Tax credit screening: turn the hiring process into a profit center

Transcription

1 Tax credit screening: turn the hiring process into a profit center FEBRUARY 2012 THE DREAM BEGINS WITH THE RIGHT JOB SNAGAJOB.COM SNAGAJOB.COM, INC. ALL RIGHTS RESERVED

2 Tax credit screening: turn the hiring process into a profit center $ 5,600 $ 2,400 Now an employer can earn $2,400 by hiring a veteran who has been unemployed for between four weeks and six months. Hiring a veteran who has been unemployed for at least six months can earn an employer $5,600. Hiring a veteran with service-connected disabilities who has been unemployed for at least six months can earn an employer $9,600. $ 9,600 The costs associated with hiring, training and retaining people can cripple a business, especially a business with an hourly workforce and a high rate of turnover. Local, state and federal governments set aside a dizzying array of funds every year meant to incentivize hiring that can offset these costs, yet many employers either aren t tapping into them at all, or they aren t maximizing what s available to them. Those who are maximizing government hiring incentives have one thing in common: they use hiring technology. Hiring technology, such as a robust talent management system (TMS), can earn companies hundreds of thousands of dollars a year by identifying the people who qualify for tax credits during the application process and automating the management and submission of forms. MONEY ON THE TABLE Employers can take advantage of nationwide hiring-related incentives sponsored by local, state and federal governments. But millions of the billions of dollars available every year go unclaimed because many in the business community either aren t knowledgeable enough or properly equipped to file for credits or to file for them effectively enough to maximize what s available to them. Of the government-funded hiring incentives, the one with the highest visibility is Work Opportunity Tax Credit (WOTC), the flagship federal program jointly managed by the IRS and Department of Labor. WOTC is administered by the individual state workforce agencies and is used to encourage employers to hire targeted in need groups of job seekers, like Temporary Assistance to Needy Families (TANF) recipients and military veterans. Legislation enacted in late November 2011 expanded the WOTC categories for military veterans and extended these new tax credits through the end of Earlier legislation remains in effect: hiring a disabled veteran who has been discharged or released from active duty in the year prior to the hire can earn an employer $4,800. 1

3 Work Opportunity Tax Credit (WOTC) up to $9,000 per eligible hire FIGURE 1: ALMOST 200 GOVERNMENT-FUNDED HIRING INCENTIVES AVAILABLE AND WHAT THEY EARN EMPLOYERS 45% Geographic Programs 30% State Credits 25% Federal WOTC is structured so that employers of veterans and people within other specified in need groups receive tax credits based on wages earned by the individual and the number of hours he or she worked in the first year (and second year, in some cases) of employment. For example, the 2011 WOTC program can earn employers 25 percent of an individual s wages for hours worked, and 40 percent of wages for 400 or more hours worked (up to $9,000 for individuals in the most highly targeted groups). In this same vein, businesses that locate in disadvantaged or targeted growth areas can receive additional tax credits. These areas include Renewal Communities, Empowerment Zones (EZs) and State Enterprise Zones. These geographic-based tax credits can be for as much as 45 percent of an employer s total hiring costs. In order to qualify, employees must live and work in the targeted growth area. There are hundreds of these designated areas throughout the United States, and credits can range from $1,500 to $37,500 per eligible hire. The highly publicized Hiring Incentives to Restore Employment (HIRE) Act generated awareness about the federal government s effort to encourage hiring. The HIRE Act allowed employers to waive the 6.2 percent Social Security tax owed for employees who were hired between February and December 2010 and worked fewer than 40 hours during the 60 days prior to starting work. This meant up to $6,700 cash back to companies for every eligible hire during that time frame. Although awareness has been high, a significant percentage of employers did not immediately, and have not retroactively, capitalized on the HIRE Act. Many cite that they lack the processes and systems to do so, but it s still not too late. Also in 2010, many state governments introduced new programs, or revived some of the ones that had lost funding, aimed at stimulating job creation and hiring, especially the hiring of those who are unemployed. These programs vary by state and range from $1,000 to upward of $20,000 per eligible hire. See the summary of available programs at left. State Credits up to $20,000 per eligible hire Geographic/Enterprise Zones up to $37,500 per eligible hire 2

