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HIRE For “Free” Money (But Ask Questions First)

by May 5, 2010, 5:23 am ET

The government is giving away free money and you can get some. As much as $6,622. And it’s easy.

All you have to do is hire an unemployed worker this year to fill a new, or vacant position. So long as they’re not a company owner or relative of one, the company gets to pocket an immediate 6.2 percent of the new hire’s weekly salary.

It really is that simple. Sure, there’s an IRS form involved. Mostly the government wants to make sure the person you hired was unemployed for the 60 days before they started the new job and that they didn’t work more than 40 hours during those two months.

That’s the essence of the Hiring Incentives to Restore Employment Act, which President Obama signed into law in March. Mike Temkin blogged about the provisions right after the signing. More details are available here.

It gives employers a break on paying their 6.2 percent share of the OASDI (Old Age, Survivors and Disability Insurance). Beginning with the employee’s first paycheck, employers get to keep what they normally would have paid into the Social Security system. For a high-wage employee, that could be as much as $6,622. (Only the first $106,800 of wages are subject to the OASDI tax.)

Are you thinking there’s got to be a catch? Well, no catch. But there are questions every employer should consider before jumping on the program.

“It could be costing you money to go after the low-hanging fruit,” says Larry Byrd, an executive with TaxBreak.

The federal government, and most states, have multiple employer incentive programs for hiring, retaining, or training workers. Many of these programs can be used in tandem, so you can take a tax credit for hiring a worker, and get reimbursed for all or part of their training costs. Most programs have requirements or restrictions on who qualifies. But the benefits to an employer can outweigh the generous savings of the HIRE Act.

“There are some strategic questions that really have to be considered,” says Phil Williams TaxBreak’s COO and general counsel. “If you just look at HIRE, you could miss out on some benefits that might give you an even bigger result.”

Some of these programs and a look at the issues involved are detailed in the June issue of the Journal of Corporate Recruiting Leadership. For now, suffice it to say that employers should consider the range of incentive programs before deciding which one is best.

For instance, the Work Opportunity Tax Credit lets you take up to $4,800 off your federal tax bill for every qualifying employee you hire. Most employees won’t qualify for the full amount, but hire a 16 or 17-year-old in certain parts of the country for a summer job and you can deduct $1,200 from your tax bill.

The strategic questions that Williams referred to include considering whether pocketing more profit (via tax credit) is more beneficial than improving cash flow (by saving the 6.2 percent payroll tax in HIRE). There are other questions that need to be addressed, including turnover, the training investment to get the worker up to speed, other benefits that might be used, and so on.

However, the toughest one — how do you find out about these programs? — can be answered by some online research, calls to your state’s workforce development office, or through state business councils and chambers of commerce. TaxBreak will do the research for you and handle the paperwork for no more than a third of what you save.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Dave Pollock

    Remember when being willing to work made you a “qualifying employee”? Now, as an employer, I get to pick the one who saves me the most money! Oh wait, I can already do that… by outsourcing to another country. But thanks to the HIRE Act I can do it right here in the USA… and with my own neighbors money!

    When will the Shell Game end? Hello??? The GOVERNMENT is me, you, and all our neighbors. If you have an open job paying over $106,000 per year JUST HIRE SOMEONE QUALIFIED. Don’t make me pay for it!

    And to add insult to injury, there’s an industry related to finding this “free money” – contingency-based (“no more than a third of what you ‘save’”) government parasites, in my opinion.

  • http://www.CollegeRecruiter.com/weblog Steven Rothberg

    We just hired a new web developer and had the HIRE Act in the back of our minds as a way of reducing our costs depending if we hired a qualifying employee. The incentives provided by the Act had no bearing on whether to hire someone or not or even whether to hire a qualifying (unemployed) versus non-qualifying (employed) candidate. In the end, we chose a non-qualifying candidate as he was the most likely to succeed. The incentives provided by the Act were simply not nearly enough to change our hiring behavior.

    The Act might help some employers who are on the fence, but I think it is a lot more about politics than it is about economics.

