Maine Focus

A Maine nonprofit paid its disabled workers less than minimum wage, while its executives got six figures

Posted July 12, 2017, at 6:37 a.m.
Last modified July 12, 2017, at 3:53 p.m.

Poll Question

A Maine nonprofit paid some of its workers with disabilities as little as $2 to $3 an hour, while consistently paying top managers six-figure salaries, according to a BDN review of the organization’s tax filings and a federal investigation report. One year, the organization paid a manager $570,000, which an accounting expert called “stunningly high.”

Skills Inc., based in the Somerset County town of St. Albans, is the only employer remaining in Maine that pays some of its workers with disabilities less than the state minimum wage, under a little known federal law from 1938.

But while it has paid an employee as little as $2.14 per hour, it quadrupled a former manager’s salary between tax years 2006 and 2013, ultimating paying him $569,844 in tax year 2013, according to the nonprofit’s tax documents filed with the Internal Revenue Service. It was an increase of almost $260,000 over the previous year.

In that time, Skills also more than doubled its then-CEO’s salary, paying him a high of $217,596 in tax year 2013. The nonprofit’s tax year runs from July 1 to June 30.

Skills offers residential and day programming in Somerset and Kennebec counties to people with intellectual disabilities, and its largest source of revenue is Medicaid, which is funded with a combination of state and federal tax dollars. In tax year 2015, Skills reported $13.8 million in total revenue.

The organization also offers its clients jobs for pay that’s based on their determined productivity level, regardless of the state’s minimum wage, sorting items for its thrift store, cleaning area businesses, and packaging candle wicks and other goods. It used to employ clients at a St. Albans sawmill called Sebasticook Lumber.

At SKILLS, Inc. we believe that meaningful employment is one of the cornerstones of a happy life,” states its website.

On its tax forms, Skills defines the enterprises where it employs clients, such as the thrift stores and lumber mill, as programs of the nonprofit, which means the organization can funnel any revenue it receives back into its operations.

But the former mill manager, Vernon Martin, received an annual bonus of 25 percent of the sawmill’s earnings between tax years 2009 and 2013 instead of returning that revenue to the organization, according to the nonprofit’s tax forms. In tax year 2013, Skills ran almost $500,000 in the red, while Martin collected his largest paycheck yet.

Former CEO Tom Davis also received a bonus starting in tax year 2009: 10 percent of the earnings of the nonprofit’s thrift stores, kennel and cleaning service. In tax year 2011 Davis started earning an additional bonus of 10 percent of the sawmill’s earnings. Skills sold the sawmill in 2016.

“We acknowledge that not all decisions made were the best decisions and some of those decisions created unplanned, unforeseen and unintended programmatic and financial challenges for the organization,” wrote the current executive director, Stephanie Johnson, in an email to the BDN.

During the time Skills owned the sawmill, it didn’t have to pay property tax on the facility due to its nonprofit status, according to the St. Albans town office.

[‘I have something still to give’]

While the Skills board of directors allowed the two nonprofit administrators to receive a combined $3.44 million over seven years, the nonprofit was violating the subminimum wage law. Skills accrued 75 violations between 2001 and 2016 as a result of insufficiently paying its workers with disabilities — the most of any other Maine employer in that time, according to U.S. Department of Labor enforcement data.

Skills’ financial and operational details, gleaned from public records, show the latitude employers have to make decisions about the compensation of people with disabilities. They also call into question the validity of a law that allows employers to pay people less “whose earning or productive capacity is impaired by a physical or mental disability, including those relating to age or injury,” if the employers can prove the workers are not as productive as others.

“Even if they paid [workers] minimum wage, that’s outrageous. That’s just unheard of,” said Gail Fanjoy when told about the salaries and bonuses paid to the Skills administrators. Fanjoy is a board member of the Maine chapter of the Association of People Supporting Employment First, and is executive director of KFI, based in Millinocket, which provides job coaching and day programs to people with disabilities. “I’m absolutely speechless.”

