BERLIN – A new federal jobs stimulation initiative providing employers an exemption from paying Social Security contributions on recent hires, and in some cases, allow a significant tax credit on each new employee, could have an immediate impact for seasonal employers in the resort area.
At the end of March, President Barack Obama signed into law the new Hiring Incentives to Restore Employment (HIRE) Act, an incentive package to get businesses to hire the recently unemployed. While the intent of the HIRE Act is to stimulate job growth across the nation, its impact could be particularly important in Worcester County and the resort areas around Ocean City, where many businesses shuttered for the winter are hiring for the summer season.
Boiled down to its simplest terms, the HIRE Act provides an exemption for employers from paying the 6.2-percent Social Security tax on each new employee for the remainder of 2010. An employer may take the Social Security tax exemption on any employee who has not worked in the 60-day period prior to their hiring or who has not worked more than 40 hours in the 60 days.
Unlike a similar initiative approved in Maryland, the federal HIRE Act is not aimed only at getting individuals off the unemployment rolls. It applies to all new hires that meet the qualifications, making the potential impact a huge one for local businesses ramping up their employment rosters for the summer season.
“This is a huge benefit for employers in our area, many of whom are just re-opening their businesses for the season, or are adding employees to gear up for the season,” said Amanda Keisewetter, a CPA with Bergey and Company in Berlin, whose client list includes many seasonal businesses. “A business that hires 20, 30 even 100 new employees who have been unemployed for at least 60 days prior can take advantage of this.”
Another local accountant, Liz Gregory, managing member of Gregory and Associates in Ocean City, said the federal HIRE Act has been enacted just in time for seasonal businesses in the resort and beyond to take advantage of the significant tax savings on new hires.
“The tax benefit of the new incentive is immediate,” she said. “It puts money into a businesses tax flow immediately since the tax is simply not required to be paid by the employer.”
A second component of the HIRE Act provides a potentially even greater tax benefit for employers, but the qualifications are a little trickier. The act allows employers to claim up to a $1,000 tax credit on each new hire that has been unemployed for at least 60 days, but the caveat is the employee must be retained for 52 weeks after they are hired. In essence, the very seasonal nature of the local area that allows to take advantage of the first component of the act could make it difficult for employers to meet the second part of the equation.
In many cases, local employers might be able to take advantage of both elements, but the exemption from paying the employer share of the Social Security tax on each new employee is significant. According to Keisewetter, most new hires will qualify for the exemption.
“They don’t have to be on the unemployment rolls to qualify, they just have to have been not working for the prior 60 days,” she said. “That includes students, or even in some cases, part-time employees who worked less than 40 hours during the 60 days prior to their hiring.”
For many local employers, the hiring incentive is a welcome change after getting clobbered with year-round unemployment insurance contributions and other taxes despite the seasonal nature of their business.
“Anything that can help the small business owners right now is a huge plus, because everybody has been struggling,” said Susan Jones, executive director of the Ocean City Hotel-Motel-Restaurant Association. “This is a great opportunity for our seasonal employers, which make up the majority of our businesses in the area.”
While the federal initiative exempts employers from paying Social Security tax, it does not provide similar benefits for the employees themselves, other than obviously being hired for a new job. In a letter sent to clients explaining the change, Bergey and Company said employee contributions for Social Security must still be paid.
“The employee portion of this tax must still be withheld, but the employer portion will be exempted,” the letter reads. “The definition of a previously unemployed individual is one who has worked less than 40 hours in the 60-day period prior to employment.”
Little has to be done by employers to take advantage of the tax incentives other than filling out a short form, called a W-11, for each new employee hire after the March 18 effective date for the act. Of course, employers should be careful to confirm their new hires were not employed in the 60 days prior to their hiring, or that they meet the minimum qualification of less than 40 hours of part-time work during the 60 days.