It’s been described as one federal program that does exactly what it is designed to do.
The Work Opportunity Tax Credit (WOTC) directs employers to untapped disadvantaged talent pools and gives them tax credits for hiring from those groups, all while helping people written off as unemployable become productive employees. Sounds like an especially valuable asset in this tight talent market with record low unemployment and an estimated 6 million jobs unfilled.
But like any good thing, WOTC (pronounced whot-see) has its downsides. The program comes with a ton of red tape that often precludes participation, especially from small businesses, unless a service provider is hired. Paperwork generally needs to go from the hiring manager to the prospective employee, back to the hiring manager and human resources, then on to the state within 28 days from the date that person is on the job.
Plus, the clock is ticking. WOTC is due to expire Dec. 31, but the program has historically been renewed.
People from nine target groups — from military veterans to people who served time to welfare recipients — qualify for the program. (See “How WOTC Works.”)
Figuring out the applicable tax credits is one of the program’s complexities, with maximum credits ranging from $1,200 to $9,600, and most falling in the $2,400 range. The credit is earned as the certified employee works hours and earns wages, so it will often span more than one tax year. And, the tax credit can be applied only to an employer’s tax liability, but can be carried forward to a subsequent tax year when the employer has a liability.
WOTC is becoming more popular, growing from 1.3 million certifications in fiscal year 2014 to 2.8 million in 2018, according to the IRS.
Interested businesses should start the WOTC process today, said Jeanne Madden, division vice president/general manager for ADP Tax Credit Services, one of the leading WOTC service providers.
“WOTC can be an integral part of ongoing efforts to find qualified individuals,” she said. “It does two basic things: It helps folks who are challenged (in finding a job) break into the workforce and helps HR be a direct contributor to the company’s bottom line through the tax credit.
“You can do it yourself or hire a provider like ADP,” Madden said. “But get the program up and running and keep screening (prospective WOTCeligible employees) until it is certain that there is no program.”
The hiring process varies widely among companies, Madden observed, saying ADP steps into the process where it works best for the client. ADP says its technology can obtain 97% of required WOTC documentation without the involvement of a client’s hiring managers. Its technology helps in areas like the screening of candidates, as well as document notifications, follow-up and uploading, and analytics to measure the program’s success.
“There are different levels of sophistication,” Madden said. “Employers can do the questionnaire with ADP via phone or web link into the system. Companies that have an applicant tracking system can integrate directly into the system. It’s seamless — the applicant never knows.
“It helps ease the pain for HR. In most organizations, HR is tasked with managing the WOTC program — designing and implementing the process to integrate WOTC screening into the recruiting/hiring workflow and then ensuring that their applicants actually complete the WOTC screening,” she said. “But the tax department generally gets all the credit, because they are the ones that actually do the taxes for the company and have the pleasure of applying the WOTC credit against their income taxes.”
Whether doing it yourself or using a service provider, it’s important to stay on top of the process, Madden emphasized, because unlike other tax credit programs, the application is not retroactive — it must be completed prior to extending a job offer and the paperwork must be submitted within 28 days of the employee’s start date on the job.
GEICO is one company that has worked with ADP in hiring WOTC-eligible employees throughout the United States. Todd Prigal, assistant controller for GEICO, said he was skeptical of the tax credit at first because he didn’t think the company had anybody from the target groups who qualified. He was wrong.
Businesses interested in WOTC can team up with organizations that facilitate the hiring of disadvantaged workers, such as 70 Million Jobs and Code Tenderloin.
70 Million Jobs, which is in its second year of helping people with criminal records find jobs, started at the right time, says founder Richard Bronson.
“95% of the reason for our success is the acute talent shortage,” said Bronson, who is the nationwide for-profit’s president and CEO. “They can ill afford to ignore such a key large pool of talent.”
The 70 million in the organization’s name refers to the number of people in the United States with criminal records, about one in three adults.
Businesses also are beginning to realize people with records make excellent employees, Bronson said. A 2018 Society for Human Resources (SHRM)- Charles Koch Institute (CKI) survey found that 82% of responding hiring managers and 67% of HR professionals say the “quality of hire” for those with criminal records matches or is better than workers without criminal records. 74% of both groups said the cost of hiring a person with a criminal record is the same or less than those without records.
The SHRM-CKI study found only 14% would be unwilling to consider someone with a record, contrasting with a 2010 survey that found 40% of hiring managers would consider someone with a record. The 2018 SHRM poll included a total of 1,228 HR professionals.