Johnson, who served as Skills’ director of finance from 2010 to 2016, when she took over as executive director, said Skills’ financial history is “not relevant to who we are today. We’re a lot different than we were back then.”

She noted that Davis, as the CEO during that time, and the board of directors were responsible for decisions about compensation.

“The Board acknowledges that more attention should have been given to monitoring and adjusting those plans and changes should have been made in a more timely fashion,” Johnson wrote in an email.

As the director of finance, Johnson earned an average salary of $80,000 between tax years 2011 and 2015. As executive director, she does not receive a bonus based on program revenue, she said.

The organization couldn’t employ as many people with disabilities if it didn’t pay them a subminimum wage, she said. It currently employs 47 people at subminimum wages, according to Johnson.

The chairman of the board, Jack Dyer, did not return four phone calls. Five other board members, who were responsible for reviewing performance and approving compensation, declined to comment or did not return phone calls. Davis did not return five phone calls over three weeks.

‘Some compliance issues’

The subminimum wage was first established by the Fair Labor Standards Act of 1938. Maine and other states have gradually moved away from the practice. New Hampshire became the first state to abolish the subminimum wage in 2015, and fewer Maine employers have been using it in recent years.

In 2013, 13 Maine employers obtained subminimum wage certificates — which are good for two years — from both the U.S. Department of Labor and the Maine Department of Labor to allow them to pay subminimum wages, according to the Maine Department of Labor. In 2015, eight employers were authorized.

Today, Skills is the only one paying employees a subminimum wage after Pine Tree Society, based in Bath, stopped using it July 1. “We believe in discovering people’s abilities and helping them grow and live more fully,” said Terry Berkowitz, the chief operating officer at Pine Tree Society, which serves children and adults with disabilities. “We just felt like the subminimum wage doesn’t … align well with that general philosophy.”

The practice of paying people with disabilities less than minimum wage has been heavily debated in disability rights circles in Maine and around the country, with employers arguing it allows some people to have job opportunities they otherwise wouldn’t qualify for. Others decry it as discriminatory and outdated, and as pushing people toward menial tasks when more rewarding jobs exist that could be better suited to their strengths.

Employers decide how much to pay people with disabilities by timing them at certain job tasks and then comparing their speed to the speed and pay of non-disabled employees elsewhere. That means the subminimum wage employer must call at least three other firms to devise an average baseline wage, say, for cleaning a bathroom. It then compensates its workers with disabilities at a commensurate level — for example, paying them half of the baseline wage if they take twice as long to clean a bathroom as workers without disabilities. There is no minimum amount workers with disabilities can earn.

What has been less debated in Maine is the limited government oversight over employers paying people a subminimum wage. It’s largely up to the employer to set wages, which legally could be as little as a few cents per hour; there is no independent approval or review of the pay rates. The Maine Department of Labor does not know which individuals receive subminimum wages, nor does it check to ensure workers are in positions that best suit their abilities.

It’s often only when there’s a complaint and subsequent investigation that families and communities can know how people who are blind, or have Down Syndrome or autism, are faring at work.

“We have to go on the same system, the same methodology that we use for every other employer in the state of Maine,” said Pam Megathlin, the director of the Bureau of Labor Standards at the Maine Department of Labor. “It’s just like any other wage-and-hour law. We are not out there knocking on the door of every employer to make sure they’re in compliance every day.”

Between 2001 and 2016, the U.S. Department of Labor investigated nine Maine employers and discovered a total of 292 subminimum wage violations; the department required back pay of about $42,800 to 213 employees. Skills accumulated the greatest single number of wage violations: 75, according to the U.S. Department of Labor.

Most of Skills’ violations of the Fair Labor Standards Act occurred between 2013 and 2015. At the time of the federal investigation in 2015, Skills employed 80 workers across seven programs who were eligible to be paid subminimum wage. Of those 80 workers, 70 were improperly paid.

