Wage and Hour Division (WHD)
Section 64b01: Enterprise Coverage
- FLSA Section 3(s)(1)(A) coverage (Annual Dollar Volume (ADV) - test).
- Work centers operated for-profit will be section 3(s)(1)(A) enterprises, and covered on an enterprise basis, if they meet the required dollar volume test.
- Not-for-profit work centers will not be considered section 3(s)(1)(A) enterprises, regardless of ADV. Not-for-profit status generally means the employer qualifies under IRS Code 501(c)(3) as nonprofit. The activities of these not-for-profit work centers are not ordinarily considered to have a business purpose as required by section 3(r) (see Regulations 29 CFR Part 779.214).
- Despite this absence of enterprise coverage, the employees of many work centers will be covered on an individual basis.
- Also, if the work center has an SCA contract(s), all employees (whether working on the contract(s) or not) who are not otherwise exempt under FLSA section 13a(a)(1) are covered under FLSA section 6(e). If these workers are not covered by an applicable SCA wage determination, they must be paid at least the FLSA section 6(a)(1) minimum wage (see FOH 64b03(d)) or a commensurate wage rate, if they have disabilities for the work performed and the employer is properly certified.
- The retail outlets of not-for-profit work centers and/or retail establishments operated by not-for-profit work centers may be covered
under section 3(s)(1)(A) of the Act, however, if their ADV meets the required amount. These retail operations are considered to have a "business
purpose." Only sales and business done from the retail operation will be counted toward the ADV. Assertion of such coverage must first be cleared by the INV with the Child Labor and Special Employment Team, NO/OEP.
- The Supreme Court decided in Alamo Foundation v. Secretary of Labor that despite the "nonprofit" corporate status of an organization, if it engages in commercial activities in competition with other businesses, its employees "like other employees of the Act- are entitled to its full protection."
- Even though the work center operates a retail outlet covered under section 3(s)(1)(A), this coverage will not extend to the not-for-profit work center. However, employees who work in covered employment in any part of a week are covered for the entire workweek.
- Competitive employment: A competitive employment setting refers to a work environment in which workers with disabilities are integrated with the general working population, as opposed to working in a separate facility that primarily employs workers with disabilities (formerly known as a "sheltered workshop"). Coverage for a commercial establishment holding a section 14(c) certificate is determined in the same manner as it is for any other employer - enterprise coverage if the ADV test is met, individual coverage if appropriate. In some situations, the worker with the disability may be jointly employed - employed by both the commercial establishment and the work center that oversees the competitive employment situation (see FOH 64c09).
- FLSA Section 3(s)(1)(B) named enterprise coverage (hospital, institution, school).
- Enterprise coverage is extended without an ADV requirement to work centers that are operated (i) in or as part of a hospital or (ii) in or as part of an institution primarily engaged in the care of the sick, the aged, or the mentally ill who reside on the premises (for example, a group home for people with mental retardation) or (iii) in or as part of a school.
- Individuals employed by such enterprises are protected by all the provisions of the Act whether they are "staff" or "clients" of the covered enterprise (see FOH 12g00, 12g01, 12g02, 12g12, 12g14, and 12g15).
- Enterprise coverage under section 3(s)(1)(B) would not apply, however, to a work center operated by a group home or other institution that had totally and completely segregated its work center activities from its residential care functions. Such a degree of segregation would be met when:
- the work center is not housed in one of the group homes; and
- bookkeeping and payroll records for the work center and the group home are kept separately, and;
- staff and funding are not shared, or intermingled, between the work center and the group home.
- If the enterprise has accomplished the degree of segregation discussed above, enterprise coverage shall not be asserted for the work center.
- Community rehabilitation programs may operate both work centers and group homes. Enterprise coverage under section 3(s)(1)(B) will not be extended to a work center based solely on the fact that a few staff members may be employed in both locations. The work of such employees, however, would be covered based on their work in the residential care enterprise, and the possibility of overtime violations should not be overlooked.
- Because a patient worker is one "employed by a hospital or institution providing residential care," his or her employer will be a covered enterprise under section 3(s)(1)(B). The employer must hold a certificate under section 14(c) in order to pay a SMW to patient workers.
A work center operated by a State or local government, or another public agency, is covered on an enterprise basis under this section of the Act. No ADV test must be met.
- Many work centers have service contracts with the Federal government or are subcontractors on such contracts. Section 6(e) of the FLSA requires an employer who is either a prime contractor or a subcontractor on a contract to provide services to the Federal government to pay all employees, including staff and employees not working on the service contract, at least the FLSA minimum wage (see McNamara O'Hara Service Contract Act below). Employers who have obtained the proper certification under section 14(c) may pay a SMW to SCA service employees and other employees not working on the contract who have disabilities for the work being performed.
- Since section 6(e) does not require that the employee be engaged in commerce or the production of goods for commerce, section 6(e) is a useful tool for applying minimum wage coverage to employees and staff who are not otherwise covered on an individual or enterprise basis (see FOH 64b03(d)).