6.15 an hour for large employers (any enterprise whose annual gross volume of sales made or business done is not less than $625,000); $5.25 an hour for small employers (any enterprise whose annual gross volume of sales made or business done is less than $625,000); and $4.90 an hour for training new employees who are younger than age 20 during their first 90 consecutive days of employment (permanent or current employees may not be displaced by new employees covered by the training wage). Minimum wage rates apply to all hours worked, whether part time or full time. No employer may take a tip credit against an employee’s wage under Minnesota law and employees must be paid the current minimum wage rate, regardless of the method of compensation. Exempt employees include (partial list): babysitters, taxicab drivers, volunteers of nonprofit organizations, elected government officials, people providing police or fire protection, and employees subject to the provisions of the U.S. Department of Transportation (drivers, drivers’ helpers, mechanics and loaders). In January 2007, legislation was introduced to increase the State’s minimum wage to $7.75 by August 2008, index the State’s minimum wage to inflation, and repeal the State’s sub-minimum wage for teen workers. Although it passed both bodies of the legislature, the bill was vetoed by Governor Pawlenty at the end of the 2008 legislative session.
So, what conclusion seems relevant to people with disabilities paid by DT&H programs? Unless I am missing something, the Act applies ONLY to “covered employees” which does not include people with disabilities “paid by” a DT&H provider. My reasoning for why people with disabilities paid by a DT&H are not employees of the agency is as follows:
1. As recent as November 2005, we received a determination from the U.S. Department of Treasury that states “We find the worker is not an employee of Merrick, Inc., for Federal tax purposes”. Now one can argue that this determination only applies to the relationship between a specific worker and the company, and that this determination could either be affirmed or overturned in a subsequent IRS audit; still it is what it is and many DT&H providers have similar determinations on file that make it clear that an employee-employer relationship does not exist when services are provided to people with disabilities and the following conditions are met:
The services are for therapeutic or rehabilitative purposes;
The services are not performed as a means of earning a living;
The services do not take the place of services that would otherwise be performed by the firm’s regular employees;
The individual’s physician, rehabilitative or therapeutic center, or workshop retains final control of the individual;
Such control is protective control and not the control of an employer over an employee.
I submit that, by license, all these conditions are met by all DT&H providers; and this position is supported by Private Letter Ruling 9410012 reinforcing Revised Rule 65-165 on facts at least as favorable as those at Merrick and, I suspect, other DT&H programs as well.
2. There are numerous experts that consult and provide training on the Act and commensurate wage compliance that assert an employment relationship exists whenever and individual, including an individual with disabilities, is “suffered or permitted” to work; which appears to be defined as physical or mental exertion resulting in something that benefits the employer. This is further clarified with the following condition that a major factor in determining if an employment relationship exists is whether the work performed is of any consequential benefit to the organization. While I am not sure what the IRS would consider “consequential”, I am sure that using audited numbers Merrick could prove that our cost to “permit” clients to work is greater than the revenue generated. Further, the work being “suffered” is desired by the client(s) and would be immediately discontinued if no client was interesting in performing the tasks. Therefore, there is no employment relationship between clients enrolled in our program and the company.
3. Finally, there is the “common sense” view that clients are not employees of the DT&H based on the simple fact that they are “enrolled in the program and not hired or fired”. If we do not “control” this basic element of an employee-employer relationship, then clients are simply not employees of the DT&H provider.
Therefore, if clients are not employees of the DT&H provider the minimum wage provisions do not apply to their earnings and, by extension, a commensurate wage certificate is not required! Now there will be plenty of people saying I am wrong and, admittedly, even I am having difficulty with this conclusion. So, I sent a draft of my article to an expert for comment and, though I know it was received, I got no reply. Therefore, perhaps I am right? Wouldn’t this be a change in the status quo leading to some interesting possibilities? For example, DT&H providers could be more competitive in their bidding practices thereby securing more work options for clients and higher earnings. It might also mean that businesses would employ more clients of a DT&H because they could pay them a commensurate wage, thus providing an incentive to employ more people with disabilities in an integrated setting. Both of these, higher earnings and integrated jobs, seem to be good outcomes.
I am hoping that one of two things happens from this editorial. First, someone will offer concrete evidence that clients paid by a DT&H are covered employees or that an amendment of the Act extends the minimum wage provisions to this group. If this happens then we can move on and discuss the economic fairness of the commensurate wage certificate. Otherwise, I hope that the U.S. Department of Treasury finally decides to clarify the status of these “unclassified workers” so that all of us can move forward with a common and consistent definition. This group of workers is becoming larger, with greater earnings potential, and we need a national policy on their classification status.