EEOC Says Anti-Bias Laws Don’t Block Employers from Using WOTC

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Employers who properly apply for the Work Opportunity Tax Credit (WOTC) won't run afoul of federal anti-discrimination laws, according to an opinion letter that was recently issued by the Equal Employment Opportunity Commission (EEOC).

The WOTC can help employers close the skills gap by encouraging them to hire applicants who often are overlooked, such as people with criminal historiesmilitary veterans, workers with disabilities and the long-term unemployed.

Employers that want to apply for the credit must submit IRS Form 8850 to their state workforce agency certifying that an applicant is a member of a targeted group and qualifies for the credit.

The EEOC's April 29 opinion letter states that employers that properly use Form 8850 won't violate federal equal employment opportunity (EEO) laws, including the Americans with Disabilities Act (ADA), by asking job applicants to self-identify. 

An employer that is seeking the WOTC can ask job applicants to check a box verifying that they fall into one of the covered categories, said LaKisha Kinsey-Sallis, an attorney with Fisher Phillips in Tampa, Fla.

"Although this would typically be a risky—if not illegal—practice under anti-discrimination laws that generally prohibit you from making these kinds of inquiries, the agency has laid the groundwork to permit such inquiries for this purpose," she added.

Kinsey-Sallis called the EEOC's decision "a victory for employers who previously shied away from taking advantage of the WOTC process due to fears of discrimination claims."

WOTC Background

"The WOTC program helps employers hire targeted groups of individuals who have had challenges getting hired," said EEOC Commissioner Victoria Lipnic during an April 29 meeting. "It is a win for the employer [that] can use the tax credit to reduce hiring costs … and it is a win for the individual to get a new job."

The WOTC program has been in place since 1996. The program takes eligible workers off other forms of government assistance, which ends up saving money for both the federal and state governments. 

The maximum tax credit is defined by law and ranges from $1,200 to $9,600 for each eligible employee—depending on the employee's target group and hours worked in the first year.

Eligible job applicants that are hired and certified must work a minimum of 120 hours during the first year of employment, then the employer can claim a tax credit of 25 percent of qualified wages, up to a certain limit set for the target group. An employer may claim a credit equal to 40 percent of the eligible employee's qualified wages, up to a certain maximum, if the employee has worked at least 400 hours.

For most target groups, the maximum wage eligible for WOTC is $6,000 per eligible employee, which translates to a $2,400 credit. Employers may consider up to $24,000 in wages for a long-term unemployed veteran with a disability and receive a credit of up to $9,600.

The credit is limited to the amount of business income tax liability or Social Security tax the employer owes.

Legal Defense

The new opinion letter gives employers a defense against certain discrimination claims brought by job applicants as a result of information learned through IRS Form 8850, Kinsey-Sallis explained.

She noted that the decision to issue the opinion letter was not without debate. Commissioner Charlotte Burrows was concerned that the letter would create another legal defense for employers.

[SHRM members-only toolkit: Managing Equal Employment Opportunity]

Burrows said the WOTC is an "important tax credit," and she supported the EEOC's decision to issue an opinion letter explaining that employers may use the tax credit without violating federal anti-discrimination law. "We should not do so in a form that creates a new formal legal defense" to the EEO laws that the agency enforces, she said.

The commission ultimately approved the opinion letter with Lipnic and EEOC Chair Janet Dhillon voting for it and Burrows voting against it without amendments.

"I hope that [the opinion letter] will ease the concerns of well-meaning employers and cause them to reconsider the use of the WOTC program," Dhillon said. 

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