WORKPLACE LAW -
Hiring Incentives
Question:
I recently heard that there are incentives available to employers who hire new employees. What sorts of incentives are they? Does an employer receive them for any new hire?
Answer:
In March of this year, President Obama signed the Hiring Incentives to Restore Employment Act, also known as “HIRE.” The purpose of this law is to give businesses an incentive to hire more people and to provide them with a little more money to pay higher wages, to expand work hours, or to invest in their company.
Under this law, employers who hire previously unemployed workers may qualify for an exemption from their 6.2% share of Social Security taxes on wages paid to those workers from March 19, 2010 through December 31, 2010. Additionally, for each worker who is retained for at least one year, meaning 52 consecutive weeks, the employer can claim an additional general business tax credit up to $1,000 per worker when filing its 2011 income tax returns, provided the employee’s pay does not decrease significantly in the second half of the year. This incentive encourages employers to keep these new hires.
To be entitled to these incentives, there are certain qualifications that the employee who is hired must meet. The employee must have begun employment with the employer after February 3, 2010 and before January 1, 2011. Additionally, the employee must have been either unemployed or employed for 40 hours or less during the 60-day period ending on the date the individual started employment with the employer seeking the incentive. That 60-day period must be continuous and can span from 2009 to 2010. Furthermore, the employer must not be hiring the individual to replace another employee of that employer, unless the other employee left his or her employment voluntarily or was terminated for cause. However, if an employer lays off an employee due to lack of work but later, as business improves, it hires a new employee, it can receive the payroll tax exemption as long as the individual hired did not work, or worked for 40 hours or less during the prior 60 days. The employee cannot be a family member of the employer. If the employer is a corporation, the new employee cannot be related to an individual who owns more than 50% of the employer’s stock. The employee can be a recent graduate who has never worked before. There is no minimum or maximum age requirement. And the new hire can be employed in a part time or a full time position.
To be eligible for the incentive, the employer must obtain a statement from the new employee certifying under penalty of perjury that he or she was unemployed during the 60 days before beginning work, or worked no more than 40 hours for anyone during the 60-day period. Although initially employers were developing their own forms for these statements, the Internal Revenue Service has now developed a “Hiring Incentives to Restore Employment Act Employee Affidavit” known as a Form W-11. Although employers are still allowed to formulate their own form, it is better to use the IRS form to ensure that it meets the requirements of the law.
The employer must have received the signed affidavit by the time it files its quarterly federal tax return (IRS Form 941) applying the payroll tax exemption. For employers with employees who telecommute, employers can obtain the signed forms electronically. Employers can obtain the IRS Form W-11 on-line at www.irs.gov/pub/irs-pdf/fw11.pdf. If the employee does not sign the form, the employer is not eligible for the incentives. The employer does not have to file the Form W-11 with the IRS. However, the employer should keep the affidavits with other payroll and tax records in the event of an audit.
Not all employers who hire qualified employees can receive the exemption. An employer must be subject to federal social security tax to qualify for the payroll tax exemption. Therefore, federal, state, or local governments generally do not qualify for the exemption, although public colleges and universities can qualify.
The incentives under HIRE should not be confused with the Work Opportunity Tax Credit (“WOTC”). The purpose of that tax credit is to increase hiring in certain groups such as long-term recipients of temporary assistance for needy families, veterans, ex-felons, Supplemental Security Income recipients, and disconnected youth. If a new hire qualifies an employer for both the Work Opportunity Tax Credit and the HIRE incentives, the employer must choose one or the other.
If you have hired new employees that qualify you for incentives, you should be sure to have the employee sign the affidavit concerning prior employment and take advantage of these incentives, which will be available only this year.
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