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Employment and Training Program Resources - Welfare to Work Vouchers

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 -   Making the Most of Employer Incentives
 -   Types of Employer Incentives
 -   Implementing Employer Incentives

Making the Most of Employer Incentives

PHA partners who work (or plan to work) with the business community to secure employment for Welfare to Work voucher recipients should consider the costs and benefits of using employer incentives for hiring recipients. Because these incentives often vary by state, please visit http://www.statelocalgov.net/index.cfm for more information about programs in your state.

Incentives for training, hiring, and/or retaining welfare recipients and other disadvantaged job seekers can effectively engage the business community in welfare and employment programs.

While often successful, employer incentives are not always perfect:

  • Businesses have generally not been eager to take advantage of incentives, especially given their often cumbersome administrative requirements.

  • In some cases, incentives may actually discourage hiring by suggesting to employers that targeted individuals are unqualified.

  • Sometimes, incentives will be used by businesses that would have hired the same individuals anyway, resulting in a cost to taxpayers without any added benefit.

Despite these cautions, however, incentives - when used carefully and as one piece of a Welfare to Work strategy - can be a useful marketing tool and can promote the employment of welfare recipients and other disadvantaged job seekers.

Types of Employer Incentives

Employer incentives can include any of the following:

Wage subsidies
The majority of states offer or plan to offer wage subsidies, which reimburse employers for a portion of wages paid to targeted individuals. The two most common types are work supplementation and on-the-job training (OJT).

  • Work supplementation subsidizes employers who hire welfare recipients, paying for the subsidies with funds that would otherwise have gone to the individuals as welfare grants.

  • OJT, which is funded through the employment and training system, offers subsidies to employers who hire and provide training to a broader group of disadvantaged job seekers.

Programs differ in the amount and duration of the subsidies. Subsidies are often available only for higher-paying (above minimum wage) jobs, and some programs limit the number of subsidized positions that one employer can claim. Wage subsidies are also generally temporary - many programs limit them to 3 to 12 months.

Tax credits
Two federal tax credits are the Work Opportunities Tax Credit (WOTC) and the Welfare to Work Tax Credit (WWTC).

  • The WOTC credits employers for up to $2,400 of first-year wages for new hires who fall within certain target groups, including long-term welfare recipients.

  • The WWTC credits employers for 35 percent of first-year wages and 50 percent of second-year wages (qualified wages are capped at $10,000 per year). The credit is available for long-term welfare recipients or individuals who have reached a time limit on welfare receipt.
In 1998, 14 states offered their own tax credits to employers who hired welfare recipients (some states offer both wage subsidies and tax credits). In addition to providing a credit for a portion of wages paid, Maryland and Pennsylvania gave additional credits to companies that assist employees with child care expenses.

Other financial incentives
Some states have designed different types of financial incentives. For example, Montana banks, working with the Montana Board of Investments and the Department of Public Health and Human Services, offer no-interest loans to enable employers to expand their staffs and hire welfare recipients. The loan amount is determined by the annual wage and employee benefits.

Trial periods of employment
A trial period can be a significant incentive for employers who are hesitant about hiring welfare recipients and concerned about the risk and cost if the employee does not work out. Trial periods protect employers from worker's compensation and liability costs, and during the trial period employers avoid establishing payroll and completing other administrative tasks related to hiring.

These arrangements can be structured in two ways:

  • The worker can continue to receive welfare during the trial period or
  • A third party can act as the employer of record.

Depending on the arrangement, employers may or may not pay wages during the trial period.

In cases in which the worker continues to receive welfare, the trial period looks similar to work experience programs that have traditionally placed recipients in positions with public and nonprofit agencies. The new federal welfare law allows those positions to be created in the private sector as well. For example, Hawaii's Transitional Opportunity Program places welfare recipients in jobs with private-sector employers at no cost for a six-month period (employers do contribute worker's compensation and disability premiums). During the placements, workers are eligible for medical, child care, and transportation assistance.

In other situations, a third party acts as the employer of record during the trial period, and the initiative works much like a temporary staffing agency.

America Works, a private, for-profit organization that contracts with welfare agencies, serves as the employer of record while participants work for other companies for a four-month trial period. America Works receives a fee from employers to cover participants' minimum wage salary and support services, including on-site follow-up for both employers and employees.

Support services
Transitional benefits are an important and often overlooked incentive for employers to hire welfare recipients. Common benefits include:

  • Child care;
  • Transportation;
  • Food stamps; and
  • Medical assistance.

Most companies recognize the importance of support services in hiring and retaining employees; their current entry-level employees are likely to struggle with the same issues. Post-placement counseling is often also valued by employers who hope it can increase job retention. Many employers may not know about these benefits, so it is important to advertise the benefits your program offers.

Implementing Employer Incentives

Businesses have traditionally been slow to take advantage of available incentives. This is partly because employers have not been aware of the incentives and partly because they have found the administrative requirements burdensome. More fundamentally, businesses repeatedly stress that they are more interested in finding qualified employees than in receiving subsidies. The following suggestions can help job programs better design and market incentives to make them more effective:

  • Create strong marketing materials. Publicize and clearly outline available incentives in a brochure or other marketing materials. Emphasize all types of incentives, including support services.

  • Provide clear information. Employers may need help understanding how the different incentives work and in deciding which would be most beneficial to them. Train program staff to explain the incentives, provide any needed forms, and help employers complete these forms.

  • Simplify paperwork. Employers often complain about the "mountain of paperwork" involved in obtaining incentives. Minimize paperwork as much as possible and fill out whatever can be completed in advance for employers.

  • Target the right group of welfare recipients. Incentives may make most sense for recipients who have basic skills and no serious barriers to employment. At the same time, you do not want to provide subsidies for recipients who could have found unsubsidized employment. Many programs therefore limit subsidies to long-term recipients or to those who are unsuccessful in a job search.

  • Develop protocols to move people to permanent jobs. Subsidies and other incentives are intended to move welfare recipients closer to permanent employment. Subsidies should be time-limited, and employers should generally be expected to retain successful employees after the subsidies end. If they do not, job programs should market a recipient's new experience to place them into other unsubsidized jobs.

  • Avoid substituting for unsubsidized positions. Develop guidelines to ensure that welfare recipients are not displacing current workers. A good understanding of companies' staffing can keep you aware of the positions that should be available for recipients. Time-limiting incentives can help guard against the problem of displacement.

  • Recognize problems. Keep track of subsidized placements and communicate with both employees and employers to learn about problems or dissatisfaction. Offer to replace employees who are not working out. Similarly, if you have recurring problems with a company, be willing and able to end the partnership.

  • Follow up on customer service. Ask for feedback from employers on how you can make incentives more attractive, more useful, and easier to access.
Content current as of 9 March 2004   Follow this link to go  Back to top   
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