  • Dave Pollock

    “…but I think it is a lot more about politics than it is about economics.”

    The understatement of the year Steven. What one does, and why one does it, has been almost completely replaced with, “How will it make me look to my favorite voting bloc?”

  • http://www.nasrecruitment.com C.T. Trivella

    Dave – I see your point about the ramifications, however let’s face it, if a company is hiring the best person/people for the job and for the right reasons, do you really think there’s a downside to this?

    BTW, “Free Money” is an oxymoron.

  • http://www.johnstonsearch.com/about.php Brian Kevin Johnston

    A few steps away from socialism… brilliant!

  • Dave Pollock

    C.T. – Downside? Other than the patently obvious issue of taking money from you, me, and our neighbors and giving it to businesses to “help” hire someone?

    Which business would you want to work for that makes hiring decisions using a 6% savings of the Social Security Tax on a workers’ salary as a component? And it’s only good until Decmber 2010! Keep your resume handy if you work for one. [As an aside, the depressing irony here is that the system being shorted - Social Security - is yet another failed government program. So in reality we're giving our tax dollars to employers for the purpose of shorting our retirement. You just can't make this stuff up.]

    This is yet another example of a feel-good program that most likely costs more to administer than the value of the program itself. And true to government form, there is NO plan or methodology in place to measure that “value”.

    P.T. Barnum was right. And they’re all out there gazing upon the Emperor’s New Clothes.

  • S P

    Social Security “another” failed government program? Wow, this has only been working for the last 60+ years for men, women and children. Seems like you’re been drinking too much kool aid or watching Faux News. P.S. where are your rants about military spending???

  • http://www.CollegeRecruiter.com/weblog Steven Rothberg

    I was going to do some research as to why Social Security is deemed by some as a failed government program yet Medicare and the prescription drug giveaway weren’t but I couldn’t drive to the public library to do it because both are funded by the government so it would be socialist to use the roads or libraries. Then I realized that I could just hop onto the Internet and, oh, never mind. Another government program and therefore another left wing, socialist attempt to subvert the Constitution and brainwash true Americans.

  • Keith Halperin

    Much as I would like to enjoy in the political sniping (and probably will as addl. comments come in), I do have a (hopefully) meaningful
    question:
    According to HIRE, what is the precise definition of “unemployed” and “worked”-
    “Mostly the government wants to make sure the person you hired was unemployed for the 60 days before they started the new job and that they didn’t work more than 40 hours during those two months.”

    Thank You,

    Keith

  • Dave Pollock

    Steven – Without exception, everyone and anyone can drive on a public road, go to a public library, or use the Internet. The benefit is fair, equal, and has a clearly positive return on investment. These are not government programs or inventions; they were/are supported to varying degrees, by our tax dollars. They are, in a word, successful. The Social Security system in my opinion is, in a word, a failure. (Yes, IMHO Medicare and the prescription drug giveaway is too, but I need to limit this “rant”.)

    Social Security is a government invention. There is nothing fair or equal about it. It began as a something-for-nothing panacea and exists today as an entitlement – undeserved by some and under-received by many. The Federal government can and has changed when, who, and how much it chooses to pay from this fund. It has increased the payroll tax 17 times since 1935 – from the initial 2% (fixed rate) to the current 12.4% (indexed for inflation). In addition, the funds collected can be spent on anything it wants – because they’ve technically called this a “loan” to the general fund. So the spending of principal is not limited to its intention – our retirement. Couple that with the fact that, in 2007, Social Security taxes accounted for 25% of ALL TAXES COLLECTED. Yet, even at this staggering level of taxation, the fund is projected to (again) be running deficits by 2017. That’s when the “loaned” money should begin to be paid back to the fund. Except that our national debt is already too large for most calculators to handle without factorials. By 2041, the “payback” – which simply can’t happen at current debt levels – should be completed and the fund will have a balance of zero. Covering this debt will then amount to ANOTHER 28% increase in Social Security taxes.

