Workforce.com

Welfare Law HR's Role in Employment

January 1, 1998
As you saw by the title, this story is about hiring welfare workers. If that’s a subject that makes you squeamish, nervous or otherwise uncomfortable, you might as well move on to the next article. You’re lucky. As of this moment, you don’t have to read this story. The federal government hasn’t yet mandated that you must hire people who are on public assistance.

But if you’re sincerely interested in knowing how the new welfare law has impacted U.S. employers over the past six months, and you want to learn about the tremendous impact on staffing that welfare recipients are having on leading organizations like Burger King Corp., Cessna Aircraft Co., Marriott International and Frisch’s (parent company of Big Boy restaurants), read on.

Before you do, however, put on your hard-nosed business hat. Then pin your heart on your sleeve. Because hiring and retaining welfare recipients is first and foremost a serious workforce planning subject. It’s also an issue that will pull at your heartstrings and perhaps even touch your soul because it focuses the very nature of self-sufficiency.

And that’s OK. Some of the most important workforce solutions have this type of duality. It’s what encourages HR leaders to be both business visionaries and outstanding human beings. You’ll meet some of the best of them in this story. They’re HR executives who have a strong determination to do something of real substance for their companies, their communities and their nation. See if their reasons for starting programs that employ welfare recipients match some of your staffing challenges. But first, learn what the new law requires of individuals, employers and each of the 50 states.

The new welfare law encourages people to work.
The latest welfare law is The Personal Responsibility and Work Opportunity Act of 1996 that was signed into law on Aug. 22, 1996, by President Bill Clinton. At the law’s signing ceremony, Clinton said, "Today we are taking a historic chance to make welfare what it was meant to be: a second chance, not a way of life." He added, "This day will be remembered not for what it ended, but for what it began —a new day that offers hope, honors responsibility, rewards work and changes the terms of the debate so that no one in America ever feels again the need to criticize people who are poor or on welfare."

The new law, which went into effect on July 1, 1997, put to rest the former edict called Aid to Families with Dependent Children (AFDC) and along with it, welfare as we know it. The new mandate is a far cry from the original program set forth by President Franklin D. Roosevelt when he unveiled America’s first federal social welfare program under his New Deal in 1935. The new statute features federal block grants for each of the 50 states that will total $3 billion ($1.5 billion in fiscal year 1998 and $1.5 billion in fiscal year 1999); most states will actually get more in the block grants than they did under the old program. Although there are some restrictive federal guidelines, the states may administer their individual programs as they see fit. However, by the end of 1997, the states were supposed to have 25 percent of their welfare recipients either working at least 20 hours a week or getting job training in order to receive their full share of the federal money promised under the new law. The final stats on whether the states met their obligations in the closing hours of 1997 were unavailable at press time; however, Workforce learned that some states have already exceeded the requirement, such as Connecticut where 40 percent of welfare recipients already hold jobs. And in Wisconsin, which began welfare reform in 1987, the caseload has been cut by 55 percent. By the year 2002, the 1996 act requires that 50 percent of people on welfare must be in training programs or working.

Although the old AFDC program was relatively open-ended (individuals could receive benefits for just about as long as they needed them), the block grant program now caps benefits at five years (the lifetime limit per U.S. citizen). It also requires that adult welfare recipients return to work within two years after they start receiving welfare. The only exception will be for the approximately 20 percent of welfare recipients who have special hardships, such as having to care for a disabled child.

Even though the new law does not mandate that businesses get directly involved in hiring workers off welfare rolls, many employers soon realized after it went into effect that states needed help in meeting their goals for getting welfare recipients back to work. (After all, there are limited numbers of civil jobs to dole out.) And the law does offer employers some financial incentives to do so, such as the Work Opportunity Tax Credit (WOTC). Passed in 1996 by Congress and revised last year, this new incentive pays employers as much as 35 percent of an eligible employee’s pay and a maximum tax credit of $1,500 per employee that they hire from welfare rolls.

As a result, welfare offices across the nation are starting to be transformed into job centers. People are rolling off the welfare system in droves and into the waiting arms of employers who are increasingly glad to hire them in a tight labor environment.