4 Partner up for the heavy lifting EMPLOYERS LEAVE HUNDREDS OF THOUSANDS OF DOLLARS ON THE TABLE Companies taking full advantage of government-funded hiring incentives often employ tax credit consultants who are knowledgeable about available credit programs and who are best prepared to manage the forms submission process, communicate with the State Department of Labor, track certifications and calculate credits. Employers find it much easier to maximize the available incentives when given a quarterly report that identifies eligible hires who would earn them the largest tax credit and that calculates the total amount earned across all eligible hires. Hiring incentive programs can change several times a year. And when a program changes, the form related to that program will change and only that form will be accepted. Employers submitting an outdated tax credit form for an eligible hire will be required to double their efforts. Ultimately, most employers who decide to manage the process on their own find it so complex that they leave hundreds of thousands of dollars on the table, either inadvertently or intentionally so as to avoid the associated headache. Another challenge for employers who attempt to maximize government incentives without expert assistance is in fully understanding the various eligibility requirements. For example, some incentives exclude specific industries so, for instance, retailers can take advantage of the California Enterprise Zone but are excluded from several programs such as the Arizona Enterprise Zone. Because of the interdependencies among hiring-incentive programs, many employers find it best to use one tax credit consultant for all programs to make it easier to avoid potential filing errors or to remain in compliance. An employer cannot take WOTC and the HIRE Act credits for a hire eligible for both, for instance. Companies that are maximizing the hiring incentives available to them have one thing in common: they have the people, processes and technology in place first to screen potential hires effectively and then to submit the various forms correctly to ensure both forms compliance and payment. 3

5 See the future Screening all potential and new hires for tax credit eligibility is an out-of-the-gate mastery that companies must have if they are to take full advantage of all of the individual and combined hiring tax credits available to them. SOME EMPLOYERS TREAT THE LEVEL OF TAX CREDIT ELIGIBILITY AS A TIE BREAKER BETWEEN TWO QUALIFIED CANDIDATES There are several different types of tax credit eligibility screening methods: manual (i.e. paper-based) screening, either manual or automated phone screening, online screening and fully automated screening conducted as part of the application process administered by an online TMS. Starting with the least lucrative, a manual, or paper-based, screening method entails a potential hire receiving and completing a federal WOTC 8850 form on or before the day the job offer is extended. The employer s human resources department must submit the completed and signed 8850 form to the applicable State Department of Labor within 28 days for it to be considered for certification. The W-11 HIRE Act form also must be completed by the hire, though at any time, and does not require certification at the state level. A caveat to this is that some state programs do not require an additional form and simply reuse the federal 8850 form to suit the purpose. When companies screen manually, they must have people in place who are fully aware of which forms are required and how and when they must be submitted individually or in tandem. During a manual phone screening process, call center personnel conduct a live screening interview. During an automated, or Interactive Voice Response (IVR), phone screen, applicants answer screening questions using their phone s key pad. In both cases, the federal 8850 form is pre-populated and ed or faxed to the human resources department for review and submittal. Some companies screen potential hires for tax credits using an online screening questionnaire that the applicant is linked to or receives via after completing an online job application. Again, the 8850 form is pre-populated and ed or faxed to the human resources department for further action. The ideal screening method, though, is considered to be the fully automated method, which incorporates the tax credit eligibility questionnaire seamlessly into the application process administered by the company s online TMS. Later in this paper the fully automated process will be detailed along with the resulting benefits. The best time to screen for tax credit eligibility is during the application process so that the findings can be used to supplement decision making regarding the hire. Some employers treat the level of tax credit eligibility as a tie breaker between two qualified candidates. Screening after a hiring decision has been made can often mean lost tax credits. 4

