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Tax Breaks for Hiring Summer Help

Do you remember your first summer job?

It doesn’t matter if you were a babysitter, caddy, telemarketer or lifeguard. Your first job taught valuable lessons about responsibility and balancing work with family and friends. It also helped keep you out of trouble during the summer, instilled confidence and built up your resume.

Unfortunately, the demand for summer jobs consistently outpaces the supply of open positions — and it’s been getting worse over time. Only 34% of U.S. teens had jobs last summer, according to JPMorgan Chase’s recent study entitled “Expanding Economic Opportunity for Youth through Summer Jobs.” Moreover, the summer youth employment rate has dropped 20 percentage points over the last two decades.

Summer Opportunity Project

Here’s information about the government’s new Summer Opportunity Project, a possible federal tax break for hiring summer youth workers and important rules to follow when you bring young adults into the workplace.

To meet the growing demand for summer employment, the government recently launched its Summer Opportunity Project. As part of this campaign, President Obama — whose first job was scooping ice cream for Baskin-Robbins in Honolulu — is urging private businesses to help out. In a recent LinkedIn post, the President said, “If you’re an employer or business, give more young people their first job this summer. Work with your communities to recruit, train, and mentor young people who are out of school and work.”

The government’s project is a multi-agency effort that aims to increase the number of youth in summer jobs and internship programs, as well as providing learning and meal programs for those who qualify for free and reduced-price meals during the school year. It includes $20 million in grants from the U.S. Department of Labor (DOL) for communities that adopt innovative approaches to providing summer and year-round career pathways for young people.

Federal and state youth programs help link teens who are searching for summer jobs with private employers through partnerships with public high schools, colleges and universities, training and economic development agencies, and not-for-profit organizations. This creates a win-win for everyone: Young workers receive paychecks and valuable hands-on training. Businesses get seasonal help and create goodwill by helping strengthen the skills base in their local communities.

Tax Break for Summer Youth Workers

In addition to making you a good corporate citizen, hiring summer help may qualify your business for the Work Opportunity credit, if you meet certain requirements. This tax break applies to qualified wages paid to new employees from certain targeted groups, including summer youth workers. The most recent extension of this credit — under the Protecting Americans from Tax Hikes Act of 2015 — retroactively renews the credit for 2015 and extends it through 2019.

Special rules apply to summer youth employees: For them, the credit equals 40% of up to $3,000 of first-year wages (or up to $1,200 per qualified worker). It’s available only for individuals age 16 or 17 who work for your business between May 1 and September 15. The youth also must reside in an Empowerment Zone. Contact your tax adviser for information about meeting the certification requirements.

There’s no limit on the number of eligible summer youths your business can hire and claim the Work Opportunity credit for. In addition, Work Opportunity credits generated by pass-through entities, such as S corporations, partnerships and limited liability companies, pass through to the owners’ personal tax returns. If this credit exceeds your tax liability, it may be carried back or forward. You can’t claim it for employing your own dependents or relatives, however.

Employee vs. Intern

Young people applying for summer positions can be an inexpensive source of eager, strong and tech-savvy workers, especially if your business peaks in the summer months. But be careful when determining how much you’ll pay them. The DOL has strict rules for offering student internships that pay less than minimum wage.

Before bringing unpaid (or underpaid) interns into your workplace, make sure the work is mostly about on-the-job training. Under federal labor laws, employers must pay interns at least the minimum wage unless the experience passes these six rules:

  1. The work performed (the DOL uses the word “training”) is an extension of a trade studied by the student or similar to the intern’s school training.
  2. The work (or training) is for the benefit of the student intern.
  3. The intern doesn’t replace regular employees, but works under their close observation.
  4. The employer derives no immediate advantage from the student intern’s activities. The intern’s activity is primarily an educational experience and doesn’t significantly benefit the employer.
  5. The intern isn’t necessarily entitled to a job at the conclusion of the internship. The employer holds out no promise of future employment.
  6. The employer and the intern understand that the student isn’t entitled to wages for the time spent in the internship.

Beware that interns and other trainees who pass this six-factor test may still be considered employees for other legal purposes. For example, interns are protected by discrimination and harassment laws. And they may be protected by workers’ compensation regulations, depending on state laws and specific circumstances.

Reap What You Sow

One way to avoid the DOL’s strict rules for internships is to pay your summer youth workers at least minimum wage. Most employers find that summer workers are grateful for the opportunity to earn money while gaining experience. In turn, summer hires who feel well paid and appreciated are not only more productive today, but they’re also more likely to work for you again in the future.

For more information about hiring, paying and claiming tax breaks for your summer workers, contact your tax and legal advisers.

Beware of ACA Issues When Hiring Interns and Part-Timers

Most companies don’t offer medical benefits to interns and other temporary employees. Beginning in 2016, this practice may conflict with the Affordable Care Act (ACA) which requires that companies offer affordable medical benefits to 95% of their employees (an increase from 70% in 2015). If you hire a significant number of interns and temporary employees, you may need to change your hiring practices in order to remain compliant with the ACA. Contact your tax or legal adviser for more information.

 

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