Useful Information

Basic Facts about the Work Opportunity Tax Credit (WOTC)

The Small Business and Work Opportunity Act of 2007 extends the WOTC Program through August 31, 2011. The WOTC has two purposes:

To promote the hiring of individuals who qualify as a member of a target group, and
To provide a federal tax credit to employers who hire these individuals.
An employer may qualify for a tax credit of up to $9,000 if the employee is a member of a designated target group and meets that group's specific requirements.

Target Groups that Qualify for the WOTC — Individuals hired from the following nine target groups may qualify an employer for the WOTC:

• Qualified recipients of Temporary Assistance to Needy Families (TANF).
• Qualified veterans receiving Food Stamps or qualified veterans with a service connected disability who:
  • Have a hiring date which is not more than one year after having been discharged or released from active duty OR
  • Have aggregate periods of unemployment during the one year period ending on the hiring date that equal or exceed six months.
• Ex-felons hired no later than one year after conviction or release from prison.
• Designated Community Resident – an individual who has attained ages 18 but not 40 on the hiring date who reside in an Empowerment Zone, Renewal Community, or Rural Renewal County.
• Vocational rehabilitation referrals, including Ticket Holders with an individual work plan developed and implemented by an Employment Network.
• Qualified summer youth ages 16 through 17 who reside in an Empowerment Zone, Enterprise Community, or Renewal Community.
• Qualified Food Stamp recipients ages 18 but not 40 on the hiring date.
• Qualified recipients of Supplemental Security Income (SSI).
• Long-term family assistance recipients.

What is the difference between a common law employee and an independent contractor?

"Common law," as we know it, has evolved slowly over the centuries based upon judgments rendered by the courts on individual cases. The common law of employment, as it exists today, is the total of all court decisions related to the question of what constitutes an employment relationship.

An employer-employee relationship exists when a person who hires an individual to perform services has the right to exercise control over the manner and means by which the individual performs his or her services. The right of control, whether or not exercised, is the most important factor in determining the relationship. The right to discharge a worker at will and without cause is strong evidence of the right of direction and control. The following factors should also be taken into consideration:

• Whether or not the one performing the services is engaged in a separately established occupation or business.
• The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of a principal without supervision.
• The skill required in performing the services and accomplishing the desired result.
• Whether the principal or the person providing the services supplies the tools, equipment, and place of work for the person doing the work.
• The length of time for which the services are performed to determine whether the performance is an isolated event or continuous in nature.
• The method of payment, whether by time, a piece rate, or by the job.
• Whether or not the work is part of the regular business of the principal.
• Whether or not the parties believe they are creating the relationship of employer and employee.
• The extent of actual control exercised by the principal over the manner and means of performing the services.
• Whether the principal is or is not engaged in a business enterprise or whether the services being performed are for the benefit or convenience of the principal as an individual.
• Whether the worker can make business decisions that would enable him or her to earn a profit or incur a financial loss. Investment of the worker's time is not sufficient to show a risk of loss.

A written contract which claims to create the relationship of principal and independent contractor is not controlling if the practice of the parties shows that the principal retains the right of control under the common law test.

The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer and the worker does not furnish an independent business or professional service relative to the employer.

If you are unsure as to whether your workers are employees or independent contractors, you can download this information sheet or visit the California Govenment website (www.ca.gov).