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Small Business
From welfare to work
August 14, 1998: 6:51 p.m. ET

Despite challenges, welfare recipients make lasting, productive employees
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NEW YORK (CNNfn) - When United Parcel Service of America started hiring welfare recipients to sort packages 25 years ago, the company had no idea what it was getting itself into.
     What UPS got was a pool of adept employees in it for the long haul.
     In fact, of the 10,000 welfare recipients the company has hired since January 1996, the shipping giant estimates about 70 percent stay.
     Studies by the Welfare to Work Partnership confirm these findings. More than 76 percent of business executives who hire former welfare recipients find them to be good, productive employees.
     Although hiring welfare recipients isn't without its challenges, the current labor shortage is spurring more companies to consider the possibilities.

    
Financial incentives

     The welfare reform laws of 1996 created a variety of tax incentives on the federal, state and local level, making it more attractive for businesses to hire welfare recipients.
     The Work Opportunity Tax Credit was designed to help employers offset costs associated with hiring and training low-income, entry-level workers. The WOTC can reduce an employer's tax liability by as much as $8,500 per employee over the course of two years.
     In addition, 36 states have enacted wage subsidy programs. Under this initiative, the state subsidizes a welfare recipient's wage with public funds that would otherwise go to support the worker's family (i.e. TANF, food stamps). The employer makes up the difference between the subsidy and the employee's salary.
     Incentives differ from state to state, however, and many programs go beyond the WOTC or wage subsidies. In Florida, for example, companies can have their utility bill reduced by a certain percentage if they hire low-income workers.
    
Labor shortage spurs change

     Despite these breaks, those familiar with the welfare-to-work initiative say government incentives are rarely why companies hire these workers.
     "There is no question companies are not doing this for the tax benefits," said Eli Segal, president and CEO of the Welfare to Work Partnership.
    
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     Mostly, companies turn to welfare recipients because of the intense need for workers in the currently tight labor market.
     "Unemployment is at an all-time low," said Jim Myrick, executive director at Beverly Health Care-Manhattan, a national nursing home chain. "We needed new avenues to find employees."
     The organization began hiring welfare recipients at its Jackson, Miss., facility last year. Currently, 12 of the company's 200 employees are former welfare recipients, with a retention rate of about 64 percent.
     "It is very rewarding to hire these employees from an economical standpoint," Myrick said. "People who come to us may not have worked before… but once they get off the (welfare-to-work) program, they continue to be good employees."

    
Dispelling the myths

     Despite such success stories and statistics indicating 86 percent of companies that have hired welfare recipients plan to do so again, some companies continue to have reservations.
     One of the biggest obstacles is lack of information.
     "Many small businesses do not have the knowledge about what incentives are available to them," said Segal. They are also unaware that retention rates of welfare recipients are often as good as or better than those of other employees.
     Stereotypes about welfare recipients also may keep companies from hiring low-income workers.
     "Many companies are still locked into the myths of the past," Segal said.
     Contrary to many expectations, the welfare population is neither uneducated nor inexperienced.
     In fact:
  • 70 percent of welfare recipients have recent work experience.
  • 42 percent are high school graduates (or GED).
  • 16 percent have some post-secondary education.

     "Our experience has proven that welfare-to-work hires are excellent hires," said Paula Fulford, a spokeswoman for UPS.
    
The road to retention

     But employing welfare recipients is not without challenges.
     Many low-income workers have needs that other employees may not; transportation and child care are consistently cited.
     In most cases, however, the resources to solve these problems already are in place.
     Companies that effectively integrate welfare recipients into their workforce work closely with outside entities to ensure the conditions exist for individuals to succeed.
     A number of government agencies and non-profit groups offer important services to companies that hire welfare recipients, including applicant screening, training and counseling.
     These public-private partnerships are the key to high retention rates.
     "You cannot push someone out there who has never done it before and expect them to succeed (without help)," said Zina Pierre, deputy director of the Small Business Administration's welfare-to-work initiative.
     Gwyn Clemens, a production manager at a small Red Wing, Minn., commercial laundry called Hygienic Service Systems agrees.
     Companies "need to work very closely with social services," said Clemens. About 50 percent of her company's 84 employees have been on some sort of public assistance.
     Clemens uses the county's social services to screen potential workers. Once hired, she works closely with the employee and a caseworker to identify and overcome potential challenges, which can include transportation, child care and chronic tardiness.
     "An employee can't do it by himself and neither can a company," said Clemens, though she is quick to add "the rewards are fantastic."
     The company retains close to 70 percent of its welfare-to-work hires, and Clemens has seen former welfare recipients advance to supervisory and engineering positions.
    
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     In many ways, small businesses are better suited to hire welfare recipients than their larger counterparts because they are more able to provide the personalized attention that is crucial to success.
     "We take a very realistic approach to what it takes to retain workers," said Michael Richards, co-founder of Iowa City, Iowa-based Candleworks, Inc.
     His company provides weekly "life" counseling to its 24 employees, of which about half are former welfare recipients, with topics ranging from nutrition and drug abuse to financial planning.
     Such steps help workers acquire the "soft" skills many people take for granted, such as personal grooming and punctuality. With their personal lives in order, welfare recipients are more likely to become better, committed employees.
     Some companies fear hiring welfare recipients will lead to a decline in work standards, but experience proves the opposite.
     At UPS, welfare recipients "are held to the same standards and have to meet the same qualifications for the job as everyone else," said Fulford, adding "its worked fabulously."
     Maintaining high standards should not be confused with enforcing rigid job requirements. In fact, flexible job requirements may actually help companies maintain high performance.
     By letting an employee set her hours according to available child care, for instance, she may be less prone to tardiness or distractions at the workplace.
     In addition, many companies find unduly strict screening requirements actually eliminate good employees. For example: The lack of a high school diploma does not mean an employee won't be good with customers or won't be able to master new skills.

    
The bottom line

     But most importantly, hiring welfare recipients simply makes good business sense.
     "This is not about charity," Segal said. "This is not about corporate responsibility. This is a smart solution for businesses."
     Because small businesses do not have the extensive personnel departments of larger corporations, they often do not have the time or resources to recruit employees.
     "You are going to see a lot more companies our size and smaller do this because its a necessity," UPS spokeswoman Fulford said.
     Welfare-to-work programs provide a previously untapped labor pool, in addition to the resources to make it work.
     Overall the risks are few and potential benefits great.
     If an employee does not work out, you are entitled to fire him or her just as you would any other worker with no repercussions.
     Most likely, you just need to work more closely with your service provider to determine what type of worker you need or what provisions need to be made to help the worker succeed.
     Both the SBA and The Welfare to Work Partnership provide extensive information about the benefits and challenges of hiring welfare recipients and can get your business in touch with a local service provider.
     Overall, the statistics and the experiences of those who have hired welfare recipients speak for themselves.
     "It takes that extra 'oomph,'" said Clemens. "But you end up with extremely valuable employees." Back to top
     -- by staff writer Nicole Jacoby

  RELATED STORIES

Keeping good employees in a tight labor market - July 30, 1998

Welfare worker tax credits - Feb. 3, 1997

  RELATED SITES

Small Business Administration


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.