The cause of subminimum wage violations at Skills varied from worker to worker, according to the investigation reports requested under the Freedom of Information Act. Investigators found Skills made math errors when computing the wages, and failed to conduct time studies every six months, as employers are required to do. In some cases it didn’t conduct time studies at all. It also didn’t keep records of the results of certain time studies, appeared to have copied results from previous time studies and didn’t adjust wages after conducting studies. Investigators also found that Skills improperly conducted wage surveys, such as by not contacting enough outside employers or not providing their sources’ contact information as they’re required to do.

Davis, Skills’ CEO at the time of the investigation, told investigators that the violations might have resulted from the “decentralized nature” of Skills’ operations, according to the 2015 investigation report. Each program was in charge of handling its subminimum wage operations. In some cases, workers either did not have the training to follow the subminimum wage requirements, or they did not do work they were supposed to do.

“Yes, we did have some compliance issues that needed to be addressed,” Johnson, Skills’ current executive director, said. “We did address them immediately and implemented a new system of controls and protocols and procedures to make sure that those deficiencies did not happen again. All compensation and pay was appropriately corrected.”

It was the eighth time Skills, or one of its programs, had been investigated by the U.S. Department of Labor. A 2010 investigation resulted in five subminimum wage violations for Sebasticook Lumber. A 2001 investigation into Sebasticook Farms found one violation. (Sebasticook Farms was the former name for Skills before it merged with Ken-A-Set, a Waterville thrift store, in 2005.) Three investigations into Ken-A-Set in 1992 found 51 subminimum wage violations.

Two other investigations found no subminimum wage violations but did find one violation of the Family and Medical Leave Act for Skills’ failure to reinstate an employee after that employee took leave.

After all the investigations, Skills owed its subminimum-wage employees back wages totalling $38,879.

Employers nationwide have been found to incorrectly pay their workers with disabilities. Between 1997 and 2016, there were 77,855 subminimum wage violations across the country, requiring employers to pay their workers with disabilities about $16.5 million in back wages, according to the U.S. Department of Labor’s enforcement data.

“There’s all sorts of ways you can get in trouble if the federal government or the state Department of Labor chose to really dig around,” said Fanjoy, with KFI. “It’s a lot to go through to not pay people minimum wage.”

Congress has moved to limit the use of subminimum wages nationwide by requiring workers currently being paid one to receive information about job-help services available through their state Division of Vocational Rehabilitation programs, which can match them with training, adaptive equipment, experiences to learn on the job and, eventually, higher-paying jobs for which they can apply. The new rules require workers to meet with vocational rehabilitation staff no later than July 22, and once a year thereafter.

As of July 10, about two-thirds of people receiving the subminimum wage at Skills had been told about vocational rehabilitation services, said Julie Rabinowicz, the director of policy, operations and communication for the Maine Department of Labor.

“About 85 percent of the clients have expressed an interest in working somewhere else and earning minimum wage or better, and are therefore planning to apply for services with vocational rehabilitation,” she said.

Johnson said Skills “fully supports” vocational rehabilitation services “to integrate folks with intellectual or any other type of disability into competitive employment.”

At Skills, workers paid the subminimum wage are also residents of its day programs. They typically work 10 hours a week — two hours a day, Monday through Friday, according to the 2015 investigation report. Skills also offers in-home assistance to people with disabilities, such as help taking medications or house cleaning, if they are living independently or in group homes.

Though they can and do earn more than minimum wage based on their productivity, Skills’ clients currently work for a subminimum wage in three areas, Johnson said: as custodial staff, making and assembling goods under contracts with outside companies, and sorting goods for Skills Inc. Thrift Store in Skowhegan. All employees who dismantle and refurbish computers for Skills’ eWaste Alternatives computer recycling program earn at least the state minimum wage, in addition to those who work at the front of the thrift store.

Currently, most of the people earning subminimum wage work behind the scenes at the thrift store — “some of whom have been working in support of the store for a very long time, love their jobs and have come to rely on the money they earn,” Johnson said. The store has operated at a loss for years.

