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
- 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:
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.
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
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
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
- 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
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.
Transitional benefits are an important and often overlooked
incentive for employers to hire welfare recipients. Common benefits
- Child care;
- 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
- 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
- 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
- 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.