CSD: Are You Leaving Money on the Table?
By Mel Kleiman, President, Humetrics, LP, a division of Deploy Solutions
Through a special arrangement, what follows is an excerpt of a current article from Convenience Store Decisions magazine presented here for discussion.
Every year, thousands of employers fail to claim their fair share of the billions of dollars in government tax credits and incentive programs designed to encourage employers to hire members of specific, usually disadvantaged, groups.
Just to give you an idea of what you may be leaving on the table, a recent study estimates a new health care industry worker who qualifies for one of the federal tax credit programs nets an average of $2,744 in total credits for the employer. And this kind of credit is the best kind of tax benefit because it reduces taxes dollar-for-dollar.
It’s
astounding then that only one percent of all eligible U.S. employers take advantage
of these programs. This means the other 99 percent either don’t know about
the programs at all or they:
- Believe there would not be a significant return-on-investment.
- Do not have
payroll, human resources and tax departments equipped to deal with the rules,
regulations, and paperwork. - Are not willing to adopt new employment screening
techniques, revised employee personnel information forms or meet requirements
to complete and file the required forms within strict deadlines.
These three objections are overruled, however, by the fact that the entire process can be outsourced with little or no upfront cost. A reputable employment tax credit company can administer every aspect: service initiation, applicant screening, documentation, interaction with government agencies, and comprehensive reporting. These outsourcing companies work with CPAs and payroll service providers and usually charge on a contingency basis; i.e., they only receive a portion of the money earned through the tax credits generated by your hiring process.
The
recently revised WOTC Program allows your company to receive a tax credit of
up to 40 percent of the first $6,000 in wages paid to an employee who is a
qualified member of one or more of the following nine targeted groups:
- Certain
families eligible to receive benefits under the Temporary Assistance for
Needy Families - Program
- High-risk youths
- Ex-felons
- Vocational rehabilitation referrals
- Summer youth employees
- Veterans
- Member of a family receiving food stamp benefits
- Person receiving certain
Supplemental Security Income (SSI) benefits - Hurricane Katrina employee (scheduled
to expire 8/28/07) - Welfare-to-work credit/long-term family assistance recipients
(This is an addition under the new act and provides for a $10,000 cap for
both qualified first-year wages and qualified second-year wages.)
With respect to qualified summer youth employees, the maximum credit is $1,200 (40 percent of the first $3,000).
The Federal Government has also designated approximately 80 distressed communities around the country as either Empowerment Zones (EZ) or Renewal Communities (RC). Employers are eligible for up to $1,500 credit for qualified employees in an EZ and up to $3,000 in an RC.
Take some time to research the companies that specialize in tax credit processing and make sure you’re not leaving any money on the table that could be yours.
Discussion
Questions: Do you think retailers should be aggressively trying to recoup
government credits for hiring employees from “disadvantaged” groups or communities?
Should such programs prompt retailers to hire more members of disadvantaged
groups?
I believe the low participation level is due to the fact that many business owners find the practice reprehensible. Hiring practices have traditionally been based on “best fit” for the position. To have the government give you something for hiring someone you don’t want just doesn’t make economic sense. Programs started for all the right emotions don’t equate to all the right reasons. Government is about “feeling good”; business is about making money. If government wants to create jobs, then they should think about lowering taxes and reducing red tape and regulation.
Retailers should hire the best available people who can do designated jobs, whether they are considered advantaged or from disadvantaged groups and communities. Every person deserves equal consideration for employment. If they are from the latter designation, then pick up any appropriate government credits, but don’t let government subsidies become the main focus for profit generation or let it supersede the main tenets for successful retailing.
Let’s be realistic. Retailers generally run from these programs as do most other employers. The cost of hiring someone who is basically considered unemployable far exceeds the minimal amount of money given in return through government credits. Sad but true.
Technically, I am considered disabled, although my injury really wasn’t that serious. When I got out of college, I think there was a $3,000 tax credit for hiring a cripple like me. I was dumb enough to put that on a resume. You guessed it; I couldn’t even get an interview. Once I took that off the resume, the job offers started coming in.
Our company instituted this program a year and a half ago…the government put the program on hiatus for a while, but we still sent out forms in anticipation of the program going forward. We are just now getting our first qualifying employees tax credits! We actually got more from the Hurricane Katrina victims than for regular employees.
The problem is, they have to work a certain number of hours, they have to call the third-party company handling this for us before their first day of work, and their forms must be received back in less than 21 days. Many employees have told us that this info is none of our business, and they refuse to participate in the program.
If the employees are in the same city as Human Resources, then it might not be a big deal, but we hire in all 50 states…so things are handled by phone, email, fax etc. Lots of follow up involved, which is very time-consuming. And then there is all the tracking of who qualified, when the paperwork came back, when they have enough hours in, when the credit was issued etc.
We finally decided that it was not worth the manpower, postage, etc.
The Author’s Response to Posted Comments:
I most certainly agree with Ed in that, first and foremost, we should always hire the best person available. But, to clarify, the monetary incentives are for the purpose of training and developing these workers (although most of those who take advantage of these programs find that the returns more than cover these costs).
So, why leave this money on the table? Let’s say you get a check for $3,000 for one new, “disadvantaged” hire who stays on-board the requisite number of days. If your after-tax profit is five percent, you would, of course, have to sell $60,000 worth of goods or services in order to realize that same $3,000.
As for the perceived paperwork hassle, as I mention in the article, there are any number of vendors out there who will handle it all for a percentage of the return, which is the way most companies go. Another option more and more large employers are choosing is to go to an automated hiring system that automatically screens applicants for qualification and then integrates the paperwork with a WOTC provider. This helps to get the compliance into the 90-95 percent range.
Finally, the most compelling reason to participate is to help build the community and your local economy. (And an added bonus might be that it turns your disadvantage hiring program into a public relations windfall, like it has for Marriott.)
I simply cannot address this subject without wondering how many employers are bypassing these government credits while simultaneously hiring undocumented workers. We can listen to all the sturm und drang from employers regarding the complexities of claiming the credits, but if their failure to do so is accompanied by hiring illegal workers, then we have a window into their souls. Pair these two practices – unclaimed government hiring credits while employing illegals – and you’ll find a fair amount of hypocrisy and excuse-making out there. It gives a whole new meaning to “best available,” don’t you think?
Most retailers of any size have been repeatedly called by the salespeople for outsourcing companies that specialize in maximizing government subsidies. In spite of those calls, it’s possible that some retailers are still leaving money on the table. Part of the issue: telemarketing fatigue.
Many businesses are so plagued by telemarketers and junk mail that they tend to screen out sales pitches of every type, no matter how appropriate. Certain executives of high profile retailing companies could easily hire a full-time staff of folks whose job would be to read and listen to every sales pitch that arrives.
A couple of points. I don’t believe the government is sending out checks; they are sending tax credits. It’s not the same thing. A check can be deposited and spent; a tax credit can only be applied to due taxes. If no taxes are due, the credit is – well a credit against nothing. Second, with regard to hiring illegals, this point is speculation and shouldn’t be included in a rational discussion. Someone is wanting us to “feel bad” about a situation that may or may not exist. I am sure it exists somewhere, but I am also sure it does not exist everywhere. Unless some supported statistics can be cited, then the illegal alien argument should be reserved for the bastion of intellectual discussion – the cocktail party!