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Wage and Hour Division (WHD)

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FOH Field Operations Handbook
arrowChapter 64 Employment of Workers with Disabilities at Special Minimum Wages under Section 14(c)
arrowSection 64g Issues Requiring Special Attention

Section 64g07: Hourly Commensurate Rates

  • General
    1. If the employer chooses to pay the worker with a disability an hourly rate, a specifically defined, objective production standard for an experienced worker who does not have a disability must be established. This is done through some form of work measurement, frequently time studies. The facility must then evaluate the productivity of each worker with a disability who is to be paid hourly to determine his or her hourly rate in relation to the standard productivity of the worker who does not have a disability for the job being performed.
    2. Workers with disabilities who are paid by the hour must be evaluated, at a minimum, once every six months (see Regulations 29 CFR Part 525.12(j) for full requirements). In fact, items 13 and 14 of the Application for Authority to Employ Workers with Disabilities at Special Minimum Wages (form WH-226-MIS) require the employer's written assurance that he or she will evaluate hourly rated workers every six months (see Regulations 29 CFR Part 525.12(j)(3)). Evaluations must also occur when there is a perceptible change in productivity or when the duties of the job change.
      • The initial evaluation of a worker's productivity to determine his or her commensurate wage rate should be made within the first month of employment (see Regulations 29 CFR Part 525.12(j)(2)).
      • Some consulting organizations have advised employers to pay a "training rate" amounting to a specific percentage (often 50%) of the prevailing wage during the initial period before the worker with a disability is evaluated. Paying such a provisional rate is acceptable so long as the employer understands that it must make up the difference if the subsequent evaluation indicates that the training rate was below the employee's commensurate rate. Should the provisional training rate actually exceed the appropriate commensurate wage rate, employers may not recoup any overpayments in future work weeks because these employee are still being paid below the FLSA section 6(a) minimum wage (see Regulations 29 CFR Part 531.36).
      • The results of the initial evaluation must be recorded and the employee's wages adjusted no later than the first complete pay period following the initial evaluation.
      • If the commensurate wage rate, determined by the initial evaluation, is greater than the wage paid prior to the evaluation, the facility must pay the worker the difference, unless it can demonstrate that the initial payments reflected the commensurate wage due at that time (see Regulations 29 CFR Part 525.12(j)(2)).
    3. When workers ordinarily paid by piece rate are occasionally called upon to perform an hourly task (such as material handling), the facility may pay them for those occasional tasks at their average hourly piece rate based upon their average earnings during the most recently completed representative period, not to exceed a quarter. Employers must be consistent in the method used when computing the employee's average hourly earnings (note that this principle also applies to downtime as discussed in FOH 64e01(b)(1)). However, when these duties are regular and recurring the facility should evaluate the worker to determine his or her commensurate hourly wage for the task.
    4. It is important to remember that employers must evaluate the productivity of hourly paid workers at least every six months and the adjust the workers' wages accordingly no later that the first pay period following each review. This is different from the requirement that the employer perform prevailing wage surveys annually. Changes impacting the SMWs paid workers with disabilities must be implemented immediately.
  • In order to determine an hourly commensurate rate, the employer must first define the job, including clear statements of the acceptable quality and quantity standards, and then establish how long it takes an experienced worker who does not have a disability to perform the job. This establishes the performance standard of the worker who does not have a disability for the work being performed. The regulations do not mandate the methods to be used to do this, but three of the more common methods are Rework, Performance Measurement III (PM III) and the 90/10 Rating.
    1. Rework. Rework refers to a method of establishing both the standard for the worker who does not have a disability and the level of performance of the worker with a disability by conducting time studies that hold both to the same minimum acceptable levels of quality and quantity. Rework is the time spent by the worker redoing a product or work activity of unacceptable quality, i.e., that does not meet the industry quality standard, in order to bring the work product up to the acceptable level of quality. A detailed description of the "rework" methodology is contained in FOH 64j02(b)(1).
    2. Performance Measurement III (PM III). One method used to determine hourly commensurate wage rates is known as Performance Measurement III (PM III). The system was developed by Goodwill Industries and is used to measure the performance of workers with disabilities employed in the sorting and salvage work typically found in Goodwill work centers.
      • Goodwill describes PM III as a work measurement that attempts to control all variables which occur at random in the workplace and which could affect the outcome of the measurement. Special workstations are designed for conducting the measurement studies in a controlled environment within the normal flow of the workday. Goodwill describes PM III as a controlled, on-the-job, work sample that represents all significant tasks of the job being rated. It requires at least 30 minutes for completion of tasks at a competitive level (that is, by workers who do not have disabilities for the work to be performed), including allowance for personal time and delay. The time for the client's performance (which also includes allowances for personal time and delay) is completed in the same situation and to the same quality level, and is then compared to the established time standard (i.e. the one performed by the worker who does not have disabilities).
      • PM III was reviewed by the National Office and a determination was made that when properly employed it meets the commensurate wage rate requirements of Regulations 29 CFR Part 525.12(j).
    3. The 90/10 rating. One common and acceptable method to determine an hourly commensurate rate is a technique known as the 90/10 rating. The 90/10 Form, though not an official Department of Labor form, was developed under the auspices of the former Sheltered Workshop Advisory Committee which was disbanded in the early 1990s. This method assigns a 90 percent weighting factor to the quantity of work performed and a 10 percent weighting factor to the quality of the work performed. The 10 percent value placed on the quality of the work performed by the employee with a disability represents an attempt to minimize subjectivity (see FOH 64j02(b)(2) for a detailed discussion of how this method may be applied).
  • Indicators of an accurate hourly commensurate wage rate.
    1. The average hourly earnings for the employees paid SMWs who have the least severe disabilities are now higher than they were in the preceding year.
      • It is to be expected that wage rates will increase as workers became more experienced and familiar with a particular job/task resulting in increases in their productivity and improvement in the quality of their work.
      • But it is important to remember that workers with the least severe disabilities will often progress to other employment, leaving those workers who have the more severe disabilities for the job in the work center. In this case, average hourly earnings may actually decrease over time.
    2. A significant number of hourly rated workers employed longer than one year has received a wage rate increase.
    3. Semiannual employee evaluations indicate that hourly wage rates have increased in proportion to corresponding increases in productivity.
    4. As required by Regulations 29 CFR Part 525.12(j)(3), hourly wage rates have been reviewed and adjusted accordingly within the past six months.
    5. The relationship of disability to earnings is important. If the employer primarily employs workers who are not severely disabled for the work to be performed, it would be reasonable to expect that at least some of the employees would be paid the section 6(a)(1) MW on some contracts. The INV should notice whether there are workers who do not appear to have disabilities for the work to be performed, yet are paid wages significantly below the minimum wage. In some cases, though not all, this could signal improperly calculated commensurate wage rates.
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