Mr. Edwards

Revenue Management

Best Practices in Employment-based Tax Incentives for Hospitality Employers

By Brandon Edwards, President, The Tax Credit Company

Implementing a program to capture hiring-based tax incentives can yield significant value to hospitality employers. Executed properly, the investment of time and resources will result in a compelling and material improvement to bottom-line financial performance. With the most current tax incentive programs in place, hospitality employers are able to add an average of over $600 per new employee hired. Over a three year period, including retroactive credits, this can easily add up to hundreds of thousands of dollars per location.

The key programs to focus on are:

• Work Opportunity Tax Credit (WOTC):

Around since the mid-90’s, WOTC encourages hiring people on government aid such as food stamps, welfare, disability, etc., as well as members of groups that have barriers to employment such as ex-felons, disabled or unemployed veterans, Native Americans, etc. The program has become the primary vehicle for providing hiring incentives at the federal level for specific urgent needs, including post-911 hiring in Manhattan, areas affected by Hurricane Katrina and Rita, veterans returning from Iraq and Afghanistan and others. Applications for qualified hires have to be submitted within 28 days of start date.
Potential Value: Up to $9,000 per qualified hire.
Average Value: $1,800 per qualified hire.
Qualification Rate: 15-20 percent.

• HIRE Act (Hire Now Tax Cut):

The HIRE Act, also known as the Hire Now Tax Cut, provides a payroll tax exemption for all non-governmental employers in the United States for each person they hire that worked for less than 41 hours in the 60 days prior to starting work with the employer. It also provides an income tax credit of up to $1,000 for each of those qualified employees that are retained for 52 weeks. It can be claimed retroactively and does not require an application or certification process, as the employer self-certifies the employees.
Potential Value: Up to $7,621 per qualified hire.
Average Value: $900 per qualified hire.
Qualification Rate: Over 50 percent.

• Enterprise Zone and Empowerment Zones:

These state and federal programs reward employers that are located in certain areas around the country who hire people that are either from similar areas or are members of targeted groups such as low-income individuals, aid recipients, veterans, Native Americans, ex-offenders and other criteria.
Potential Value: Up to $35,000 per qualified hire.
Average Value: Varies based on state and program.
Qualification Rate: Varies based on state and program.

All hospitality employers that can benefit from tax credits should start taking advantage of the benefits. Here are best practices for implementing such a program:

1) Work backwards from tax liabilities

It is very important for employers to fist analyze the value of tax incentive programs. After determining the estimated value of the tax credits on an annual basis, the company should consult its tax advisors to determine how the tax credits will flow and ultimately, to which taxpayers. Since it is common to have entities involved in a single hotel, connecting the dots between who is generating the credits and who is able to use them is crucial. Usually, the credits go to the entity whose taxpayer identification number is on the payroll. It is important to consult an expert when determining this.

2) Implement as a fixture of your hiring process

The more employees you screen, the more that will generate tax credits. Getting hiring managers to screen all new hires can be a difficult challenge. It is important, therefore, to make the tax credit screening process a regular part of your ongoing hiring process. By implementing and reinforcing the process as an integral part of the new hire onboarding process, you are on your way to building a successful program. This can mean including paperwork and a call-in number in a new hire’s application package, integrating the screening process into an Applicant Tracking System (ATS) or training hiring managers to screen candidates electronically either on their own terminal or through an email invitation.

3) Capture all incentives in one screening transaction

The best time to screen a new applicant or employee for tax incentive eligibility is during the hiring process. This is the time that the candidate will be most forthcoming and cooperative. When you are screening the employee, make sure to note all tax incentive programs that the employee is eligible for. This may include a combination of state and federal incentives. Some clients of ours are eligible for up to four state and federal hiring incentives for employees hired at certain locations.

4) Utilize an intelligent screening process

Many companies make the mistake of screening employees using the government-provided forms. This results in lower qualification rates, as government forms are not effective at explaining the background of the incentive program or answering the specific questions that many applicants have about eligibility. Even simple tax credit programs often have entire publications dedicated to answering questions surrounding eligibility, qualification criteria and documentation. A proper (preferably human) explanation from someone that understands the details of the program will significantly increase qualification rates and the overall performance of the initiative. This can either be done by a well-trained human resources representative or a professional tax incentive consultant. Most of our clients, for example, direct their new applicants or hires to call into a centralized call center with trained representatives that walk them through the process and answer any relevant questions.

5) Make sure to capitalize on retroactive opportunities

Programs such as HIRE Act, Federal Zones and some state Enterprise Zones allow taxpayers to retroactively claim benefits for up to five years in the past or more. Some even allow tax credit claims based on the wages of employees that are no longer working there. When implementing a screening program, an employer should be sure to claim the retroactive benefits, which will often result in tax refunds for the employer. Usually, federal credits can be carried back one year and state credits cannot be carried back. The new Small Business Jobs Act of 2010 allows employers with under $50 million in gross receipts to carry back credits earned in the current year and obtain refunds for up to five prior years.

6) Track, measure and manage

While implementing a tax incentive screening program represents a compelling return on investment for most hospitality employers, it must be managed in order to be successful. Tracking and measuring key metrics will help ensure that the employer is capturing all of the benefits it is entitled to. We recommend watching the following numbers by location:

• Screening Compliance: Percentage of all new hires screened.
• Form Compliance: Percentage of documents needed that were received on-time.
• Qualification Rate: Percentage of new hires that qualify.
• Certification Rate: Percentage of qualified new hires that are actually certified. Where there are multiple programs being screened for, metrics are generally tracked by the program. Other metrics can be tracked such as Average Credit and Certification Cycle Time.

Reporting these metrics will help management make necessary adjustments to optimize the value of the screening efforts. The most common problems are related to the screening and form compliance, which can be managed on a case-by-case basis. Many employers include these rates in their performance appraisals for location managers, and some reward their location managers that meet or exceed compliance targets.

I encourage any employer that can benefit from the tax incentives to get started on implementing a screening program. Use these recommendations to help make it successful.

Brandon Edwards is president of The Tax Credit Company (TCC), a leading independent national provider of tax incentive consulting, administration and technology. Mr. Edwards is an expert in high-value tax incentive programs including Enterprise Zones, National Hiring Incentives and Research & Development Tax Credits. He is passionate about maximizing tax incentive opportunities for clients and takes pride in delivering customer-focused solutions that unlock material value for clients. Mr. Edwards can be contacted at 818-286-0338 or bedwards@taxcc.com Extended Bio...

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