Donna Fenn is a contributing editor at Inc.
A Nursery Tale
"When my venture capitalist first heard our business plan, he wanted to vomit," recalls David Henry, CEO of Allegheny Child Care Academy. But the idea that turned stomachs is now turning heads. Founded in 1992, Henry's company operates 19 inner-city day-care centers serving welfare recipients and other low-income customers. The CEO expects his $8.5-million business to double in revenues this year, as it expands from its bases in Pittsburgh and Philadelphia into Detroit and Cleveland.
Allegheny's competitive edge is its nontraditional workforce: more than 25% of employees are themselves former welfare recipients. "We enjoy what we do socially," says Henry. "But we're not philanthropists. We have venture capitalists backing us, and the business model has to work." And the model does work, largely because the company's decision to target inner cities gave it access to a vast labor pool. Working with a private welfare-to-work training and consulting agency called Educational Data Systems Inc. (EDSI), Henry hired 100 former welfare recipients last year, mostly as teaching assistants and aides. "Day care is a very regional business, so it makes sense for us to hire from the community," he says. Allegheny's employees work close to home, so they're not saddled with transportation costs. And the close match between workplace and neighborhood demographics makes the company especially inviting.
Unlike many small-company CEOs, Henry takes full advantage of the financial benefits that come with welfare-to-work employees. The federal Work Opportunity Tax Credit amounts to $5,000 over two years for each qualifying employee; those workers also earn the company $3,000 each from Pennsylvania's Employment Incentive Payment Program. Then there's the 50% cash reimbursement Henry gets on qualifying workers' salaries during their first three months of employment, courtesy of the Greater Philadelphia Private Industry Council.
Acknowledging that his workforce is high maintenance, Henry hired in December a regional human-resources manager who serves the welfare-to-work employees exclusively. "If a case worker calls and demands to see someone in the middle of the day, the manager will arrange a time to speak that is convenient to both the agency and the employee," explains Henry. "She'll also make sure that employees file their state-required health forms every year and are aware of all the transitional benefits available to them through the state."
Like Frank Tucker, CEO of Tucker Technology, Henry views his welfare-to-work employees as an investment. By the end of the year he will have enrolled 20 or so in Project Teach, an accelerated state training program that awards child-care workers with degrees. "Through the program, they can grow in three to four years into a supervisory role," says Henry. "So we're building our own workforce."
Credit Where Credit Is Due
Financial incentives for employing welfare recipients are not proving to be the big juicy carrots that state and federal governments had expected them to be. Still, a tax break is a tax break, and the following federal enticements are offered to company owners who hire from the welfare rolls:
THE WORK OPPORTUNITY TAX CREDIT is available to companies that hire from one or more target groups. The groups include those who received Temporary Assistance to Needy Families (TANF) for 9 of the past 18 months; veterans who received food stamps for 3 of the past 15 months; and individuals aged 18 to 24 whose families received food stamps for 3 of the past 5 months but who are no longer eligible for them. Qualifying companies get a tax credit equal to either 25% or 40% of each employee's first $6,000 in wages, depending upon hours worked.
THE WELFARE TO WORK TAX CREDIT covers employees who have received TANF for at least the past 18 months or who are no longer eligible for TANF because they have exceeded the time limits. Companies that give these people at least 400 hours of work each year receive a credit equal to 35% of those employees' first $10,000 in wages in year one; and 50% of the first $10,000 in year two.
Company owners can claim one or the other federal credit but not both. And since this is the government, business owners naturally must file the appropriate form, in this case the pithily named Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits (or, as its friends call it, Form 8850). "The form must, without exception, be in the hands of your state WOTC coordinator within 21 days of when the person starts work," warns Steve Tennies, managing director of SMS Tax Incentive Group and executive vice-president of SMS Management Services, Atlanta consulting firms that help companies apply for the credits. States and communities may have their own sweeteners, says Tennies, including property-tax abatements, reduced utility rates, or sales- and use-tax exemptions. He recommends that CEOs check with their states' departments of commerce or departments of economic development. Members of the Welfare to Work Partnership can tap another resource: free advice on tax credits from four consulting firms.
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