United States

Auto manufacturers may be missing Work Opportunity Tax Credit benefits

INSIGHT ARTICLE  | 

Original equipment manufacturers and automotive suppliers are experiencing unprecedented challenges in their efforts to attract and retain qualified employees.  Due to high employee-turnover rates, many have turned to temporary employment agencies for entry-level positions. While some companies in the automotive industry are taking advantage of the federal Work Opportunity Tax Credit (WOTC), utilizing temporary employment agencies creates unique issues and opportunities through this credit that few companies are addressing properly.

The WOTC can provide valuable tax savings to companies hiring employees that fall into one or more target groups, such as veterans and individuals from other groups with significant barriers to employment.1 While the tax law states that the credit is available for employers, it stops short of providing a definition of the term. As such, the common-law definition of employer is appropriate for purposes of the credit.

In some temporary agency relationships, a company (as opposed to a staffing agency) may do the actual recruiting, directing of daily work activities and final termination of the temporary employees. In these situations, a staffing agency is little more than a bookkeeping convenience and the company would be the common-law employer and the employer for tax purposes.

Companies should determine WOTC eligibility when an individual is hired by a staffing agency (as opposed to joining the company as a W-2 employee).  Given the typical high turnover rates of temporary employees, companies may be missing significant WOTC benefits by not screening for eligibility immediately.  Alternatively, companies could be claiming inappropriate credits if they delay the screening process until an individual is hired as a W-2 employee (which is typically after the statutory 28-day screening window). 

Even though temporary workers may be employees of the staffing agency, automotive suppliers should not overlook the WOTC for those individuals. Understanding how your company utilizes temporary staffing agencies could lead to significant tax savings and risk mitigation. 

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