When a company is looking to hire new employees it may be a sign that the business is growing. With additional workers your company may be able to step-up production, increase sales and provide better customer service. Hiring new workers can also give you a financial bonus if you qualify for California's New Employment Credit.
The New Employment Credit is a state tax credit available for employers who hire qualified new employees. To qualify for the credit the employer must meet certain requirements. The employer has to be engaged in a business or trade within a Designated Geographic Area, hiring qualified full-time employees for a qualified wage.
A Designated Geographic Area (“DGA”) is a census tract in the state that has high unemployment and poverty rates. This includes some former Enterprise Zones (“EZ”) and Local Agency Military Base Recovery Areas (“LAMBRA”). There is a number of DGAs across San Diego County. Employers who are unsure if they are in a DGA can use a government website search.
The tax credit became effective for tax years beginning on or after January 1, 2014, until January 1, 2021. Businesses generally excluded from the credit include those engaged in temporary help services, retail trades, food service, casinos, drinking places and theater companies, unless they are considered a small business.
Qualified new hires must be full-time employees working at least 35 hours per week, perform at least 50% of their service for the employer in the DGA and receive wages that are at least 150% above the state minimum wage. In addition, the new employee must generally have been unemployed for six (6) months or more, be a veteran, ex-felon, recipient of assistance programs or recipient of the federal Earned Income Credit.
The employer must receive a Tentative Credit Reservation (TCR) from the Franchise Tax Board within 30 days of completing the EDD new hire reporting requirement. This includes submitting information about the business and the employee to make sure the new hire qualifies for the credit.
In addition to meeting the above qualifications, the employer must certify each qualified employee annually, providing information about the business and the specific employee. The information is submitted online through the Annual Certification of Employment system.
Businesses that are qualified to claim the New Employment Credit can take advantage of a credit based on 35% of qualified wages or wages between 150% and 350% of the state minimum wage. Dozens of employers across California have already taken advantage of the program, claiming credits of up to $25,000.
These are the general requirements for the New Employment Credit; however, additional conditions and filing requirements may apply. If you want to know if your company is eligible for the New Employment Credit for hiring new employees, your business attorney will be able to verify whether the credit may be available.
Butterfield Schechter LLP is San Diego County's largest firm focusing its law practice on employee benefit legal services and business counseling. Our firm can help you establish a custom employee benefits plan that conforms with regulatory requirements and represents your best interests. Contact our office today with any questions on how we can help you and your business succeed.
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