Policy Changes for SourceAmerica Nonprofit Agencies: Impacts of Eliminating Section 14(c) and Reducing AbilityOne's Required Direct Labor Ratio

The AbilityOne program uses federal procurement to promote the employment of workers with disabilities. Nonprofit agencies (NPAs) annually sell more than $3 billion in products and services to the federal government under AbilityOne, employing 45,000 workers with significant disabilities to do so. SourceAmerica serves as an intermediary agency that helps facilitate contracting between NPAs and the federal government. SourceAmerica currently works with 494 NPAs that employ workers with a variety of disabilities to produce goods and services.

AbilityOne contracts are governed by regulations intended to provide a competitive advantage to NPAs that employ workers with disabilities. One important regulation requires that an NPA have at least 75 percent of the direct labor hours worked across the NPA, including work for customers other than the federal government, be worked by persons with disabilities. A second important regulation is Section 14(c) of the Fair Labor Standards Act, which allows certain workers with disabilities to be paid a commensurate wage. A commensurate wage is expressed as the productivity-based share of the full prevailing wage, the wage paid to an average experienced worker without a disability, and is often below the minimum wage. In 2014, President Obama issued an executive order restricting the use of commensurate wages. The executive order established a federal minimum wage of $10.10 for workers on new federal service contracts, though they can still be paid commensurate wages under Section 14(c) as long as those wages are greater than $10.10.

SourceAmerica engaged Mathematica Policy Research to conduct an independent and objective study of the potential impacts of changes in these two regulations on workers with disabilities and the NPAs that have AbilityOne contracts facilitated by SourceAmerica. We consider the impacts of these potential policy changes above and beyond changes that may have already taken place due to President Obama’s executive order.