Employees with criminal records often give businesses a leg up in another key talent area: retention.
Employees with records often give businesses a leg up in another key talent area — retention — because they don’t have as many opportunities as those without a record and are loyal to the organization that gave them the chance.
Society, in general, is more willing to give those with records a second chance and more businesses are seeing it as the right thing to do, Bronson observed.
He knows firsthand what it’s like to be exiting prison and entering the labor market. Bronson’s colorful career includes being a partner in the infamous Wolf of Wall Street firm, Stratton Oakmont, before being convicted of securities fraud and serving two years in prison.
“In the 15 or 16 years I’ve been out, there has been a huge change in attitude (toward people who have been incarcerated),” he said. “It’s much more positive and understanding. After all, most people know someone directly or indirectly who has a record.” Recent rare bipartisan political action shows the attitude change. Bickering Republicans and Democrats came together to pass criminal justice reform legislation in the early days of the current Congress. In the bitter 2018 Florida midterm elections divided by party lines, voters overwhelmingly approved giving voting rights to people with criminal records.
“I had no idea companies would be this willing to access this pool of talent,” Bronson said. “I’ve been incredibly surprised and pleased.”
That’s led to an overflow of business for 70 Million Jobs, which placed about 1,000 workers in its first seven months. “At the end of last year, we had more business than we could handle,” Bronson said. “But we’ve been adding to the base of job skills and now we can handle anything.”
Code Tenderloin, which started in the seedy Tenderloin area of San Francisco in 2015, offers a two-pronged program. A four-week job-readiness course is designed to prepare a person to enter longterm employment. Many Code Tenderloin partners are entering the workforce for the first time, said Victoria Westbrook, director of programs and operations.
I never met an HR person who didn’t believe in giving a person a second chance.” - Richard Bronson, Founder of 70 Million Jobs
The seven-week Code Ramp course, taught by software developers with Bay Area tech firms, teaches basic front-end web development.
The nonprofit’s clients offer diverse experiences that can help a company’s bottom line, Westbrook said. She urges HR pros to look at the skills needed to do a job and not factors such as college degrees.
“Our people bring diversity into the workplace. It is a huge benefit to have people with diverse backgrounds,” she said. “Without their input, you are losing valuable information. A lot of our clients have been forged by fire. They have had to overcome situations and life and social stigmas. They had developed skills, such as problem solving, being creative and resourceful, that can help a business.”
The value of that diverse experience can be seen in app development. “We have enough dating apps,” Westbrook said with a laugh. “We need apps that can address the types of societal problems our partners have lived through.”
BACKED BY RESEARCH
One of the few academic studies of WOTC points to its positives.
“The evidence we have suggests that even with conservative estimates, the program is very cost-effective,” wrote Peter Capelli, Ph.D., the director for the Center for Human Resources at the University of Pennsylvania’s Wharton School, in “A Follow-Up Study to ‘Assessing the Effect of the Work Opportunity Credit’.”
“The benefits to taxpayers appear to exceed the costs of the program. This is the case without counting many positive aspects of the program that are difficult to quantify, such as reductions in crime, health-care costs and other social programs, and positive macroeconomic effects. Beyond the goal of assisting disadvantaged job seekers, the WOTC program should also be seen as a cost-saving program for government.”
DISPELLING MYTHS FROM FACTS
Bronson and Westbrook offered advice for HR pros considering hiring WOTC-eligible employees.
“HR people in general are very humane, caring,” Bronson praised. “I never met an HR person who didn’t believe in giving a person a second chance.”
A first step is to dispel myths from facts. Then, evangelize/socialize the idea in your company. Among people who have been incarcerated, “there are some real heroes out there,” Bronson said. “They had no options. They did what they had to do to survive, support their families. And amazingly, with all that’s happened to them, they still have a belief in the future.”
Helping people attain jobs that can support themselves and their families strengthens the entire economy, Westbrook emphasized.
Finally, start small. Westbrook suggested apprenticeships and internships. “It helps you find out if the person has what’s needed for the job,” she said. “And, let’s face it, who hasn’t made a bad hire?”
70 Million Jobs often begins with a pilot program. “Say we are dealing with a nationwide company, we might start with 10 locations and create a test for them,” Bronson said. “Almost inevitably, they like the people they hired and want to expand the program before we have a chance to ask.
“If, God forbid, something goes wrong, you can get out of it. If something goes right, you’ve discovered a huge pool of talent that helps your company’s bottom line.”
Jim Fickess writes and edits for WorldatWork.