The subminimum wage, Fanjoy argued, is unfair from the start. “No one times me in my job and pays me less than a fellow executive director. The rest of society doesn’t operate like that,” she said. “There’s this huge population of people, often with intellectual and developmental disabilities, that are subjected to those kinds of archaic practices, put in positions that they’re lousy at by virtue often of their disability, and paid substandardly.”

‘Stunningly high’

Having a sawmill as a program of a nonprofit raised questions for Gloria Vollmers, a professor of accounting at the University of Maine who reviewed information from Skills’ 990 tax forms filed with the IRS.

At issue is whether the sawmill employed enough people with disabilities to warrant it being a nonprofit service. “Where does the gray area end in which you can have a business within a nonprofit and still call it a nonprofit?” she said.

Between tax years 2006 and 2015, the sawmill employed an average of 10 people with disabilities each year at subminimum wage, out of roughly 30 to 40 employees total, according to the 2010 and 2015 investigation reports.

Martin, who oversaw their work, received $148,109 in tax year 2006. While the workers with disabilities continued to earn less than minimum wage, his compensation rose each year, and in tax year 2008 he started collecting a portion of the mill’s earnings. Between tax years 2009 and 2013, he received an average bonus of $211,156 per year on top of an average salary of $113,300.

“That just struck me as stunningly high,” Vollmers said.

Martin could not be located for comment. Johnson declined to provide his contact information, and no phone number or email was publicly available.

A small-sized sawmill in Maine would normally pay a mill manager “in the neighborhood of $80,000 to $100,000 plus benefits,” said Don Tardie, who was involved in the wood products industry for 45 years, most recently serving as the managing director of the Maine Woods Company, a hardwood lumber manufacturer based in Portage.

In tax year 2009, the year Martin started collecting a share of sawmill revenue, Davis also started receiving a bonus based on the performance of Skills’ business enterprises. He received 10 percent of the net earnings of several of the organization’s enterprises. In tax year 2011, Davis began earning an additional bonus of 10 percent of the mill’s net earnings, according to the tax forms. On average, these bonuses netted him an additional $29,700 per year in addition to his base salary of $120,000, not including benefits, for four years.

“Any non-profit makes a profit, but they make a profit that is plowed back in the organization, so you don’t generally give it to the director or managers as bonuses,” said Carolyn Ball, an associate professor of public policy and management with the Muskie School of Public Service at the University of Southern Maine.

Paying high salaries and awarding bonuses is not illegal, Ball noted, but it does raise further questions about how an entity is using its money to serve clients.

These concerns were echoed by Fanjoy, of KFI, after she learned about the extent of the bonuses.

“When we had a thrift store, for example, then the money would come into the organization,” she said. “I can’t imagine why you would set it up to benefit any one person, especially an administrator.”

The Skills board’s choice to allow bonuses came at the expense of the bottom line. In tax year 2013, Skills ran almost $500,000 in the red. This was the same year Davis and Martin collected their highest salaries.

“They paid themselves and not their agency,” Fanjoy said. “[The board members] totally, absolutely failed to do their job.”

 

‘Spirit of maintaining employment’

Today, the sawmill is showing that it’s possible to pay people with disabilities a minimum wage and still stay in business.

When Martin, the mill manager, left in tax year 2013, Robert Zelie, who had worked with Skills as a log buyer, took over the operations. Under Zelie, workers with disabilities received a raise in pay; all employees were making at least minimum wage by January 2015.

Davis, the CEO, retired in 2016, the same year Skills sold the sawmill to Zelie, who has continued to employ workers with disabilities without using the subminimum wage. They are still employed there today, making the same wages as their coworkers without disabilities.

“When I bought the mill, I bought it in the spirit of maintaining employment for these people,” Zelie said. “We’re still trying to do it with people in mind and employment, not so much just the bottom line.”

Maine Focus is a journalism and community engagement initiative at the Bangor Daily News. Questions? Write to mainefocus@bangordailynews.com.

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