6 Screening pitfalls Several pitfalls are inherent in manual, or paper-based, screening. More hiringrelated paperwork is associated with a manual screening, which increases the risk that not every candidate or new hire will be screened appropriately, if at all. With manual screening, there s a greater chance of missing potential tax credits and form compliance can become a real issue. Even phone screening, either manual or automated, has its drawbacks, although this alternative does reduce paperwork by about 90 percent. With this method, it s difficult to ensure that every applicant is screened, and to see which applicants are eligible and for how much, except by wading through the resulting stack of faxed or ed 8850 forms. The same reduction in paperwork can be had through an online screening method, but again, it s difficult to ensure that every applicant is screened, and to see which applicants are eligible and for how much, except by wading through the resulting stack of forms. No screening pitfalls are associated with the fully automated screening method. The easiest and most lucrative way to ensure that all applicants are screened for tax credit eligibility, and to access and utilize the ensuing information, is to embed screening into an online TMS as part of the application process. Employers eliminate the most common reasons for certification rejection, including illegible forms, when using a TMS % ELIGIBILITY A REGIONAL CASUAL DINING RESTAURANT CHAIN REPORTED THAT AFTER EMPLOYING A TMS, AN IMPRESSIVE 30.4 PERCENT OF NEW HIRES WERE IDENTIFIED AS ELIGIBLE FOR TAX CREDITS 5

7 See below comparison of the various screening methods for further clarification on their effectiveness. Comparison of tax credit eligibility screening methods Sample: 500 annual hires with 15% (or 75) of them appearing to be eligible for tax credits SCREENING METHOD AVG. SCREENING COMPLIANCE* (%) AVG. FORMS COMPLIANCE** (%) NUMBER OF 8850 FORMS SUBMITTED VISIBILITY TO COMPLIANCE Manual / 50% *** 50% 125 or less None Paper Phone 90% 50-80% 54 or less Some visibility Online 90% 60-85% 67 or less Some visibility TMS 99% 70-99% 73 or less Excellent visibility *Avg. Screening compliance = the % of hires screened for tax credit eligibility **Avg. Forms compliance = the % of forms submitted to Department of Labor within 28 days of hire ***Manual / Paper screening offers little visibility into eligibility and does not ensure compliance on forms, 50% being used as an example 6

8 Minimize error to earn maximum reward Companies of all sizes are embracing technology that supports the hiring process. Some have their own applicant tracking system (ATS) in place and use it to screen for tax credits. The technology that automates the hiring process more broadly is known as a hiring management system, or, more commonly, a TMS, and then branded by developers. For instance, Snagajob s TMS is branded as Snagajob Hiring Manager. BOJANGLES FRANCHISE WITH 6 LOCATIONS IN TENN. AND VA. 99% compliance rate from the managers ROI: 852% in tax credits in the first 90 days HARDEE S FRANCHISE WITH 18 LOCATIONS IN LA. AND ALA. 99% compliance rate from the managers ROI: 180% in tax credits in the first 90 days Having a TMS can help employers hire the highest quality employees while streamlining the overall hiring process. An added benefit of these systems, such as Snagajob Hiring Manager, is that they can be configured to help employers maximize government incentives that offset hiring costs. If an employer has an Internet connection and a computer, these systems can be quickly and easily deployed. A TMS can capture tax credit eligibility information through customized screening questions, offer a tailored online job application (see below), and can be enhanced to determine the quality of the hire through behavioral and/or skills assessment functionality, along with functionality to support background checks to assess the risk of the hire. The online application process administered by a TMS stays fundamentally the same when incorporating a tax credit eligibility screening component. An added questionnaire becomes just another step in the process, which adds between 30 seconds to two minutes to the expected completion time. Interdependencies among hiring incentive programs make it difficult to remain in compliance without a TMS. Now if applicants opt out of screening during the application process, they re presented with the questionnaire a second time before they re hired. And the correct forms are used and then submitted to the right agencies, ensuring employers receive their fair share of available tax credits. And the big picture is that the more complete and effective the tax credit eligibility screening process is for employers, the more they will be able to claim from the government and the more they will be able to invest in hiring, training and retaining America s workforce. Therefore, America s workforce will reap the biggest reward when employers, as a rule, utilize a TMS. 7

