Cost Reduction Opportunities Using Tax Credits: The Financial Advantage

Cost Reduction Opportunities Using Tax Credits: The Financial Advantage

This article was updated on July 16, 2018.

Organizations are focused on retaining employees through wage growth, according to the ADP Workforce Vitality Report. But once businesses incrementally increase the salaries of 100, 500 or 1,000 employees — along with hiring new staff — costs can quickly spiral out of control. For HR leaders, the need for skilled workers typically outstrips the drive to stay on budget, while finance leaders typically take the opposite approach. There may be a way to meet in the middle, however, in the form of cost reduction opportunities using tax credits.

The Work Opportunity Tax Credit

One of the most popular federal tax credit opportunities available, the Work Opportunity Tax Credit (WOTC) encourages businesses to hire individuals from certain groups that have historically faced employment barriers. These groups include veterans, designated community residents, food stamp recipients, and ex-felons.

While the prospect of hiring employees with criminal backgrounds can be daunting for organizations, there could be potential benefits beyond the federal tax credit — pride and transparency. According to Forbes, hiring employees with criminal records can help boost an organization's bottom line because these new employees are often grateful for the opportunity and come with less surprises because detailed federal records on their past and personal disposition may be available.

The Enterprise Zone Tax Credit

It's also possible to embrace cost reduction opportunities using tax credits at the state level. For example, the Sterling Journal-Advocate reports that the Enterprise Zone (EZ) program in Colorado is designed to empower business growth within the state by offering tax credits for necessary purchases and property upgrades. Businesses enrolled in the EZ program have access to the investment tax credit, which lets businesses earn up to 3 percent on personal business property investments. The property must be used exclusively for a year and be depreciable, tangible and personal property such as equipment, furniture or computers, according to the Sterling Journal-Advocate. Businesses can also access tax credits to rehabilitate old buildings and reduce the cost of long-term growth.

Training and Growth Tax Credits

Other state tax incentives focus on training, growth and new employment. For example, according to the Rhode Island Department of Labor and Training, there are various tax credit opportunities available to eligible employers conducting business in the state such as a Job Training Tax Credit of up to $5,00 per employee over three years, giving HR leaders the dual bonus of a well-trained workforce at a reduced cost. Rhode Island also offers a New Employment Tax Incentive of up to $2,400 per eligible employee, Apprenticeship credits the lesser of 50% of actual wages or $4,800 per eligible employee, and its Jobs Growth Act grants a possible exemption of 50 percent on employee bonuses to eligible employers.

Cost reduction opportunities using tax credits can help offset the need to meet increased salary demands and provide a way to help minimize the budget impact of hiring new employees for both entry-level and knowledge-specific positions. While HR leaders and finance executives often have differing opinions about staff and spending requirements, federal and state tax credits can help establish a solid middle ground.