New Federal Law Gives Employers Financial Incentives To Hire And Retain New Employees

On March 18, 2010, President Obama signed into law the federal Hiring Incentives to Restore Employment Act (the “HIRE Act”), P.L. 111-147. The HIRE Act, which is aimed at spurring job growth, gives employers financial incentives to hire and retain new employees.

The final text of the HIRE Act does not yet appear to be available online. However, the U.S. House of Representatives’ version of the bill, H.R. 2847, is linked here: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2847enr.txt.pdf .

Section 101 of the HIRE Act exempts an employer from paying the employer’s portion of Social Security payroll taxes (6.2% of the first $108,000 of wages) for wages paid in 2010 for any new worker hired after February 3, 2010 and before January 1, 2011, if the new worker (1) has been unemployed for the past 60 days and (2) is not hired by the employer to replace another employee, unless that other employee quit voluntarily or was fired for cause. The maximum value of this incentive is $6,621, consisting of 6.2% of the first $108,000 of the new worker’s wages.

Under section 101 of the HIRE Act, the longer in 2010 that an employer employs a new worker, the greater the tax benefit to the new employer. As a result, the new federal statute encourages employers to hire workers immediately.

The HIRE Act requires that the employer obtain a signed affidavit from each new worker certifying, under penalties of perjury, that he or she was unemployed throughout the 60 days before beginning work or, alternatively, that he or she worked a total of no more than 40 hours during that 60-day period. The Internal Revenue Service reportedly is creating a form of affidavit that workers can complete to make the required certification.

In order to provide employers with incentive to retain their newly hired workers, section 102 of the HIRE Act allows an employer, when it files its 2011 tax return, to obtain a business tax credit of up to $1,000 for each new worker whom the employer employs for 52 consecutive weeks. Specifically, for each newly hired worker whom an employer employs continuously for at least 52 weeks, section 102 of the Act grants the employer an income tax credit for 2011 of the lesser of (1) $1,000 or (2) 6.2% of the new worker’s annual wages.

Accordingly, to obtain the maximum tax credit of $1,000 under section 102 of the HIRE Act, an employer must pay, to a newly hired worker, annual wages of not less than $16,129.

If your company needs assistance or guidance on a labor or employment law issue and your company is located in the borough of Manhattan area, call Attorney David S. Rich at (347) 941-0760.