How HR Departments Are Using Business Tax Incentives to Offset Rising Labor Costs

If you’re in the human resources industry, then you know that labor costs have been climbing. And when those costs start to soar, it can put some serious pressure on business budgets.  

Consider that private industry compensation rose 3.4% annually as of December 2025. But the truth is that wages and benefits are increasing everywhere. As it is, labor expenses can represent as much as 70% of total business costs, according to the U.S. Bureau of Labor Statistics. 

Hiring alone is becoming more expensive, with the average cost per hire now at around $4,700 to $4,800 (if not higher). Attrition adds even more strain. If 34% of the full-time workforce changes jobs next year, the cost of turnover could range from $1.3 trillion to $5.1 trillion. In response, many organizations are looking at employment tax incentives as a way to offset rising workforce expenses. 

Why HR Is Becoming More Involved in Tax Incentive Strategy 

Human resources teams are continually tasked with helping businesses save money, especially in labor costs. But cutting headcount is not always the answer.  

Today’s HR departments are directly involved in their organizations’ financial strategy. And one of those tasks is providing data that can determine whether a company qualifies for employment-related tax incentives. This data can include any of the following: 

• Hiring records
• Employee attributes
• Training documentation 

Because many incentives are tied to hiring activity or workforce development, HR often becomes the starting point for identifying eligibility and capturing available credits. 

Governance and Oversight Expectations 

Corporate leadership teams increasingly view tax incentives as part of responsible financial management. When available credits go unclaimed, it may raise questions about internal oversight and whether the company is leaving legitimate financial benefits on the table. Auditors are also paying closer attention to this area, often asking whether organizations have reviewed their eligibility for employment-related credits.  

In some cases, unclaimed incentives can be seen as missed opportunities that should have been identified through stronger internal processes. Boards and executive teams now expect management to evaluate available programs and capture subsidies that support workforce investment. 

Companies Should Understand These Employment Tax Incentives  

Many employment tax incentives exist at the federal, state, and local levels. Because these programs often overlap, companies may qualify for more than one at the same time. When used strategically, they can help offset hiring, training, and expansion costs. 

Hiring-Based Incentives 

Some programs reward employers for hiring individuals from specific groups. Veterans, including those recognized through programs such as the HIRE Vets Medallion Program, may qualify employers for incentives. Businesses that hire individuals receiving government assistance or workers who have experienced long-term unemployment may also qualify for benefits. 

The Work Opportunity Tax Credit is one of the most widely used programs today, and for good reason. The program offers a federal income tax credit that can provide savings of up to $9,600 per eligible hire, depending on the target group and hours worked. That’s not a small number. And it’s important to know that millions of workers nationwide fall into eligible categories each year. So, if your company is not looking into this opportunity, you could be missing out in a big way. And today, companies in all industries are tasked with figuring out how to lessen expenses and make each dollar stretch.  

Job Creation Incentives 

Many states offer incentives tied to workforce expansion.These initiatives are often tied to broader economic development efforts and may also apply when companies expand facilities or invest in new operations. 

Incentive values vary by state and industry. Some programs provide credits tied to each new job created, while others provide financial support tied to payroll growth or long-term employment commitments. 

Geographic Incentives 

The location of your business can play a big role in your eligibility. Federal Empowerment Zones (FedEZ),  offer financial incentives to employers that hire workers in targeted areas. 

If your organization has ongoing operations in these areas, you may qualify for federal tax credits designed to attract employers and stimulate local economic growth. 

Training and Workforce Development Programs 

Workforce development initiatives help employers invest in employee skills while receiving financial support. These programs may include state training grants, apprenticeship incentives, or funding for reskilling initiatives. 

There’s no doubt that training is a big expense, regardless of the size of your business. And the Association for Talent Development has some interesting insights to share, suggesting that organizations spent an average of $1,252 per employee on training in 2020. We anticipate this number is much higher now, as labor costs have continued to rise and the demand for specialized skills has grown. This is yet another reason why employers are seeking out workforce training incentives.  

The Financial Value of Employment Incentives 

We’ve explored some of the financial benefits that come with employment incentives.  For many organizations, these programs represent a meaningful opportunity to offset rising labor expenses.  

Some employment-related incentives can provide up to $9,600 per hire in benefits. When multiple programs apply, the combined value can grow quickly. As such, HR departments find themselves partnering with finance and tax teams more closely than ever before. Why? Because this is yet another way to capture available opportunities. 

Direct Financial Benefits 

Employment incentive programs can provide several types of financial support, including: 

• Federal income tax credits
• State tax incentives
• Cash grants or grant-like payments
• Workforce training subsidies 

Depending on the number of employees hired, trained, or retained, these incentives can translate into substantial savings over time. 

Indirect Business Benefits 

Direct tax savings aren’t the only benefits. These programs can support broader business priorities as well. Consider the following benefits. 

