Optimizing Hiring Practices to Improve Eligibility for Employment Tax Credits

To maximize eligibility for employment tax credits such as the Work Opportunity Tax Credit (WOTC), Employee Retention Tax Credit (ERTC), and other related benefits, clients can adjust their hiring practices in ways that make their workforce more likely to qualify for these incentives. Below are strategic recommendations to optimize hiring practices and ensure maximum eligibility for these credits.

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1. Target Hiring for WOTC Eligibility

The Work Opportunity Tax Credit (WOTC) provides tax credits for employers who hire individuals from specific groups facing barriers to employment. These groups include veterans, individuals receiving government assistance, ex-felons, long-term unemployed individuals, and others.

Hiring Adjustments to Maximize WOTC Eligibility:

• Proactively Recruit from Targeted Groups: Encourage clients to focus their recruitment efforts on individuals who fall under WOTC-targeted groups:
• Veterans, particularly those with service-connected disabilities.
• Ex-felons who have successfully reintegrated into society.
• Long-term unemployed individuals (unemployed for 27 weeks or more).
• TANF (Temporary Assistance for Needy Families) recipients.
• SNAP (Supplemental Nutrition Assistance Program) recipients.
• Disabled individuals and those receiving Supplemental Security Income (SSI).
• Build Relationships with Community Organizations: Help clients partner with local workforce development organizations, veteran affairs offices, or community-based programs that focus on placing individuals from these groups. This makes it easier to target eligible candidates.
• Incorporate WOTC Screening Early: Ensure that clients integrate WOTC eligibility screening into their recruitment process. Have candidates fill out the IRS Form 8850 (Pre-Screening Notice and Certification Request) at the time of the interview or job application. This form must be submitted to the state workforce agency within 28 days of hire.
• Diversity and Inclusion: Promote diversity in the hiring process by focusing on underrepresented groups. Many of these groups are WOTC-eligible, and hiring from these demographics can boost both diversity and eligibility for the credit.

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2. Utilize Recruitment Strategies for Employee Retention Tax Credit (ERTC)

While the Employee Retention Tax Credit (ERTC) was primarily designed to support businesses during the COVID-19 pandemic, it remains a valuable tool for businesses that qualify. The credit rewards businesses that retained employees during challenging periods, such as economic slowdowns or government shutdowns.

Adjustments to Hiring and Retention to Maximize ERTC:

• Retain Key Employees Through Economic Disruptions: Encourage clients to implement retention strategies that keep their employees on payroll during periods of revenue declines or business disruptions. The ERTC rewards businesses for retaining employees during periods when business operations were partially or fully suspended due to government orders or during significant revenue loss.
• Rehire Furloughed Employees: If the business temporarily laid off or furloughed employees during the pandemic, and they meet the eligibility requirements (e.g., revenue decline or suspension of operations), rehiring them can make the business eligible for the ERTC. Ensure that rehired employees are properly documented to be eligible for the credit.
• Target Employees Who Were Not Previously Claimed for the Credit: If a business previously claimed ERTC but did not include all eligible employees, help the client review their records and re-assess if additional employees qualify under the credit’s guidelines. This could involve reviewing pay periods and health benefits to ensure full credit claims.

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3. Incorporate Paid Family and Medical Leave into Hiring Policies

The Paid Family and Medical Leave Credit incentivizes businesses to provide paid leave for family and medical reasons. Employers who provide paid family and medical leave to employees may qualify for a credit to offset the costs.

Hiring Adjustments to Maximize Paid Family and Medical Leave Credit:

• Update Leave Policies: Encourage clients to implement or revise paid family and medical leave policies to meet federal requirements. Ensure that employees have access to paid family and medical leave for specific qualifying reasons, such as caring for a newborn or dealing with a serious illness.
• Communicate the Leave Policy to New Hires: When hiring, make it clear to new employees that they are eligible for paid family and medical leave benefits. This can improve employee satisfaction while simultaneously qualifying the business for the tax credit.
• Track Paid Leave Accurately: Advise clients to maintain detailed records of all paid family and medical leave provided. This will be necessary for claiming the credit accurately.

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4. Focus on Employee Retention through Professional Development and Training

Many employment tax credits and other incentives are tied to improving the long-term sustainability of the workforce. By investing in employee development, clients can improve their ability to qualify for various credits, including R&D tax credits and state-level incentives related to workforce training.

Hiring Adjustments to Optimize Employee Development:

• Invest in Employee Training Programs: Implement training programs that qualify for both state-level and federal incentives. For example, certain states offer credits for workforce development programs, and businesses that provide upskilling or technical training may also be eligible for federal Research and Development (R&D) Tax Credits if the training relates to qualifying R&D activities.
• Promote Apprenticeships and Internship Programs: Establish internship or apprenticeship programs, particularly in industries where hands-on training is a key component. Some states and federal programs offer tax credits or deductions for businesses that hire individuals as part of these programs.
• Track Professional Development: Maintain thorough records of all professional development or training programs employees participate in. This documentation is essential for claiming tax credits and ensuring eligibility for workforce-related incentives.

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5. Foster a Culture of Inclusion and Equal Opportunity Hiring

Incorporating inclusive hiring practices not only supports diversity but also helps businesses qualify for a broader range of employment tax credits, including WOTC.

Adjustments to Hiring for Inclusivity:

• Implement Equal Opportunity Hiring Policies: Ensure that hiring practices are inclusive and provide equal opportunities to individuals from disadvantaged or underrepresented backgrounds. This could include making efforts to recruit from diverse populations, including veterans, people with disabilities, and those with criminal records who may be eligible for WOTC.
• Leverage State and Local Diversity Initiatives: Encourage clients to participate in local and state initiatives aimed at promoting diversity in the workplace. Many states offer hiring credits or financial incentives to employers who demonstrate a commitment to diversity and inclusivity.
• Focus on Outreach and Partnerships: Partner with local organizations that specialize in helping underrepresented groups find employment, such as veterans’ organizations, organizations that help individuals with disabilities, or community groups assisting ex-felons. These groups may be able to provide a steady stream of candidates eligible for credits.

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6. Stay Updated on Credit Eligibility Changes

Employment tax credits often have evolving eligibility requirements, timelines, and documentation processes. Encourage clients to keep up-to-date with any changes in the law that may affect their ability to claim these credits.

Steps to Ensure Ongoing Eligibility:

• Regularly Review IRS and State Guidelines: Tax laws related to employment credits can change year over year. Advise clients to regularly review IRS publications and state tax updates to stay informed about new opportunities for credits or changes in eligibility criteria.
• Engage with Tax Professionals: Partnering with tax advisors who specialize in employment credits ensures clients can optimize their tax strategy. Tax professionals can help identify new opportunities, verify eligibility, and submit claims on time.

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Conclusion

By proactively adjusting hiring practices, businesses can significantly improve their eligibility for a range of employment tax credits. Whether by focusing on diversity and inclusion, targeting specific groups for WOTC eligibility, investing in training programs, or staying informed on changing tax laws, clients can optimize their hiring processes to take full advantage of these valuable credits. Working closely with HR teams, tax advisors, and local employment organizations can further streamline the process and help businesses minimize tax liabilities while supporting their workforce.