Services for people with developmental disabilities across the nation could soon face additional cuts, an unintended consequence of a requirement that millions more workers qualify for overtime pay.

The U.S. Department of Labor said this month that it is finalizing a rule raising the salary threshold at which employers will be required to pay overtime. The change is expected to affect about 4 million workers nationwide in the first year.

Now, disability advocates say that the move to raise wages could yield severe consequences for people with developmental disabilities who need supports to live in the community. That’s because disability service providers depend on funding from Medicaid and without changes to reimbursement rates, they have no way to pay their workers more.

“Though rightfully focused on shoring up our nation’s workforce, DOL has unfortunately and dangerously overlooked the impact this increased overtime salary threshold will have on Medicaid-funded disability service providers,” said Barbara Merrill, CEO of the American Network of Community Options and Resources, or ANCOR, which represents 2,100 disability service providers across the nation. “Unless lawmakers increase Medicaid reimbursement rates to allow providers to meet this unfunded mandate, many providers simply won’t be able to comply with this rule without closing programs and services, thereby risking employment for thousands of workers and threatening access to crucial services for people with disabilities.”

ANCOR issued a report last year warning that the increased threshold for overtime pay would prompt over $1 billion in added expenses for disability service providers in the first year alone.

The report included a survey of 700 providers across 45 states. A third indicated that they would be forced to cut positions if the proposed rule took effect, while 61% said they would convert salaried employees to hourly and nearly half said they would limit overtime.

Under the Labor Department’s final rule, employers will be required to pay overtime to most salaried workers earning less than $43,888 starting July 1 if they work more than 40 hours in a week. That threshold will rise to $58,656 in January and, starting in July 2027, the level will update every three years based on wage data.

Disability advocates pressed the Labor Department to factor the unique position of providers dependent on Medicaid reimbursement before finalizing the rule. But, officials did little within the regulation to address these concerns other than to say that the agency would coordinate with the Administration for Community Living and the Centers for Medicare & Medicaid Services.

“Services offered under the Medicaid program for individuals with disabilities are absolutely critical,” a Labor Department spokesman said in response to questions from Disability Scoop. “The department’s rule impacts lower-paid salaried workers who make between $684 and $1,128 a week, and does not impact the many hourly workers who provide critical services for individuals with disabilities. The department will continue to work with employers to understand these impacts and coordinate across the federal government to provide education and resources to support Medicaid-funded service providers.”

The overtime mandate comes as the disability service sector is already under tremendous strain. A separate ANCOR survey of providers last year found that 77% were refusing or no longer accepting referrals, 44% had discontinued various offerings and 60% said they were considering closing additional programs or services.

Merrill, who heads up ANCOR, said that the Labor Department should make sure that disability providers have the time they need to meet the new requirements without jeopardizing services and she called on Congress to increase federal funding for developmental disability services to account for the added costs imposed by the overtime mandate.

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