    If this is not seen as a “failed” program, I simply don’t know what is. This is not Faux News rhetoric as all the facts come from government documents (write me for the citations). The only Kool-Aide being consumed here is by the taxpayer, and Jim Jones brewed this batch.

    Here are two quotes from a Social Security brochure published by the Federal Government in 1936:

    “…beginning in 1949, 12 years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay.”

    “…the Old-Age Reserve fund in the United States Treasury is drawing interest, and the Government guarantees it will never earn less than 3 percent. This means that 3 cents will be added to every dollar in the fund each year.”

    As Alf Landon said of the Social Security law, “This law is unjust, unworkable, stupidly drafted, and wastefully financed.” And Mr. Landon is now spinning like a lathe in his grave because if he liked Social Security that much (now 12.6% of GDP), he’d just love Healthcare “Reform”.

    Finally, if I were to rant against military spending I would be doing it openly, freely, and in English, thanks to military spending (now 4.5% of GDP)… much of it wasteful, but the ROI seems like a pretty good deal to me.

  • Keith Halperin

    @ Dave:

    http://www.epi.org/economic_snapshots/entry/webfeatures_snapshots_20050217/ (A liberal think tank- kh)

    Removing the Social Security earnings cap virtually eliminates funding gap
    February 17, 2005
    See Snapshots Archive.

    Snapshot for February 17, 2005

    Removing the Social Security earnings cap virtually eliminates funding gap
    Using relatively pessimistic assumptions about future growth in productivity and immigration, the Social Security Administration (SSA) actuaries estimate that Social Security trust fund revenues will fall somewhat short of covering scheduled benefits over the next 75 years. Until recently, President Bush had signaled opposition to any revenue increase to close that shortfall. On February 16, however, President Bush indicated his willingness to consider raising the cap on income subject to the Social Security tax. SSA actuarial estimates show that eliminating the cap would virtually eliminate the projected 75-year funding shortfall.

    This shortfall is less severe than is often presented by proponents of Social Security privatization. SSA’s projections show that a 1.9 percentage-point increase in the existing payroll tax dedicated to Social Security would close the projected funding gap over a 75-year period. Using slightly less pessimistic economic assumptions about the next 75 years, the Congressional Budget Office (CBO) has estimated the gap could be closed over the next 75 years with just a 1.0 percentage-point increase.

    Currently, all earnings up to $90,000 are taxed at 12.4% to fund Social Security. Each dollar earned over and above this cap is completely exempt from Social Security taxes.

    This cap affects benefits as well: calculation of Social Security benefits are based on a formula that does not take earnings over the cap into account. Since higher income during one’s working life translates into higher Social Security benefits, removing the cap on the benefit side would increase Social Security payments to high-wage earners.

    The figure below shows the current actuarial shortfall faced by Social Security under both the SSA and CBO estimates, and the effects of removing the earnings cap on taxes and benefits, based on a 2005 memo by the Office of the Actuary for the SSA. Removing the earnings cap on taxes and benefits improves the 75-year actuarial balance by 1.7% of payroll, thereby eliminating 90% of the funding deficit forecast by the SSA. Removing the cap would completely eliminate the deficit forecast by the CBO with its more plausible economic assumptions.

  • Dave Pollock

    Thanks Keith, for making my point exactly.

    The “cap” referred to in this 2005 article is that current earnings over $102,000 (as of 2008) are not taxed for Social Security purposes. So the government solution to “virtually eliminate the funding gap” should be to TAX US MORE. Problem solved!

    That it comes from the Economic Policy Institute is less than surprising. The tag line for this group (no kidding) is “Research and Ideas for Shared Prosperity”. I just wish the ideas they had were to share someone elses prosperity rather than mine.

  • Keith Halperin

    You’re welcome, Dave. I ask you and everybody else:
    What are you (as opposed to others) prepared to sacrifice (either through higher taxes, reduced services, other things) for the benefit of our descendants’and country’s well-being? Anything?
    I am prepared to pay higher taxes.

    -kh