TAX CREDITS MEANT FOR MARGINALIZED WORKERS TO GAIN PERMANENT JOBS ARE USED TO SUBSIDIZE TEMP WORK

TLDR; The Work Opportunity Tax Credit (WOTC) government program offers tax credits to employers as encouragement for hiring marginalized workers. Employers are using temp labor under the guise of trials for permanent positions to exploit workers for the credits before firing them. Hundreds of millions of tax payer dollars have gone into this program over its lifespan.

*Disclaimer: This blog post is written in response to ProPublica’s article which is linked below*

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This article starts by detailing the life of former inmate, DeMond Bush, who while in jail earned multiple associate’s degrees, learned a trade and performed in nine Shakespeare productions in an attempt to set himself up for success once released. Through the example of Bush who represents a large number of formerly incarcerated workers struggling to improve their lives, the door is opened on another temp agency exploitative practice: tax credits.

The Work Opportunity Tax Credit (WOTC) is a government program established in 1996 to encourage employers to hire and retain qualified marginalized workers based on membership to one of 10 targeted groups. The program was intended to promote permanent employment for these workers by offering a tax credit for each retained worker within the criteria; however, the lack of tight restrictions has led to exploitation of these workers at the benefit largely of temp agencies.

Agencies are hiring marginalized workers on the promise of permanent employment after a 90-day trial period, which would entitle them to higher pay, health benefits and sick leave. The employers are using enticing promises to lure in these workers under the false guise of permanent placement. Workers are fired nearing or at the end of their short-term “trial periods” with little or no notice. Why are employers doing this?

The WOTC’s light restrictions allow employers to benefit off the hiring of workers after as little as 120 hours, or the equivalent of about three weeks of full-time work for a credit worth 25% of a worker’s salary. While the average payout is $2,400 per employee, companies are allowed up to 40% of wages with a cap of $6,000 per worker.

With relatively no greater benefit from retaining workers for longer periods of time, temp agencies are taking full advantage of this publicly funded program. One of the qualified targeted groups, former felons who have paid their debt to society, are one of the largest groups for exploitation in this area. Of the top 14 employers certified to gain tax credits from these workers, thirteen of them are temp agencies.

Companies are gaining millions of dollars worth of tax credits off this exploitative practice. One company, Kelly Services, reported receiving $164 million in tax credits or 48% of its pre-tax earnings in 10 years. This reduced their federal income taxes 73%. Another corporation, TrueBlue, reported over $114 million in credits or 29% of its pre-tax income over the past 10 years. This reduced TrueBlue’s federal income tax by 69%.

Experts in the field including Sarah Hamersma, an economist at Syracuse University, have found that there has been little to no effect on workers’ long-term employment from the Work Opportunity Tax Credit program.

Policy Suggestion: As an active measure to reduce harm to workers and promote good behavior at the hands of employers, we suggest implementing the Temp Agency Seal of Approval Program for WOTC recipients. To qualify for the tax credit, the organization would need to have the Seal of Approval, which would promote favorable contracting for staffing agencies who receive this seal by agreeing to ongoing monitoring for compliance with labor laws and a Code of Conduct to protect workers from discrimination and retaliation.

Media Contact: Emily (Em) Smith | emily@chicagoworkerscollaborative.org

Source Material: https://www.propublica.org/article/work-opportunity-tax-credit-temp-permanent-employment ; source image from Vox

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Founded in 2000, the Chicago Workers' Collaborative promotes the creation of stable, living wage jobs with race, class, and gender equity for precarious workers in the Chicago region.

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