In the fast-paced staffing industry, recruiters continually juggle large hiring volumes and tight deadlines. To alleviate staffing shortages, agencies can expand their candidate pools by hiring from groups who have traditionally faced barriers to employment. In the US, hiring workers from underrepresented groups can also qualify eligible employers for tax credit through the Work Opportunity Tax Credit (WOTC) program.
What is the Work Opportunity Tax Credit (WOTC) program?
The Work Opportunity Tax Credit program is a provision of the Internal Revenue Code designed to incentivize employers to hire workers from groups facing barriers to employment. Specifically, the program promotes the hiring of individuals within target groups who may otherwise struggle to find work due to limited work opportunities or experience.
Since its creation by Section 1201 of the Small Business Job Protection Act of 1996, it has been extended until December 31, 2025, with lawmakers taking steps to extend it past this expiration date.
The following groups qualify employers for WOTC credits when they’re hired:
- Recipients of certain state benefits, including Temporary Assistance to Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), Qualified Long-Term Unemployment, and Supplemental Security Income (SSI)
- Qualified veterans
- Qualified ex-felons
- Residents of designated communities, which include empowerment zones, enterprise communities, renewal communities, and rural renewal counties
- Vocational rehabilitation referrals
- Summer Youth employees
Organizations may earn from $2,400 to $9,600 in tax credits per eligible hire, with the credits being applied to their income tax, if they operate a taxable business, or their payroll tax, if they are tax-exempt. This can represent major tax savings in the long term, especially for employers who hire at large volumes for entry-level positions.
How can employers qualify for the WOTC program?
If you hire eligible candidates, you do not automatically qualify for WOTC. Instead, they’re required to apply for a certification by filling out the Individual Characteristics Form (ICF) with the candidates’ personal data and qualifying characteristics. It is also possible for eligible candidates to obtain a conditional certification from a participating state or local agency.
In both cases, candidates must also fill out IRS Form 8850 to confirm they belong to a qualifying group. The request is then evaluated and approved or denied by the appropriate authority. It is important to note that employers have 28 days from an employee’s start date to submit the required paperwork.
How can employers make the most out of the WOTC program?
The manual WOTC eligibility process can be complex and time-consuming, putting a strain on HR managers’ resources. As a result, employers should consider outsourcing WOTC eligibility management to third-party screening providers. Third-party WOTC management solutions provide many benefits:
Speed. Onboarding applicants quickly is key to prevent them from losing interest or getting snatched up by a competitor. Third-party solutions can integrate the WOTC eligibility form that candidates fill out with other onboarding tasks, speeding up the hiring process. Consider using a provider who can provide both background screening and WOTC management services in-house to streamline rather than using separate providers for each service.
Staff and applicant experience. No one enjoys filling out paperwork manually. A user-friendly, convenient, mobile-compatible third-party solution can make a great impression with applicants and allow them into provide the required information faster. Look for a WOTC solution that can be integrated with your HRIS or ATS provider to streamline the process for your staff. Ideally, HR professionals should be able to view both the background check reports and onboarding paperwork within the same centralized location.
Increased tax savings. It’s easy for overworked recruiters and HR professionals to overlook eligible employees when filling out WOTC paperwork. Implementing the right WOTC management solution can help employers save money by automating key administrative tasks and reducing error rates.
Secure data and document storage. Employers should keep records of their employees’ WOTC eligibility, both for internal purposes and in case of an external audit. However, it is all too easy for paper documentation to get lost, destroyed, or tampered with. Look for a third-party provider who can store WOTC eligibility data online, in a secure location that allows for easy access and retrieval if needed.
While the challenge of managing WOTC eligibility may seem daunting, HR professionals can take advantage of third-party solutions to streamline the process without compromising the applicant experience. Freed from tedious paperwork, HR professionals can dedicate more of their time to giving the hiring process a human touch, making it less likely for promising applicants to drop off or get poached by a competitor.
