HIRE Act Provides Employers with Tax Incentives for Hiring and Retaining Qualified Employees

Posted on April 12, 2010 by Kelley Kaufman

On March 18, 2010, President Barack Obama signed into law the Hiring Incentives to Restore Employment ("HIRE") Act (H.R. 2847).  The HIRE Act amends the Internal Revenue Code ("IRC") to provide certain tax incentives for employers to hire unemployed workers.  Specifically, the HIRE Act creates two new tax benefits for eligible employers: a payroll tax exemption for certain new hires, and a tax credit for retaining the qualified new hires. 

First, the HIRE Act provides eligible employers with a payroll tax exemption for qualified employees hired between February 3, 2010, and January 11, 2011.  This tax benefit is an exemption from having to pay the employer's 6.2% share of social security tax on the wages paid to the qualified employee from March 19, 2010, through December 31, 2010.  Employers may claim this tax exemption on their quarterly tax returns, starting with the second quarter of 2010. 

Second, the HIRE Act also provides eligible employers with a business tax credit for each qualified employee that is retained for at least one year, or 52 consecutive weeks.  The employer may claim a credit of up to 6.2% of the wages paid to the retained employee over the one-year period, or a maximum of $1,000 per qualified employee, on its 2011 tax return. 

Who Qualifies for the Tax Incentives?

Eligible employers include businesses, agricultural employers, tax-exempt organizations, tribal governments, and public colleges and universities who hire and retain qualified employees. Those employers that do not qualify for the tax incentives include federal, state and local government employers, as well as household employers.

In order to count as a qualified employee under the HIRE Act, the employee: 

  • Must begin his or her employment with an eligible employer after February 3, 2010, and before January 11, 2011;
  • Must sign an affidavit, certifying under penalties of perjury that he or she either was unemployed during the 60 days prior to the start of the employment or had worked fewer than 40 hours total during the 60-day period;
  • Cannot be a family member of or related to the employer; and
  • Cannot be hired to replace an existing worker, unless that worker terminated his or her employment voluntarily, or was terminated for cause. 

Employers also should be aware that this payroll tax exemption also applies to re-hired employees, so long as they meet the foregoing qualifications. 

The HIRE Act provides that employers who are eligible for the payroll tax exemption also may be eligible for the retention tax credit. The retention tax credit is a general business credit, which employers may claim for each new hire retained for at least one year. Under the HIRE Act, a retained employee is a qualified employee (as defined above) who the employer employed during the taxable year and for a period of 52 consecutive weeks or more. The retained worker's wages during the last 26 weeks of the employment period must equal at least 80 percent of his or her wages during the first 26 weeks of that period. 

Claiming the Tax Incentives

Employers seeking to take advantage of the HIRE Act's tax benefits must determine whether they are an eligible employer and whether any employees hired after February 3, 2010, are qualified employees as defined above. In addition, an employer that is seeking to maximize its benefits under the HIRE Act's provisions must factor in several considerations. First, as with any employment-related decisions, employers must take care to act in accordance with federal and state anti-discrimination laws. Further, employers should be aware that the Work Opportunity Tax Credit ("WOTC") cannot be claimed in addition to the payroll tax exemption. Thus, an employer must consider which tax incentive maximizes its benefit. If an employer wishes to obtain the WOTC with respect to a qualified employee, it may opt out of the payroll tax exemption for that employee's wages.

Employers who hire qualified employees between February 3, 2010, and January 11, 2011, also must obtain signed affidavit from each qualified employee, as discussed above. The Internal Revenue Service ("IRS") has released a W-11 affidavit form, which employers can download and use to meet this requirement. Employers who have hired qualified employees since February 3, 2010, should obtain a signed affidavit from their qualified new hires as soon as possible, preferably at the time of hire. This form must be completed and retained with the new hire's general personnel files; it need not be filed with the IRS.

In order to receive the tax benefit for qualified new hires, employers must claim the exemption on their quarterly federal tax returns, beginning with the second quarter of 2010. The exemption applies to wages paid to qualified employees from March 19, 2010, through December 31, 2010. Employers must claim the retention tax credit on their 2011 tax returns. 

The IRS has posted information for employers regarding the HIRE Act's tax incentives on its website, including several pages of answers to Frequently Asked Questions regarding the HIRE Act. In addition, the IRS has posted both the W-11 affidavit form and a draft form 941, the Employer's Quarterly Federal Tax Return, which employers can use to claim the payroll tax exemption for eligible new hires. 
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COBRA Subsidy Extended...Again...And Again?

