All you have to do is hire an unemployed worker this year to fill a new, or vacant position. So long as they’re not a company owner or relative of one, the company gets to pocket an immediate 6.2 percent of the new hire’s weekly salary.
It really is that simple. Sure, there’s an IRS form involved. Mostly the government wants to make sure the person you hired was unemployed for the 60 days before they started the new job and that they didn’t work more than 40 hours during those two months.
That’s the essence of the Hiring Incentives to Restore Employment Act, which President Obama signed into law in March. Mike Temkin blogged about the provisions right after the signing. More details are available here.
It gives employers a break on paying their 6.2 percent share of the OASDI (Old Age, Survivors and Disability Insurance). Beginning with the employee’s first paycheck, employers get to keep what they normally would have paid into the Social Security system. For a high-wage employee, that could be as much as $6,622. (Only the first $106,800 of wages are subject to the OASDI tax.)
Are you thinking there’s got to be a catch? Well, no catch. But there are questions every employer should consider before jumping on the program.
“It could be costing you money to go after the low-hanging fruit,” says Larry Byrd, an executive with TaxBreak.
The federal government, and most states, have multiple employer incentive programs for hiring, retaining, or training workers. Many of these programs can be used in tandem, so you can take a tax credit for hiring a worker, and get reimbursed for all or part of their training costs. Most programs have requirements or restrictions on who qualifies. But the benefits to an employer can outweigh the generous savings of the HIRE Act.
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How mature is your hiring process? Answer these 5 questions and find out.
“There are some strategic questions that really have to be considered,” says Phil Williams TaxBreak’s COO and general counsel. “If you just look at HIRE, you could miss out on some benefits that might give you an even bigger result.”
Some of these programs and a look at the issues involved are detailed in the June issue of the Journal of Corporate Recruiting Leadership. For now, suffice it to say that employers should consider the range of incentive programs before deciding which one is best.
For instance, the Work Opportunity Tax Credit lets you take up to $4,800 off your federal tax bill for every qualifying employee you hire. Most employees won’t qualify for the full amount, but hire a 16 or 17-year-old in certain parts of the country for a summer job and you can deduct $1,200 from your tax bill.
The strategic questions that Williams referred to include considering whether pocketing more profit (via tax credit) is more beneficial than improving cash flow (by saving the 6.2 percent payroll tax in HIRE). There are other questions that need to be addressed, including turnover, the training investment to get the worker up to speed, other benefits that might be used, and so on.
However, the toughest one — how do you find out about these programs? — can be answered by some online research, calls to your state’s workforce development office, or through state business councils and chambers of commerce. TaxBreak will do the research for you and handle the paperwork for no more than a third of what you save.