9 How to make a TMS work for you Tax credit eligibility screening through a TMS typically takes place when an applicant is going through the online job application process including behavioral and/or skills assessments. An applicant will see a brief explanation of the tax credit eligibility screening process before answering the affiliated questions. The applicant can opt out of the questionnaire; however, typically fewer than 2 percent of applicants opt out because: 1. Applicants tend to be more comfortable answering the demographic-related questions privately. 2. Applicants want the job, so they will complete the questionnaire to be a stronger applicant. 3. Applicants have seen tax credit eligibility screening questions before and are familiar with the questions and process. 98 ON AVERAGE % COMPLETE THE QUESTIONNAIRE After the applicant completes the first set of tax credit eligibility screening questions, he or she clicks the submit button, and the next set of questions are presented based on: 1. How the applicant answered the first set of screening questions. 2. Where the applicant lives. 3. The address of the hiring location. Once an applicant gets through each level of screening, the TMS directs him or her to the next step of the application process or notes that the application process is complete. Eligibility results are then generated by the TMS and directed to the appropriate hiring manager within the company, who after logging into the TMS to view applications and assessment results is presented with a summary that includes the tax credit eligibility of each applicant. A TMS makes it easy for hiring managers to determine which applicants are qualified for the job as well as eligible for tax credits (see Tax Estimate left). 8

10 From cost center to revenue generator When applicants are presented in a dashboard-type format, hiring managers can more easily determine who to interview. If two applicants are equally qualified for the job but only one of them is eligible for tax credits, why not pursue the candidacy of the one who is eligible? Then the TMS can be used during hiring by, for example, pre-populating and automatically generating tax forms for eligible hires only not for every hire reducing 90 percent or more of the paperwork normally associated with the process. Below is an example of a pre-populated tax form for an eligible hire. The forms can then be signed and mailed to the applicable State Department of Labor or to the company s tax credit consultant who oversees filing. Then it s up to the state to verify the information the applicant provided and determine final eligibility and certification. USING A TMS REDUCES 90 PERCENT OR MORE OF THE PAPERWORK As with any screening process, either the tax credit consultant or the employer tracks which employees are certified as well as calculates credits based on the number of hours worked and wages earned for those employees. The employer receives the credits quarterly, and the estimated income tax payments are reduced by that quarter s credit amount. 9

11 From cost center to revenue generator Complete and effective tax credit eligibility screening provided by a TMS helps employers maximize government hiring incentives while minimizing the work involved. With a TMS, screening for tax credits takes place up front, during the online application process. Screening up front also results in the highest screening compliance, ensuring that every applicant is presented with the tax credit eligibility questionnaire and is required to complete it to advance in the hiring process. As noted, when leveraging a TMS, typically 90 percent of associated paperwork is eliminated because tax forms are automatically pre-populated and generated for eligible hires only, not for every hire. For one east coast retailer, 58 applicants out of 238, or 22 percent, qualified during a six-month period, resulting in $41,160 in credits. And this retailer eliminated 78 percent of the associated paperwork when compared with its former screening process. Having pre-populated forms available within the TMS results in much higher forms compliance, which is another reason that employers cited as to why they employ hiring technology to maximize government incentives that offset hiring costs. ABOUT SNAGAJOB With the largest online community of hourly workers and the leading suite of hourly-focused employer solutions, Snagajob is the world s only company totally devoted to fulfilling the dreams of hourly workers and those who employ them. Founded in 2000 and located in Richmond, Va., Snagajob was named the No. 1 Small Company to Work for in America by the Great Place to Work Institute and Entrepreneur magazine. SNAGAJOB SNAGAJOB.COM/EMPLOYER-SOLUTIONS BUSINESSSOLUTIONS@SNAGAJOB.COM SIMPLY PUT, A TMS HELPS EMPLOYERS TRANSFORM THE HIRING PROCESS FROM COST CENTER TO REVENUE GENERATOR. See the below extract of a sample case study that captures total annual credits received per screening method. SCREENING METHOD NUMBER OF 8850 FORMS SUBMITTED 60% OF ELIGIBLE HIRES CERTIFIED AVERAGE CREDIT Sample: 500 annual hires with 15 percent of, or 75, hires appearing eligible for tax credits KEY TAKEAWAY COMPANIES USING A TMS CAN TRANSFORM HIRING FROM A COST CENTER INTO A REVENUE GENERATOR THROUGH AUTOMATED TAX CREDIT ELIGIBILITY SCREENING TOTAL ANNUAL CREDITS Manual 125 (19 eligible) 11 $1,000 $11,000 Phone $1,000 $32,000 Online $1,000 $40,000 TMS $1,000 $44,000 10