Hiring Summer Help
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.
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.
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 six rules.
- 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.
- The work (or training) is for the benefit of the student intern.
- The intern doesn’t replace regular employees, but works under their close observation.
- 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.
- The intern isn’t necessarily entitled to a job at the conclusion of the internship. The employer holds out no promise of future employment.
- 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 us.