Posted on March 4, 2010 by Adam Santucci

On March 3, 2010, President Obama signed the Temporary Extension Act of 2010 (.pdf) into law. The Act provides for the continuation of the extended unemployment compensation benefit program and the availability of the COBRA premium subsidy, which expired February 28, 2010. The COBRA premium assistance program was extended to allow those involuntarily terminated through March 31, 2010 to receive the 65 percent premium subsidy. More information regarding the COBRA premium subsidy was posted on our blog on January 6, 2010.

The Act also clarifies that if an individual has a COBRA qualifying event due to a reduction in hours, and is later involuntarily terminated, then the involuntary termination must be treated as a qualifying event and the employee must receive a new, appropriate COBRA notification.

Finally, the Act clarifies certain interpretative guidance, and indicates that certain portions of the Act are retroactive.

Employers and Plan Administrators should be sure to incorporate these changes into their COBRA notification procedures and COBRA notices.  

Congress is also said to be considering a bill that would extend the COBRA premium subsidy program further. 
 

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COBRA SUBSIDY EXTENDED AND NEW COBRA NOTICES REQUIRED

Posted on January 6, 2010 by Adam Santucci

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), which expanded health care insurance benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA). The ARRA granted individuals involuntarily terminated from employment between September 1, 2008 and December 31, 2009, a subsidy to cover 65 percent of their monthly COBRA premiums for up to nine months. The subsidy is available for individuals with an annual income of less than $125,000 (single) or $250,000 (joint filers). Individuals earning between $125,000 ($250,000 joint) and $145,000 ($290,000 joint) are eligible for "phased-in" assistance.

Under the ARRA, plan administrators are not only responsible for providing notice of the subsidy to eligible individuals, they must also pay the cost of the subsidy up front. The plan administrator may then file IRS Form 941 to claim a payroll tax credit in the amount of subsidies paid. In other words, employers must front 65 percent of eligible individuals' COBRA premiums in exchange for a credit against their payroll taxes.

UPDATE! On December 19, 2009, President Obama signed the 2010 Department of Defense Appropriations Act (Act), which extends the COBRA premium subsidy provisions and places additional notification requirements on plan administrators. The Act provides eligible individuals with an additional six months of subsidized coverage, extending the availability of the COBRA premium subsidy from nine to 15 months. The Act also allows individuals involuntarily terminated on or before February 28, 2010 to receive the subsidy, extending the original eligibility deadline of December 31, 2009, by two months. Employees involuntarily terminated in January and February 2010 will now be eligible for the subsidy.

Furthermore, if an individual was eligible for the COBRA premium assistance under the original ARRA, and that eligibility already expired, then that individual may receive the continued premium subsidy retroactively. In order to take advantage of the retroactive coverage, the individual must pay 35 percent of the premium by February 17, 2010, or within 30 days of receipt of the extension notice described below, whichever is later. If eligible individuals already have paid the full COBRA premium, then the plan administrator must either refund the over payments or credit future premium payments.

The Act also contains additional notification requirements that require plan administrators to provide eligible individuals with information regarding the extended subsidy.

By February 17, 2010, plan administrators must issue new notices to any individual who was assistance eligible on or after October 31, 2009. Individuals who experience an involuntary termination of employment on or after December 19, 2009, must receive a notice containing updated information regarding the subsidy within the normal time frame for providing COBRA notification. Additionally, individuals eligible for the COBRA continuation coverage who are in transition, meaning those eligible individuals whose initial premium assistance period of nine months expired before December 19, 2009, must be provided notice of the extended subsidy within 60 days of the beginning of their transition period. This notice must be given to those in transition regardless of whether they paid the full premium amount to continue coverage, or whether they ceased paying COBRA premiums. In addition to describing the extended premium assistance available, the notice must contain information on the availability of retroactive coverage.

The new and updated notices must contain information regarding the following:
• the extension of benefits from nine months to 15 months;
• an explanation that the eligibility period runs through February 28, 2010;
• that qualified beneficiaries have the right to reinstate coverage retroactively by paying subsidized premiums by February 17, 2010 (or by 30 days after the notice is provided); and
• that a refund is available to those eligible individuals who paid the full amount of the COBRA premium.

It is unclear whether the IRS or the Department of Labor plans to issue any model notices as with the notices required by the ARRA. The Act, however, does make clear that rules governing the new notices will be similar to the notice rules contained in the ARRA.

