Just before the holidays, the US government approved the extension of the Work Opportunity Tax Credit (WOTC) through the end of 2020. Extending this legislation was a step that SHRM advocated for, and it gives companies another year of incentive opportunities for hiring disadvantaged employees.
Now, I know we all like the word "incentives," but what does the WOTC extension actually mean for HR professionals? Where does it fit in your HR processes? Are there any ways your HR technology can help? Well, since we all know this is one among many HR compliance updates you're keeping track of, I figured I'd take a minute to break it down for you.
What is WOTC?
WOTC is a US government program designed to incentivize the hiring of target groups who may have barriers to employment. There are a variety of different groups covered under this program, and the IRS maintains a comprehensive list on their website. The credits given out to companies under WOTC are calculated as a dollar-for-dollar percentage of any qualifying employee's wage. The hours they work also affect the credit amount, with different rates for full-time and part-time employees.
What this adds up to from an HR perspective is another potentially powerful tool in your toolbox when it comes to recruiting. With WOTC, you can make the case for broadening your organization's inclusive hiring practices to more business-oriented stakeholders by taking a step to maximize hiring budgets, offset costs, or help fund a budget creation project.
How does WOTC work?
There are four specific steps you need to go through if you want to start leveraging WOTC at your organization:
- Screen: Determine if candidates in your recruiting pipeline qualify for WOTC. You can do this through a set of qualify questions during the application process. Then, if you choose to hire candidates who may qualify, you need to get a signed copy of WOTC Form 8850 from them along with their job offer acceptance. A strong HCM system should be able to help you integrate the WOTC questionnaire you need into your application.
- Submit: Use the Form 8850 you had your new hires sign to submit their information to appropriate state agencies. It's important here to know which agencies are relevant for the locations you operate in.
- Certify: The state agencies you submit to review the WOTC application and determine if your new hire is actually eligible. They issue certifications for qualified employees, which allow tax credits to be disbursed to your organization.
- Claim: You prepare annual WOTC tax forms and supporting documents as part of your yearly filing process and submit them, which allows you to claim credits on your company's tax return.
The biggest thing to know in terms of process is that all WOTC claims must be submitted within 28 days of a new employee's hire date. That's a pretty rapid turnaround in the compliance world, so it's good to keep in mind.
How do you communicate the value of WOTC?
WOTC is a compelling regulation because it helps HR professionals while also appealing to an organization's bottom line. In the right situations, it has the potential to impact HR's diversity and inclusion initiatives while also saving money for the organization.
For example, say you're working in a high-turnover organization, like a retail chain or a manufacturing company, and you want to make sure you're considering the widest cross-section of potential employees possible but also need to keep your hiring budget on track. By adding a WOTC survey into your application process, you can get deeper insights around this particular aspect of diversity and the opportunities you have there, hire a wider cross-section of employees bringing unique experience and skills to the table, and regularly put money back into your hiring budget to maintain operational efficiency.
What should you watch out for?
I know now you're probably thinking that WOTC sounds great, but there are also a few things to be careful of as well if you're considering taking advantage of it:
- Make sure you're only filing for WOTC after you've hired employees. Putting this step too far forward in your recruiting process could increase risk for you on the compliance side. This can help account for other standards, like those from the EEOC, around not hiring any particular group of employees preferentially.
- Make sure any WOTC screening you include as part of your application process is voluntary. Applicants should be able to opt out if they don't feel comfortable answering the questions. This again can potentially reduce compliance risk.
Conclusion: WOTC, like all HR compliance, is a process
As you can see, similar to many of the other government regulations I'm sure you've been exposed to in your HR career, WOTC requires a lot of specific steps to get right. Luckily, this is where HR technology can help lighten the load. Strong HCM systems will typically have an option for integrating a WOTC service provider into your workflows on both the recruiting and payroll sides. This gives you an expert resource who can help you process the claims in the timeframe you need to and also help you report things correctly at the end of the year. They can even help handle the transfer of credits from the government to your organization.
If you're looking to understand more about how all the pieces fit together in your HR strategy to try and capture quick wins like WOTC, further develop your employee experience, or capture the right people analytics insights, we've got you covered. Check out this ebook to see how your strategy measures up and make sure you're taking the right steps with confidence.