• Reduction in overall labor costs
• Supporting expansion or job creation plans
• Redirection of funds toward hiring, technology investments, or employee development 

Despite these advantages, many businesses still fail to claim the credits they qualify for. This is why organizations are placing greater focus on identifying and capturing available workforce incentives. 

Why Many Companies Still Miss These Opportunities 

As big as the financial gains can be from these opportunities, many companies are missing out. In many cases, the issue is not eligibility. Instead, it comes down to awareness, time, and internal resources. 

Lack of Awareness 

It’s not surprising to find out that many human resources and finance teams simply aren’t aware of the incentive programs available. Obtaining this knowledge takes time, and most don’t know where to start. For this reason, a large share of businesses overlook tax benefits tied to employment activity.  

Administrative Complexity 

Incentive programs often involve multiple administrative steps. Companies may need to manage documentation, confirm employee eligibility, and meet strict filing deadlines. Processing timelines can also vary widely.  

Some electronically filed credits may be completed within about three weeks, while more complex programs can take six to twelve months. Certain specialized credits may even require more than a year to be fully processed. 

Fragmented Data 

Most human resource professionals aren’t data analysts. And so, while they may have access to a lot of data, they might not be looking at it in a way where the numbers really stand out. And again, if they’re not aware of the incentives, the likelihood is that those dots just aren’t being connected. 

Plus, in some cases, information sits across different systems. So it’s no wonder qualifying employees can be difficult to identify. 

Limited Internal Resources 

Many organizations lack dedicated staff to manage incentive programs, making it harder to track and claim available credits. 

Taking a Proactive Approach to Capturing Incentives 

Organizations that benefit the most from employment incentives usually take a proactive approach. Instead of reacting during tax filings, they evaluate available programs throughout the year and align them with their workforce strategy. 

The first step is identifying incentive programs that align with company priorities and values. Some organizations focus on hiring initiatives, while others prioritize training or regional development programs. Reviewing available incentives and benchmarking potential benefits annually helps companies determine whether they are fully using the opportunities available to them. 

Another step involves tracking performance. Most businesses set up reporting systems that monitor participation rates, projected tax benefits, and estimated savings for quarterly tax planning. These reports are exceptionally helpful for leadership in understanding how workforce activity translates into financial outcomes. 

Building internal processes also plays a role. Companies benefit from systems that collect HR data early in the hiring process, track eligibility requirements, and organize the documentation required for credit applications. Participation becomes so much easier, and administrative costs lessen when these processes are in place. 

Organizations that treat incentive participation as an ongoing strategy rather than a one-time task are often better positioned to capture the full financial value tied to hiring, training, and workforce development. 

Why Many Companies Partner With Incentive Specialists 

Your organization likely recognizes the value of employment tax incentives. But figuring out how to get started? That’s an entirely different story because it can be difficult to challenge the process internally. The rules governing these programs can vary by jurisdiction, and eligibility often depends on detailed workforce data. For this reason, many companies work with incentive specialists such as CTI to help manage the process. 

Consulting firms focus on identifying programs that align with a company’s workforce activity. They also help coordinate information among HR, finance, and tax teams to prioritize that the required data is collected and organized. This approach helps companies avoid missed opportunities and reduce the administrative workload for internal staff. 

Specialists often assist with several aspects of incentive management, including: 

• Identifying federal, state, and local incentive programs
• Reviewing hiring and workforce data for eligibility
• Managing documentation required for credit applications
• Coordinating HR and finance data needed for filings
• Supporting compliance and reporting requirements 

So how do you grow participation? The answer is in working with experienced advisors. This allows internal teams to focus on day-to-day operations while specialists handle the research, documentation, and reporting required to capture available credits. 

Turning HR Activity Into Financial Opportunity 

Here’s the bottom line: labor costs are going to continue to rise. This means more pressure to manage expenses while also attracting and retaining great talent. And one way to offset those expenses is through employment tax incentives. This financial support can assist in many ways, including: 

• Hiring
• Training
• Workforce expansion 

If your company actively participates in these programs, you may very well reduce a portion of your labor expenses. And this means more security and funding to invest in your teams. It’s a winning value proposition. 

But here’s the thing. HR departments sit at the center of all of this. The data they manage can very well be the golden ticket. Things like hiring records, employee attributes, and training documentation can go a long way in determining whether a company qualifies for available incentives. When this data is consistently captured and reviewed, organizations are better positioned to identify credits and subsidies tied to workforce activity. 

Still, many companies qualify for employment incentives but never claim them. Without a clear strategy, these opportunities can be overlooked. 

See What Incentives Your Company May Qualify For 

Every organization has a unique workforce profile, which means the incentives available to one company may differ from those of another. A consultation can help identify potential credits tied to hiring, training, or workforce expansion. 

Contact CTI to review your eligibility and see what programs may apply to your organization.