Last week, I talked about the pros and cons of rehiring former employees, and mentioned that the Hiring Incentives to Restore Employment (HIRE) Act is one of the major reasons employers should be looking at hiring unemployed workers (which could include former employees). But let’s explore further why the bill is so important — both for unemployed workers and the employers hiring them. After all, as a CFO, controller, business owner, vice president of human resources, hiring manager, accountant, or anyone else with a stake in your business’s bottom line, the HIRE Act could have a significant impact on your business.
What is the HIRE Act?
The $17.5 billion legislation, signed into law by President Obama on March 18, 2010, gives a potential tax exemption and credit to businesses that hire unemployed workers. Specifically, the HIRE Act grants businesses that hire workers unemployed 60 days or longer an exemption from the 6.2 percent Social Security payroll taxes for each worker for the remainder of 2010. Additionally, if workers are retained for one year, participating businesses get a tax credit of $1,000.
The maximum value of this incentive is $6,621 per qualified employee, which equals 6.2 percent of the Social Security FICA maximum wage cap of $106,800.
The HIRE Act aims to provide hiring incentives to stimulate the economy, restore some of the jobs lost in the latest economic recession, and put Americans back to work. The average unemployed worker has been unemployed for ten months, so the Act is in effect targeting those job seekers who have been having difficulty finding work for quite some time. The HIRE Act calls on employers like you to hire unemployed workers and work to retain them.
Keep in mind, recent graduates who are unemployed or working part-time can qualify — so if you’re seeking out new grads or are a start-up looking for fresh talent, you should also be looking into the HIRE Act.
The two major tax incentives of the HIRE Act
Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax exemption, in effect exempting them from their share of Social Security taxes on wages paid to these workers between Mar. 19, 2010 and Dec. 31, 2010.
- This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and as an employer, you will still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes.
- The employer and employee’s shares of Medicare taxes would also still apply to these wages.
For each worker retained for at least a year, businesses may claim an additional retention credit, up to $1,000 per worker, when they file their 2011 income tax returns.
Let’s say you hire an employee and pay them a $60,000 salary. Normally, you would have to pay 6.2 percent Social Security payroll tax, or $3,720. With the HIRE Act, your business wouldn’t have to pay that $3,720, plus you have the potential of an additional $1,000 tax credit if that employee stays with your company for one year.
Finding the right employees with the HIRE Act
Not only are you helping stimulate the economy and employ people who need work, but you are also potentially saving a significant amount of money that will impact your bottom line. Instead of looking at hiring as an expense, the HIRE Act encourages employers to think of hiring as an investment.
While the HIRE Act helps making hiring “cheaper,” the quality of your new hires is still paramount; you and I both know that cost savings plus a bad hire is actually more expensive in the long run. This is why CareerBuilder is focused on targeting the right people within that group who would be a good fit for your organization.
CareerBuilder currently attracts more than 9 million unique visitors each month who meet the qualifications as set by the HIRE Act. We go even further by helping you find the qualified workers who are the right fit for your particular culture and business needs. After all, you might need one employee or 100 — but it’s important that you find the right employees to stick around and grow with your business.
The Fine Print: Criteria needed for a business to receive benefits of the HIRE Act
- New employee/s must be hired between Feb. 4, 2010 and December 31, 2010.
- The payroll tax exemptions are effective for wages paid between Mar. 19, 2010 and Dec. 31, 2010.
- The newly hired employees must have been unemployed during the 60 days prior to starting work, or worked fewer than 40 hours for someone else during that 60-day period (and the employer must get a statement from each eligible new hire certifying this fact).
- New hires filling positions qualify, but only if the workers they are replacing left voluntarily or for cause.
- Family members or relatives do not qualify.
- Businesses, agricultural employers, tax-exempt organizations and public colleges and universities DO qualify to claim the payroll tax — although household businesses and federal, state and local governments l do not.
HIRE Act — How are businesses reacting?
It’s a bit of a chicken versus egg argument; it’s hard to say at this point whether the HIRE Act is causing employers to hire more, or businesses are catching on to it after they have already hired. Regardless, any businesses are taking advantage of the new legislation. And although the HIRE Act expires Jan. 1, 2011, President Obama is working to extend it. According to a recent report by the U.S. Department of the Treasury:
- From Feb. to May 2010, an estimated 4.5 million workers who had been unemployed for eight weeks or longer were hired — meaning all of the employers who hired these workers are eligible for the HIRE Act payroll tax exemption.
- Newly hired workers whose employers are eligible for the exemption constitute 12.2 percent of all workers who were unemployed for eight weeks or longer since the law took effect.
- If the 4.5 million newly hired employees who are eligible for the exemption are employed for the rest of the year, their employers would be (collectively) eligible for an estimated $5.1 billion in payroll tax savings.
Find out more about the HIRE Act
While we’ve covered a lot of the basics here, you’ll still want to investigate further to find out how your business can qualify. Here are some additional resources:
- Find out more about the HIRE act and what it may mean for your business on the IRS’s website (VIDEO).
- Read up on the IRS’s questions and answers page for employers.
- Read the U.S. Department of the Treasury’s recent report on the HIRE Act’s progress thus far.
- Hiring Incentives to Restore Employment Affidavit (PDF; to be signed by new employees who qualify)