Hiring, Wage, and Employment Subsidies

There exists a variety of Federal, state and local programs intended to reduce unemployment. These are commonly known as hiring subsidies, wage subsidies, or employment subsidies, and compensate employers for a certain percentage of their wages for a specific period of time. Whether such programs are effective in the near term or over the long haul in reducing unemployment or reducing the number of chronically unemployed, is subject to much debate. A lot of companies eschew such programs, thinking the cost (increased training and reduced productivity) outweigh the benefits. Others find great benefit in hiring subsidized labor. A lot depends upon the skills needed for a particular position and the level of training and supervision required.

For Government contractors (with cost type contracts), there is little monetary incentive to join a subsidized labor program. If the subsidy is a cash payment from a Governmental entity or even a tax credit, it must be treated as a credit in accordance with the FAR (Federal Acquisition Regulations) credit clause (see FAR 31.201-5) and passed back to the Government. Federal contracting rules will not allow contractors to obtain double reimbursement for the same cost.

To illustrate, consider the Workforce Investment Act (WIA) of 1998. This Act was intended to help turn the "hard-core" unemployed into productive wage earners. One incentive to industry to participate in the program is a partial subsidization of these new workers' wages, up to 50 percent for the first weeks or months of their employment. According to the law, this subsidy was intended to compensate employers for the increased training costs and reduced productivity associated with hiring.

If a contractor includes costs in its proposals or billings that are subject to reimbursement under the WIA, an appropriate credit should be given the Government as required by the FAR credit clause. To read more about the FAR credit clause, click here.