Payroll and HR services provider ADP is calling on Congress to incorporate a “legislative fix” as it considers renewal of the now-expired Work Opportunity Tax Credit (WOTC).
ADP supports renewal of the credit – meant to incentivize hiring certain marginalized individuals – but says it wasn’t serving the intended purpose. It is advocating for WOTC-eligibility screening earlier in the job application process to ensure the credit serves as a true incentive to hire certain applicants. Such a change, however, is not without risk.
WOTC Basics
The WOTC, which expired at the end of 2025, is a federal tax credit for employers that hire individuals from certain targeted groups who have consistently faced significant barriers to employment, such as veterans, SNAP recipients, and ex-felons. The credit is calculated as a percentage of a new hire’s first-year wages, provided the employee works a minimum number of hours.
The WOTC program requires an employer to screen job applicants for WOTC-eligibility on or before the job offer date. Employers pre-screen via IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit. They must then obtain their state workforce agency’s certification that the applicant is a member of a targeted group. The pre-screening requirement is meant to ensure employers are influenced by a candidate’s WOTC eligibility in their hiring decisions.
This requirement distinguishes WOTC from its predecessor, the Targeted Jobs Tax Credit. In fact, the GAO’s evaluation of that earlier credit suggested adding “prescreening to determine eligibility prior to hiring decisions.”
“There’s consensus that it was added in to make sure that employers are making informed decisions on who they’re hiring, so that it’s intentional that they’re hiring from the targeted groups,” explained Dan Lewis, vice president of compliance & government affairs at ADP.
Pre-Screening Practices
However, according to Lewis, many employers and HR service providers have adopted a “fictional analysis” that allows for screening after a hiring decision has been made. These providers use justifications like “contingent or conditional offers” to screen candidates during post-hire administrative steps.
This practice, Lewis told Checkpoint, turns the program into a “windfall for those employers” who would have hired the candidate regardless of their WOTC status. “They didn’t hire that person because they were WOTC eligible,” Lewis explained. “They hired them because they wanted them, and now they’re going to go and get additional benefits because they happen to fall into one of those categories.”
And ADP claims this practice harms the individuals WOTC is meant to help by narrowing job opportunities for the intended beneficiaries. ADP’s position is bolstered by a recent study from the University of Wisconsin that found the WOTC program has “precise null effects on hiring, employment, and earnings,” operating instead as a “pure transfer” to hiring firms.
Screening Risks
Even among employers that claim the WOTC, few include eligibility questions on job applications, according to the University of Wisconsin study’s authors. And often those that do collect this information “silo it from individuals making hiring decisions.”
The primary reason, say the study authors, is concern about legal liability. Hiring professionals surveyed for the study often feared that asking about WOTC eligibility could expose them to discrimination lawsuits. This fear helps explain why some employers and service providers delay screening until after a hiring decision is made.
Lewis said he hadn’t seen evidence of this. “If the program is working as intended, then what would be communicated to the potential candidate is: ‘This is actually an advantage for you in the hiring process,'” he stressed. Given “two equally viable candidates that you’re interested in hiring,” Lewis explained, “the intent of the program is to have you proceed with hiring the WOTC-eligible candidate.”
ADP currently provides for screening at multiple points in the hiring process, said Lewis. That includes the during initial application, at some point after the application submission, and at the interview stage. “The employer can make a decision on where in that process they feel comfortable before they get to the stage of making a hiring decision,” he explained.
Another factor identified by the Wisconsin study authors is job applicants’ reluctance to share that they fall into a WOTC-eligible class. Lewis, likewise, acknowledged that applicants “may be reticent to share the information because they think it may be perceived negatively.”
To overcome this, Lewis emphasized that it’s important to communicate to job applicants why the information is being collected. Employers need to convey to applicants: “I want to know this because it might give you a leg up in the hiring, because I’m going to receive certain financial benefits in hiring you.”
State and Local Law Conflict
WOTC screening for ex-felons, in particular, could run up against state and local fair chance and “ban the box” laws. These laws bar questions about an applicant’s criminal record in the initial application – with some such laws barring the questions until an interview or even a conditional offer.
Lewis told Checkpoint that “ADP’s WOTC eligibility screening solutions, which occur prior to any offer of employment, are designed to rely on information that can be collected in a compliant manner.” He noted that “ADP regularly monitors for such laws and regulations” which “vary by jurisdiction.”
The National Employment Law Project identifies 15 states, D.C., and 21 localities with fair chance laws applicable to private employers. That’s on top of fair chance hiring policies adopted by the federal government, as well as may state and local governments, applicable to government hiring.
The number of jurisdictions adopting fair chance laws is growing, but there is skepticism of this approach as well. A recent study concluded that barring screening and use of criminal record information had “little or no association with the rate at which individuals with criminal records survive the candidate assessment process and receive conditional employment offers.” The authors – who include the director of Northwestern University’s Workforce Science Project – posit that hiring managers in fair chance jurisdictions might “increase their reliance on hiring criteria that are correlated to criminal history.”
For more on WOTC, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-17775.
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