What if I told you that you might be leaving thousands of free unclaimed dollars for your restaurant on the table?
The Work Opportunity Tax Credit, or WOTC program, is a tax credit program with low notoriety and high rewards for restaurant owners. And it’s as simple and straightforward as it sounds.
In this article, we'll discuss:
What WOTC is.
What it means for restaurant owners and employees.
How much your restaurant can save every year with WOTC.
How to get started in the program.
Read on to learn how you can save your restaurant thousands of dollars every year with minor tweaks to your restaurant hiring program.
What is WOTC, Anyway?
We covered this briefly in our blog post on regulations impacting restaurants, but WOTC (or the Work Opportunity Tax Credit) is a tax incentive for businesses in the United States - restaurants included - to hire individuals from certain target groups who meet specific qualifications.
Temporary Assistance for Needy Families (TANF) recipients.
Supplemental Nutrition Assistance Program (SNAP, Food Stamp) recipients.
Designated Community Residents (DCR) living in Empowerment Zones or Rural Renewal Counties.
Vocational Rehabilitation (VR) referred individuals.
Supplemental Security Income (SSI) recipients.
Summer Youth Employees living in Empowerment Zones.
The entire list of those eligible is covered on the IRS website here.
What's the Goal of WOTC?
The goal is to provide better employment opportunities to individuals facing significant challenges in their lives. In return, businesses will receive compensation for hiring these workers, many of whom are qualified and well-suited to the position they’ve applied for.
It’s a win-win situation for everyone involved!
How Does WOTC Help My Restaurant Business?
Hiring and retaining great employees isn’t easy. According to Investopedia, it can cost $3,500 in turnover costs to replace an $8/hr employee. Furthermore, the 2014 Training Industry Report from Training Magazine states that small businesses in the U.S. spent approximately $1,200 per employee in training costs, while the restaurant turnover rate in 2016 was 72.9%.
In the restaurant industry, it can be challenging to find individuals to join and stick with your team. While proper retention practices are key to reducing these costs, the WOTC program can offset significant costs should you find yourself hiring a new worker.
Calculating Your Return
The WOTC program allows businesses to claim between $1,200 and $9,600 for each qualifying new hire. This amount changes depending on which target group the employee falls under, as well as the number of hours they worked during the year. The only catch is that your new team member must work a minimum of 120 hours within the first year in their hired role to qualify.
Your tax return will increase the more hours they work. For example, after 120 worked hours, the employer can claim a credit equal to 25% of the new hire’s first year of qualified wages.
After 400 hours, a tax credit equal to 40% of their first year of wages can be claimed.
For example: a SNAP recipient who can earn $6,000 in their first year of employment can translate to a max $1,500 tax credit after 120 hours of scheduled hours, and a max $2,400 tax credit after 400 hours of scheduled hours.
Getting Your Restaurant Started With WOTC
Making changes to any aspect of your business’s operations can feel a bit daunting at first – after all, the last thing you want to do is invest time and resources setting up a system that doesn’t produce return.
Let's cover the process for getting your restaurant set up with WOTC, which is not too hard at all.
Step 1: The Paperwork
The very first step in the WOTC process is to set your business up with the program. This involves filling out government forms (available here) in order for your business to leverage the program.
While paperwork is not the most exciting thing in the world, it only needs to be done once if you're approved.
Step 2: Screening Candidates
The next step is determining whether an applicant is eligible for the program. This can be tricky, as it requires you to gather information from your potential hires to help identify them.
Typically, businesses will go through their hiring procedures as usual and make a hiring decision. From there, they would determine whether their chosen hire is a fit for the WOTC program, and move forward with the process if so.
However, the problem with this approach lies in the assessment. In order for your business to take full advantage of the WOTC program, it’s important for you to know whether your applicants are eligible early in the recruitment process. This allows you as the hiring manager to factor their candidacy into the hiring decision and maximize your return on the investment. Luckily, there are options for businesses looking to do just that.
Step 3: The Onboarding Phase
Once you’ve hired your new employee, you’ll be in the home stretch of the WOTC process! These documents must be submitted within 28 days of your new hire’s start date, so the onboarding period is the best time to get these out of the way.
There will be a few additional pieces of paperwork that you and your new hire will need to fill out, including a Pre-Screening Notice and Certification Request for WOTC and an Individual Characteristics Form.
Once you’ve submitted this information, the State Workforce Agency (SWA) will review your request and issue an approval if your new hire meets all the criteria for the rebate. In some cases, you may be asked to provide additional documentation before they make their final decision. Once you receive approval, you’ll be all set to claim the tax credit through the IRS!
WOTC and Your Restaurant
If you’re feeling overwhelmed, there are great services and resources out there to help guide your business through this process and maximize your hiring process! The sooner you integrate this fantastic tax credit into your recruitment system, the sooner you can begin reaping the rewards. What are you waiting for?
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