The Hiring Incentives to Restore Employment Act, signed by President Obama on Thursday, has the potential to encourage job growth; however, the many rules and requirements that come with it mean employers will have to be wary of compliance issues.
The HIRE Act eliminates the current 6.2% employer Social Security tax for eligible new hires, generating immediate savings for those hiring. The 6.2% Employer Social Security Tax exemption applies to 2010 wages paid after March 18, 2010 and before Jan. 1, 2011, to individuals hired after Feb. 3, 2010. In order to obtain credit, the new hire must certify that he or she has not been employed for more than 40 hours during a 60 day period before the individual begins employment by signing an affidavit under penalty of perjury. The employee’s wages must not exceed the $106,800 Social Security wage base.
In addition, companies can earn a $1,000 income tax credit per qualifying worker once the worker is employed for 52 consecutive weeks, or 6.2% of wages are paid to the qualifying worker over the 52-week period, whichever is less. Wages during the last 26 weeks must be at least 80% of wages paid for the first 26 weeks.
Employers would not have to wait until 2011 to benefit from this tax relief because savings would accrue with each payroll processed. Further, the legislation encourages employers to hire earlier in the year in order to receive full savings. For example, a $60,000 worker hired on April 1 saves an employer about $2,800 in taxes. Delaying the hiring until June 1 would reduce savings to about $2,200.
There is no cap on the total amount of tax benefits that can be claimed by an employer. Employers can save up to $6,622 per qualifying worker, whether they hire one or a hundred new employees.
Neither the 6.2% Employer Social Security Tax exemption nor the retention tax credit is permitted if a person is hired to replace another employee, unless that employee severs employment voluntarily or is fired for cause.
“The intent of the HIRE Act by Congress and the administration is to reinvigorate the workforce. While these measures will certainly be welcome by employers, staying compliant in this complex and quickly changing business environment can be a burden for companies of all sizes,” says Gary Butler, CEO of ADP, an outsourced HR, payroll and benefits administration services provider. The ADP Web site provides additional information concerning the legislation.
A possibly useful tool for employers, the ADP calculator, figures savings per employee based on the variables of salary and time of hire.
