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The WOTC and Prescreening: How Employers Can Stay in Compliance and Reap the Benefits

Sponsored by ADP

The WOTC (Work Opportunity Tax Credit) offers businesses a tremendous opportunity for tax credits based on hiring. But for organizations to participate and leverage the advantages of this federal program, they have to be in compliance. That means prescreening applicants. Given the recent update released by the IRS that clarifies the need to prescreen, the time is now to learn more.

As with so many complex tax credits and other regulations today, successfully navigating them requires not only understanding how to stay within the bounds, but then how to create a process to make it part of your hiring system.

A Tax Credit and a Boost

The Work Opportunity Tax Credit (WOTC) was first introduced in 1996. Since then it’s gone through a number of changes and extensions, including incorporating a credit for long-term welfare recipients in 2006. It’s authorized to stay in effect until December 31, 2025, so it’s anything but a flash in the pan: it’s a well-institutionalized regulation.

It’s designed to be both a tax credit for employers and a boost for employees, a combination of business advantage and social good. Companies who hire those American job seekers who consistently face barriers to employment can see up to $9,600 per employee — depending on a number of factors. In turn, qualifying new hires get the chance to break free from depending on government assistance and become self-supporting, steady earners and contributing taxpayers.

Leveraging the WOTC means respecting it: in its intent, the WOTC is designed to lift the barriers to employment among specific groups, and that’s why it includes specific criteria for compliance. It’s also opening up wider talent pools for employers at a time when hiring is tight, to say the least — and this should be seen as an added opportunity.

For larger companies that hire in numbers, it could be a windfall if done right. For smaller businesses it can make a tangible difference in a hiring budget: for every 4 or 5 new hires who fit within the target group, you may have the means to hire another employee as well.

Who Qualifies

Employees need to belong to a list of targeted groups, as specified by the IRS, and jobs must entail a minimum of working hours. Pay attention to the descriptions as well as the durations specified in each (adapted here):

 

Qualified IV-A Recipient:

  • A member of a family that receives state assistance under IV-A of the Social Security Act providing Temporary Assistance for Needy Families (TANF)
  • Assistance must be received for any 9 months during the 18-month period, ending on the hiring date.

Qualified Veteran: 

  • A member of a family that receives assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a 3-month period during the 15-month period, ending on the hiring date, or
  • Unemployed for a total of at least 4 weeks (consecutive or not), but less than 6 months in the 1-year period, ending on the hiring date, or
  • Unemployed for a total of at least 6 months (consecutive or not) in the 1-year period ending on the hiring date, or
  • Entitled to compensation for a service-connected disability and hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces, or
  • Entitled to compensation for a service-connected disability and unemployed for at least 6 months (consecutive or not) in the 1-year period ending on the hiring date.

Qualified Ex-Felon:

  • Hired within a year of either being convicted of a felony, or
  • Released from prison for the felony.

Designated Community Resident (DCR): 

  • At least 18 and under 40 years of age, with a principal residence either in an Empowerment Zone (EZ) or
  • A Rural Renewal County (RRC).
  • The WOTC credit doesn’t cover wages paid or incurred for services performed while the person lived outside of an EZ or RRC. (You can find the latest list of EZ and RRC designations here.)

Vocational Rehabilitation Referral: 

  • Has a physical or mental disability and was referred to the employer while receiving or upon completion of rehabilitative services under:
  • A state plan approved under the Rehabilitation Act of 1973, or
  • An Employment Network Plan under the Ticket to Work program, or
  • A Department of Veteran Affairs program.

Qualified Summer Youth Employee:  

  • At least 16 but under 18 years of age on the hiring date or on May 1 (whichever is later), and
  • Only working for the employer between May 1 and September 15 (not employed prior to May 1) and
  • Lives in an Empowerment Zone (EZ).

Qualified Supplemental Nutrition Assistance Program (SNAP) Benefits Recipient:

  • At least 18 but under 40 on the date of hire, and
  • A member of a family that received SNAP benefits for either the last 6  months or at least 3 of the last 5 months.

Qualified Supplemental Security Income (SSI) Recipient:

  • Received SSI benefits for any month ending within the 60-day period that ends on the hire date.

Long-Term Family Assistance Recipient: 

  • At the time of hiring, is a member of a family that meets one of the following conditions:
  • Received assistance under an IV-A program for a minimum of the prior 18 consecutive months, or
  • Received assistance under an IV-A program for a minimum 18-month period beginning after 8/5/1997, and it has not been more than 2 years since the end of the earliest of such 18-month period, or
  • Ceased to be eligible for assistance under an IV-A program up to but no more than 2 years before because a federal or state law limited the maximum time those assistance payments could be made.

