Increase Gross Margin on Some Employees by 30%

Here’s the deal….

The Hiring Incentives to Restore Employment (HIRE) Act was signed into law by President Obama on March 18, 2010.  This Act has two main provisions that can benefit staffing agencies – an exemption from social security taxes for certain newly hired employees and a tax credit for retaining these employees for 52 consecutive weeks.

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Social Security Tax Exemption

The Social Security tax exemption applies to employees hired after February 3, 2010 who were previously unemployed for at least 60 days prior to being hired, or who worked less than a total of 40 hours in the 60-day period prior to beginning work for the new employer.  Employers will save the 6.2% employer social security tax, up to the wage base limit, on wages paid to these employees after March 18, 2010, and before January 1, 2011.  If your typical gross margin is 20% on an employee it jumps to 26.2% (roughly a 30% increase).

Eligible employees will be required to certify by “signed affidavit” under penalties of perjury that they have not been employed for more than 40 hours during the 60-day period prior their hire date.  Employers are required to retain these statements for a currently undefined period of time. A well designed front office software application can help you identify those candidates.

This legislation is a big deal. It puts money into a business’ cash flow immediately, since the tax is simply not collected in the first place. There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven. Finally, the incentive is not biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $20,000 worker and a $90,000 worker.(

Tax Credit

Employers that retain these eligible employees for 52 consecutive weeks after they are hired may be eligible to claim an additional tax credit up to $1,000 for each retained employee on their income tax return. Again, the right kind of back office staffing software can track that eligibility and highlight employees who need to be assigned to keep their ‘streak’ intact.

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