Employee compensation is expected to increase nearly 4% in 2022, resulting in the fastest wage growth for the American worker in over a decade. This increase is due in part to the Great Resignation, which has seen historically high turnover rates in U.S. workplaces, accompanied by an increasingly competitive labor market. Moreover, half of U.S. states are planning minimum wage increases for 2022, with California considering a phased minimum wage increase that would reach $18 per hour by 2025. One way to keep pace with rising costs is to attract and retain employees who qualify for the Work Opportunity Tax Credit (WOTC), a federal program that pays employers who hire members of targeted groups that have traditionally experienced barriers to finding work.
The credits range from $2,400 to $9,600 per eligible hire, so in normal times, savvy employers recognize that the WOTC is a great way to offset hiring costs. But with pressure mounting to restaff in a hurry, does it make sense for busy HR departments to spend time checking employees’ eligibility for the credit and submitting applications? With the right strategies in place, yes, the WOTC is a golden opportunity.
Choose the Right Hiring Tools
With the right tools, applying for the WOTC isn’t a big lift. Employers should look for tight, effective integration between their hiring tools. For example, a third-party service can help check for WOTC eligibility, but applicants should not be required to leave the hiring system to visit a third-party site. If you want applicants to play along and submit required information, let the third-party service track down most of the applicant’s eligibility information. Don’t ask the applicant to track down a third party.
Simplify the Process
Government programs are complicated, but your process doesn’t have to be. At some point, employers must ask potential hires a few questions to determine whether they are eligible for the WOTC. Whatever questionnaire you use should only request information that is absolutely necessary for obtaining the credit. The simpler you make it for employees to provide the necessary information, the more likely you are to get it. They shouldn’t feel like they are filling out a 1040 Form.
Measure the Impact
Collect data about your hiring process and pay attention to see how candidates respond to it. Are they opting out of your questionnaires? Is the process costing you candidate flow? Measure those rates and adjust your process accordingly. Collecting and analyzing these data points is crucial for ensuring that the work you put in at the front end of the hiring process is paying off in WOTC credits.
Leverage Your Process
The WOTC is a valuable credit, but your process can bring value beyond the WOTC. Other government programs such as various state job creation credits will require similar application information. Because of this overlap, businesses with smart processes in place for the WOTC are more likely to notice whether they are eligible for other programs as well.
Breaking It Down by the Numbers
Imagine a company with 100 new hires annually. For simplicity’s sake, let’s assume that all those employees start at $50,000 per year. That would constitute a $5,000,000 payroll for new hires. If that payroll were to increase by the projected 4% in 2022, it would increase by $200,000 over the course of the year.
Now imagine that this company begins applying for the WOTC, and it finds that 15% of its 2022 hires are eligible for a credit of up to $2,400, or even $9,600 for some of those employees. That company could receive a total tax credit of $36,000-$144,000, offsetting between 18% and 72% of the $200,000 payroll increase.
WOTC: The Time Is Ripe
In addition to staffing issues, businesses are facing many other obstacles: wage pressure, inflation, increasing rents, supply shortages, and others. These are tough times, but they are also ideal times for taking advantage of the WOTC. Businesses are looking for relief right now and applying for the WOTC is low-hanging fruit.
And the fruit is abundant. More Americans than ever are eligible for the WOTC due to receiving unemployment benefits, receiving public assistance, or meeting other eligibility criteria. The COVID-19 pandemic has only increased the pool of candidates who belong to at least one of these groups. For example, as of September 2021, the number of SNAP recipients had risen 18% since the beginning of the pandemic. Housing and employment hardships also remain widespread.
You are likely already hiring more WOTC-eligible employees than ever before. With the right approach, you can harvest the credits you are entitled to without disrupting your hiring process. Winning the War for Talent doesn’t have to mean leaving WOTC money on the table.