Qualified Long-Term Unemployment Recipient: 

  • Unemployed for not less than 27 consecutive weeks at the time of hiring
  • Received unemployment compensation during some or all of the unemployment period.

How to Certify

Eligibility for WOTC is not as simple as just hiring a member of one of these underrepresented talent pools and receiving a credit. As with many federal programs, the devil is in the details — and you can’t certify after the fact.

The IRS recently published additional guidance that clarifies the need to prescreen, and how to do it. As the update notes, “​​To satisfy the requirement to pre-screen a job applicant, on or before the day a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer.

To reiterate, both employer and job applicant need to complete Form 8850 in advance. Certification has to happen before you can claim this tax credit, which means establishing that the employee you hired is indeed a member of one of the targeted groups on the list.

And there’s more: employees in the targeted list qualify as long as they work at least 120 hours — any less, and the hire isn’t in compliance. Employers also can’t claim the tax credit for rehired employees (it’s not that much of a stretch to imagine that some employers might think they could rehire an employee in order to certify them for the WOTC).

While the maximum credit is $9600 for an eligible employee, the amount of credit an employer receives depends on the WOTC target group identified, as well as how many hours the employee works:

  • If the employee works at least 400 hours during the first year of employment, the tax credit equals 40% of the employee’s qualified wages.
  • If the employee works less than 400 hours but at least 120 hours, the credit equals 25% of the employee’s qualified wages.
  • Eligible employees MUST work a minimum of 120 hours to qualify.

Reading Between the Lines

It means something that the IRS releases an update clarifying its rules on prescreening. Clearly, there were issues being found in terms of when employers were screening: noncompliance was on the radar. Compound that with wanting to increase participation in the program, and likely a decision was made that it was time to set the record straight. Again, complying with the WOTC could mean a major windfall for a larger employer and a key difference in the budget for a smaller one.

But many employers may have been caught in a blind spot. Some have been customarily conducting certain screening processes post-hire, considering the practice a viable shortcut. The intention may be to assume the new employee qualifies, since there has been some due diligence on the part of the employer already. Another assumption may be that by certifying after the hire is complete, the credits will come sooner. But both approaches are wrong.

For one thing, Form 8850 covers specific information in a specific way in order to certify a hire — and as such, is far more effective in terms of fact-finding for WOTC compliance. From an HR standpoint, since both employer and job applicant need to fill out the form, there may be more incentive for the applicant to get all the information right if it helps boost their getting hired. And minor missteps can really add up, putting companies at greater risk, and great costs stemming from an accumulation of noncompliant hires.

Getting the Process Right

Simply making the shift to when an employer conducts screening and sends in their certification request, and then keeping clear and adequate records to stay in compliance would make all the difference. Here’s what you need to know:

Recruit potentially eligible candidates through the state workforce agency (SWA) or the local employment office. Then, screen them: the applicants need to answer the questions on page 1 of IRS Form 8850 on or before the job offer date. 

If the applicant is eligible (they qualify for one of the WOTC target groups), the next step is up to the employer. Employers must sign and submit the IRS Form 8850 — as well as Department of Labor (DOL) ETA Form 9061 or 9062 to the state workforce agency (SWA) within 28 calendar days of the new hire’s start date. 

Keep careful records of hours worked and qualified wages paid. Remember: WOTC-certified employees need to work at least 120 hours in the first year of hire.

Claim the tax credit using IRS Form 5884, and make sure you have not only accurate records but copies of all the forms and supporting documents submitted to the SWA. Keep tracking your employee’s hours in case the IRS wants to conduct an audit.

Better Practices, Better Results

Remember: audits potentially contributed to the IRS’ decision to publish an update with clarifying language on the need to prescreen. It’s clear some employers weren’t being compliant. The line in the sand has already been drawn. But it’s also possible that not all employers are aware of the ramifications of being out of compliance with the WOTC.

Not only does post-screening forfeit initial benefits, but there’s an overall risk of having the WOTC credit revoked if an employer is found to have systematically not complied with prescreening requirements. In a big company that is always hiring, that could be a disaster.

The solution isn’t to hope for the best here. It’s to lean on solutions that help you make the shift without adding complexity. An integrated solution can make it far easier to change a long-held process consistently across the board. But given the historic lack of clarity on compliance and why shortcuts won’t work, this may be the time to look for better guidance.

The Benefits of an Outside Provider

Consider partnering with an outsourced solution provider who has experience with prescreening. A solution provider who has a solid track record with successful prescreening will be able to create a better process that’s streamlined and efficient. They can help get your organization over the common hurdles and build better ways to ease the pain points.

