How WIOA’s ‘Final Rule’ Moves Pay-for-Performance Forward

On June 30th, the Department of Labor (DOL) released the Final Rule¹ on the Workforce Innovation and Opportunity Act (WIOA). As the five workforce boards of Third Sector’s second cohort of Social Innovation Fund sub-grantees are working to leverage the Pay-for-Performance (P4P) provisions of WIOA to better serve youth, this guidance directly informs our efforts. It is also important to note that WIOA requires local areas to shift their focus, spending 75 percent of youth funding on out-of-school youth. The DOL’s Final Rule on WIOA provides the necessary information to shift funding to outcomes-based contracts, improving the lives of young people who are not connected to school or work.

Though WIOA P4P is part of a larger trend in performance-based contracting, the DOL’s guidance reveals its key differences. P4P differs from other performance-based efforts in 4 ways:

1. Focus on long-term outcomes: WIOA performance measures are tracking participant outcomes farther out than Workforce Investment Act did, assessing outcomes at four quarters after program exit, in addition to the previously required two quarters. With WIOA P4P, local areas can structure contracts in new ways that allow for longer timelines for interventions and payments based on even longer-term outcomes.

2. 10% set-aside “no-year” funds: The emphasis on long-term outcomes is supported by the flexibility of no-year funding, where payment points can occur well beyond the normal two-year WIOA funding cycle. Local areas can now link payment to long-term success for young people, incentivizing providers to address the needs of participants holistically with comprehensive services, in addition to linking to other resources and programs, such as TANF, SNAP and career and technical education.

3. Option to include bonus payments: the use of bonus payments is allowable under P4P, though they must be used to expand the contractor’s capacity, not as payment for profits.

4. Requirement of a P4P contracting strategy: WIOA P4P contracts require a specific contracting strategy, including a feasibility study, which has been loosely defined by DOL. It is important to note that, even if states did not include P4P language in their state plan, they can still engage in P4P.

DOL will be releasing more details on P4P guidance in Fall 2016, but for now the emphasis is on local area flexibility and innovation. As we hold for more detailed guidance on this innovative legislation, the encouraging news is that the Department repeatedly states that it “intends to provide local areas with the flexibility needed to implement a WIOA P4P contract strategy that meets the needs and challenges in each local area.”

Stay tuned to see how Third Sector and our local workforce partners make use of that flexibility to move the needle on improving outcomes for youth.

¹When Congress passes new legislation, there are often a lot of details that need clarification. Federal agencies responsible with implementing the law are tasked to explain exactly what it requires. Through an open process governed by the Administrative Procedures Act, the public submits comments and questions to the agency, which then to develops guidance on the law’s details. This final guidance is known as the “Final Rule”.