In summary, via the extensions provided in the Act, individuals involuntarily terminated between September 1, 2008 and February 28, 2010 are eligible for up to 15 months of COBRA premium assistance. The premium subsidy ends when the individual is eligible for other group coverage or Medicare, after 15 months of receiving premium assistance, or when the maximum period of COBRA coverage ends (typically 18 months), whichever is first. Appropriate notice regarding the availability of the extended premium assistance must be given to all eligible individuals.
 
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Employee Free Choice Act Moving Forward, Are You?

Posted on March 17, 2009 by Michael Moore

On March 10, 2009, Representative George Miller introduced the Employee Free Choice Act of 2009 (H.R. 1409) The Bill has 222 cosponsors from the House of Representatives comprised of 435 members. The Bill has been referred to the House Committee on Education and Labor. You can keep track of its progress through an RSS Feed.

H.R 1409 is identical to H.R. 800 which passed in the House of Representatives by roll call vote last year. Last year's vote totals were 241 Ayes, 185 Nays, 8 Present/Not Voting. Last year H.R. 800 failed a cloture motion, preventing consideration of the bill, in the Senate by roll call vote. The totals were 51 Ayes, 48 Nays, 1 Present/Not Voting. Obviously, the political composition of Congress has dramatically changed since last year's votes.

The Text of the Bill is relatively brief but its impact is great. The Bill has three sections, streamlining union certification, facilitating initial collective bargaining agreements, and strengthening enforcement. Read the Bill so you can discuss it intelligently. Observe that there is no effective date for the legislation included in the Bill once it is passed by Congress.  However, well before the time it is enacted, employers should already have implemented a responsive strategy.

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Ledbetter now Law: Employers must Focus on Compliance

Posted on January 29, 2009 by Michael Moore

President Obama signed into law the Ledbetter Fair Pay Act nullifying the U.S. Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber Company. Previous posts on the content and effect of the law are as follows:

Ledbetter Fair Pay Act passed by Senate and awaiting Obama Signature

Bad News: Ledbetter Fair Pay Act and Paycheck Fairness Act Pass the House.

Record Retention Nightmare Created by Ledbetter Fair Pay Act

An employer's first concern should be the revival of claims otherwise thought extinguished under the Ledbetter decision. The law is retroactive to overrule the Supreme Court standard for assessing the timeliness of wage discrimination claims. A wage-based discrimination claim in Pennsylvania can now be filed within 300 days of the last paycheck affected by the discriminatory pay action.

An employer's next focus should be on creating a pay and evaluation system that preserves evidence supporting the nondiscriminatory basis of the decisions. The system must capture both witnesses' recollections and records associated with the decisions for all similarly situated employees.

The difficulty in defending these "old" claims lies in documenting both the decision made relative to the employee bringing the claim and the treatment of comparable employees. The legal analysis of a discrimination claim involves a comparison of the compensation paid to a member of a protected class as compared with those outside the protected class. If a compensation disparity is shown, the employer must demonstrate a legitimate nondiscriminatory reason for the difference in compensation. Once demonstrated by the employer, the employee may show that the employers reason is a pretext for discrimination. Much of this analysis will change if the Paycheck Fairness Act also becomes law.

The EEOC has a road make for its analysis of compensation discrimination claims under its Compliance Manual. The types of evidence the EEOC collects and evaluates in assessing a claim includes the following:

  • Initially the EEOC determines if a wage differential exists by evaluating documents including the following:
    • Organization charts and other documents which reflect the relative position of the charging party in comparison to other employees, including written detailed job descriptions;
    • Written descriptions of the respondent's system for compensating employees -- including collective bargaining agreements; entry level wage rates or salaries; any policies or practices with regard to periodic increases, merit and other bonus compensation plans; and the respondent's reasons for its pay practices; and
    • Job evaluation studies, reports, or other analyses made by or for the employer with respect to its method of compensation and pay rates.
  • If a compensation differential(s) exists, the employer should be asked to produce a non-discriminatory reason for the differential. If a an employer leaves the pay disparity unexplained, or provides an explanation that is "too vague, is internally inconsistent, or is facially not credible," the investigator should find "cause." If the employer does provide a nondiscriminatory reason, an inquiry should be made into whether it satisfactorily explains the pay differential.
  • The EEOC requests information explaining the pay decisions of comparable or similarly situated employees. The EEOC may also request pay information for similarly situated employees to evaluate a disparate impact case based on a statistical analysis of compensation decisions and treatment.

 

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