Given the pressures organizations are under — from intensely competitive hiring to a need to scale and adapt within shorter windows than ever — being able to leverage the advantage of the WOTC could be a key differentiator.

Minimizing your organizational exposure to risk is never a bad idea. But having a well-run, successful, WOTC-compliant hiring program may do even more. It’s a huge boost to its employer reputation that could pay off in a steady talent pool and a great workforce.


EDITOR’S NOTE: ADP has developed additional information about the WOTC and how employers can apply it. Learn more here

Where Compliance Matters the Most

Let’s keep it clear from the get-go – I’m not a lawyer, I’m only a layman. A layman who’s been filling out these forms for myself for decades. A layman who’s also hired new employees and have had them fill out these very same forms.

When I had new employees fill one of these Form I-9’s, they couldn’t start employment until they completed it and signed it and provided one of six pieces of identification that establish both identity and employment authorization including a U.S. Passport or U.S. Passport Card.

And if they didn’t have one of those, then they had to have:

  1. A driver’s license or ID card issued by a State or outlying possession of the United States provided it contains a photograph or information such as name, date of birth, gender, height, eye color, and address (or something else from a list of 12 total items)
  2. And a Social Security Account Number card (or something else from a list of eight total items)

The above is taken directly from the instructions of the I-9 form. When I completed them they usually included the latter, the driver’s license and/or state ID card and SSN card, and I’d photo copy them and submit them with the completed and signed I-9, W-4 and other pertinent new employee paperwork.

All of this was done manually because the volume of hires was nominal compared to larger companies processing thousands of new hires per year. But again, if they didn’t have the right forms of identification, they didn’t start work.

Period. End of sentence.

So that’s why I just don’t understand how companies time and time again keep making the same errors, get audited and then fined. For example, Hartmann Studios was ordered recently to pay one of largest fines ever for Form I-9 paperwork violations. The U.S. Immigration and Customs Enforcement (ICE) fined the company over $600K for more than 800 violations of I-9 forms. When you start digging, you find example after example of companies screwing up on this one.

The Form I-9, or Employment Eligibility Verification form, has been required since 1986 as part of the Immigration Reform and Control Act. It was revised in 2013 and that’s when the U.S. government and ICE cranked up the volume even more on ensuring I-9 compliance.

But even when you read the instructions to fill out an I-9 form and your eyes glaze over a little, it’s still one of the easiest required pieces of compliance paperwork U.S. employers can and should be able to complete properly each and every time. Todd Owens, CEO of TalentWise, concurred on this point on the TalentCulture #TChat Show. He made it clear that, while he is also not a lawyer, his technology company does offer onboarding software and his team works with many organizations ensuring they remain compliant when it comes to hiring and new employee paperwork.

The bottom line is this – most companies want and need to scale over time to be successful. They need to sustain that growth and they’ll need the right talent to do it. That means the ideal goal for HR in any organization is building the best performing teams and finding the greatest talent. But that doesn’t come easy – HR can’t focus on talent acquisition and management unless compliance is addressed.

Compliance is a necessity that HR cannot ignore, but it’s increasingly complex, both in our own country and even more so as you enter the global market and have to deal with regulations from other parts of the world. But the I-9 form? C’mon.

But even with mastering the I-9 form, HR technology providers that offer onboarding software need to be scaling partners to their scaling customers so they stay compliant locally and globally. They can and should reduce their risk and so they can focus on what matters the most – growing the business and generating revenue. That’s where compliance matters the most.

#TChat Recap: Why Compliance Is A Complex HR Necessity

This week the TalentCulture team discussed why compliance is a complex HR necessity with Todd Owens, CEO of TalentWise.

The ideal goal for HR in any organization is building the best performing teams and finding the greatest talent so that business can scale – and sustain that growth over time. But that doesn’t come easy – HR can’t focus on talent acquisition and management unless compliance is addressed.

HR technology providers need to be partners in compliance for HR because it can help reduce risk and give them more time to focus on what matters most in their organization.

To learn more, listen to the recording and review the discussion highlights below.

What’s Up Next? #TChat returns Wednesday, Sept 16th: #TChat Radio Kicks Off at 1pm ET / 10am PT — Our radio show runs 30 minutes. Usually, our social community joins us on the Twitters as well.

Next topic: #TChat Preview: Candidate Experience Through The Eyes Of The Job Seeker – Wednesday, Sept 16th, 2015 — Our halfway point begins with our highly engaging Twitter discussion. We take a social inside look at our weekly topic. Everyone is welcome to share their social insights #TChat.

