Tax Incentives For Hiring New Employees

May 2010

The Hiring Incentives to Restore Employment Act (“HIRE Act”) , enacted on March 18, 2010, provides two new tax benefits to employers that hire certain previously unemployed workers (“qualified employees”). “Qualified employees” are individuals who begin employment after February 3, 2010, and before January 1, 2011, who have been unemployed or employed for less than 40 hours during the sixty-day period ending on the date employment begins. The qualified employees may not be related to the employer or own more than 50% of the company’s stock. Additionally, the employees cannot be replacing existing workers unless those workers were terminated for cause or left employment voluntarily. 
If an employer hires a qualified employee, the first benefit it can take advantage of is the exemption from the company’s 6.2 percent share of social security tax on wages paid to that qualifying employee from March 19, 2010, through December 31, 2010. Employees, however, must still pay their share of the social security tax, and both the employer and employee will continue to pay their shares of the Medicare tax. The second benefit provides for a general business tax credit of the lesser of $1,000 or 6.2 percent of wages paid by the employer to the qualified employee if the employee is retained for 52 consecutive weeks. In order to invoke these benefits, all qualified employees must fill out an affidavit attesting they have not worked, or have worked for less than 40 hours, during the sixty-day period preceding the new employment. A draft affidavit, Form W-11, has been issued by the Internal Revenue Service to aid employers in meeting this requirement.
Reasonable Breaks for Nursing Mothers - The Patient Protection and Affordable Care Act recently signed into law by President Obama amends Section 7 of the Fair Labor Standards Actto provide that nursing mothers must be given unpaid reasonable breaks “each time the employee has the need to express breast milk” for one year after her child’s birth. The employer must provide a private place other than a bathroom for the employee to express her milk. An exemption is provided for employers with less than 50 employees if it would result in an “undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer’s business.”
Incentives for Wellness Programs - The Patient Protection and Affordable Care Act further amends Title III of the Public Health Service Act to provide additional incentives for employer-based wellness programs. Beginning in 2014, employers (small, medium and large) can offer increased incentives to their employees for participating in a wellness program and/or for meeting certain health goals. The law allows for penalties for non-participation and rewards for participation, including incentives of up to a 30% discount on the cost of health care premiums. Employers must take care, however, to meet all of the requirements under the Health Insurance Portability and Accountability Act (HIPAA), such as offering alternatives to employees who are unable to achieve the health goals due to physical reasons. To that end, employers should ensure that they are rewarding not just goal attainment, but also program participation.