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Passive-Recruiting

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For HR to Empower Up

“Wilderness of mirrors
World of polished steel
Gears and iron chains
Turn the grinding wheel
I run between the shadows
Some are phantoms, some are real…”

– Neil Peart, “Double Agent”

Welcome to your new job!

Now, put on these chains and fill out this form…

And then fill out this one…

And then fill out this one…

And then fill out this one…

Darkness descends…

…and excitement slowly seeps away…

We’re talking old school. Not quite the workplace dungeons of the industrial revolution, but definitely of the pre-internet realm. Instead of empowering new employees from before day one, some companies demagnetize their enthusiasm with a day filled with barely legible photocopied paperwork, horribly dry employee handbooks, and outdated training manuals that haven’t been updated since 1999.

All that anticipation and highly engaged first-day energy completely wiped out by the onboarding electronic magnetic pulse, and then we’re left for dead in a paperwork wilderness. As I’ve mentioned many times in the past, I’ve played Human Resources on TV, but I have actually done the blocking and tackling associated with sourcing, screening, hiring and onboarding. I know first hand, at least in smaller companies, that we’ve been quite guilty of a paper-intensive onboarding experience.

The unfortunate reality is that new employees decide their tenure with a company within their first six months on the job. That’s not a lot of time – but it sure adds up to a lot of recruitment and ramping costs.

Last week the 2014 Candidate Experience Awards were announced. What was obvious is that more and more companies have extensive programs in place to improve their overall candidate experience and ensure they provide a positive, rewarding experience as jobseekers. But many of the award winners admitted that they don’t have a very good “internal candidate experience” and many neglect to focus on the bridge between the two when those final candidates transition to new employees.

Of course what doesn’t happen next can and does have a long-lasting effect on their engagement, productivity and tenure. Therefore, it cannot be underscored enough why employers must improve their onboarding processes, where new employees (regardless of classification) are immediately immersed in the company and its culture, rather than hiding them in paperwork shadows on day one.

I’m proud to have just finished HCI’s Human Capital Strategist (HCS) Certification, and part of the coursework included the following Onboarding Essentials:

  • The time it takes for people to become proficient in their new jobs is critical.
  • The “Breakeven Point” according to Michael Watkins, author of The First 90 Days, is a huge productivity factor that is overlooked by many organizations.
  • Focus on the first 30-60-90 days to get employees off to a fast start.
  • Different breakeven points for jobs, depending on complexity and the applicability of the talent supply pool.
  • Engagement levels are high when joining a new job, but then can quickly decline.
  • Onboarding should be viewed not as an administrative duty but an engagement and developmental experience.
  • The research is clear: a careful and planned onboarding program leads to higher engagement and productivity, and reduces turnover.

Yes, that second to the last one: onboarding should be viewed not as an administrative duty but an engagement and developmental experience.

Unfortunately due to increasing corporate complexity and a constantly changing regulatory environment (not to mention a tightening corporate budget), HR has had little choice but to spend its limited time administering process first, and engaging people second.

To get the engagement, automating as much of the administrative onboarding process as possible is imperative. Otherwise, there’s no way HR (or anyone playing HR on TV) will get to the empowering that Todd Owens, CEO of TalentWise, told us about on the TalentCulture #TChat Show:

HR technologies today are supposed to free HR from routine administration, while helping them keep their organization compliant. Ultimately, it’s about empowering them to deliver a more productive and engaged workforce.

Indeed. However, not all of us in the HR software industry feel that way, or at least develop that way, but I know my mothership PeopleFluent does, along with a few others like TalentWise (in full disclosure, we’re partners). We both certainly know and acknowledge that HR carries the talent torch for us every day. It’s responsible for recruiting, hiring, training and engaging their organization’s most important asset – the people.

That’s why, for HR to empower up, they need to be:

  1. Better Automated. Streamlining the hiring process with the right technology platform enables HR and new employees to focus on the work at hand and immediately immerse into workplace culture. Allowing your new hires to quickly and painlessly move from their offer letter, through whatever “checks” your organization has in place (background and drug screening for example), to onboarding completely gets them ready to go on day one.
  2. And Empowered (as well). Empowering HR from day one is the ultimate outcome, which in turn creates a productive and engaging day one for new hires and co-workers alike. The hundreds of hours of administrative labor saved each year when the paper-process is “turned off” empowers HR to be strategic and to create a sustaining, high-performing, competitive organization today. That’s the business partner the executive team wants in their powerhouse.

Rebooting the human interaction in human resources is what talent engagement is all about and what will ultimately drive the business outcomes that make the top-down and the bottom-up alight with smiles.

photo credit: joshuahoffmanphoto via photopin cc