Hiring welfare workers: A smart staffing strategy in a tight labor market.
Hiring former welfare workers is an especially timely strategy with today’s low unemployment levels. Indeed, U.S. unemployment hit its lowest point (4.6 percent) in 24 years in November, making it increasingly difficult to find enough workers.

According to a survey conducted by The Executive Committee of Florida (TEC), a Tampa, Florida-based organization of 300 chief executive officers of Florida companies, finding good people was cited by 63 percent as the single biggest barrier to company growth. Furthermore, 79 percent said the tight labor market is creating HR challenges for their firms. "Such HR concerns and challenges is good news for anyone looking for a job, including welfare recipients looking for work," says Charles "Red" Scott, CEO of TEC. And the fact that there’s a virtually untapped labor market is good news for employers.

Helping welfare recipients transition into America’s workforce is catching on among the country’s fastest growing companies, according to the "1997 Trendsetter Barometer"—a yearly survey tracking workplace issues sponsored by Coopers & Lybrand LLP. The New York City-based, professional services consulting firm’s survey of 444 of America’s fastest-growth firms with annual sales of between $1 million and $50 million, indicates that 26 percent already have hired workers from welfare rolls and another 4 percent soon plan to. It’s also significant to note that 60 percent of the CEOs in this group say they’re interested in partnering with other businesses to help move welfare recipients into the labor market.

"This survey illustrates that businesses understand hiring former welfare recipients is a smart solution for business," comments Eli Segal, president of The Welfare to Work Partnership, a group of businesses committed to hiring and retaining former welfare recipients without displacing current workers. The Welfare to Work Partnership is a national nonpartisan, nonprofit effort of the business community to help move people on public assistance to jobs in the private sector, and it’s backed by both Clinton and Democrats, as well as Republican constituencies.

Some welfare experts attribute the mass hiring of welfare workers more to the strong economy and low unemployment than to employer commitment to being good corporate citizens. Whether companies hire people from welfare rolls either because they’re short-staffed or because they’re soft-hearted, they benefit either way.

However, some optimistic and visionary employers like Miami-based Burger King Corp. are trying to approach the hiring of welfare recipients from both angles. "From the perspective of attracting workers, we’ve had to become much more creative and aggressive," says Anthony Hoffman, vice president of HR, North America for Burger King, which employs more than 300,000 people in 56 countries (although it currently runs its welfare-to-work program only in the United States). "We’re competing with all sectors of business that are growing, not just retail, especially in finding entry-level workers." Hiring welfare workers has become one of the restaurant chain’s integral workforce staffing strategies. Burger King is one of five employers that the leaders of the Welfare to Work Partnership invited to become a charter member last May. Burger King’s CEO, Dennis Malamatinas, is a founding board member.

The firm’s welfare-to-work program provides training and jobs—usually to entry-level workers—in one of Burger King’s restaurants. However, before this particular welfare-to-work partnership was put into place, the company had already hired thousands of former welfare recipients over the years. Many have moved up in the organization to better positions. "One of our franchise managers is an ex-welfare recipient," says Hoffman. Another worker who was hired off welfare now manages a restaurant in Eureka, California. "We offer people that unique opportunity to come into our business and to work their way up, fine-tuning their skills as they go."

Hoffman says the new federal welfare system is more work-friendly than the old system, especially for workers starting in low-wage jobs because they don’t necessarily lose their "transitional benefits" such as food stamps and health care like they did under the old system. However, the states aren’t all approaching the mandate in the same way. For example, Missouri’s program gives employers the equivalent of the welfare recipient’s monthly cash welfare payment and food-stamp allotment while the individual is employed rather than to the individual. Under the new system, people can also get child-care subsidies.

"The way the old system was set up, it forced people to choose between going to work and getting welfare benefits," says Hoffman. "People don’t have to choose under the new system. It [encourages] them to choose to work. So a person who really gets in there and shows the motivation to do well, can do well, and can actually get ahead and work his or her way out of poverty."

So far, Burger King has hired more than 4,000 individuals over the past several months from welfare backgrounds, and it anticipates creating as many as 15,000 jobs annually for which welfare recipients would be eligible. Burger King’s success with the program already has been better than its program managers expected. "We’re finding that our turnover rate for these individuals is about half of what our normal employee turnover rate is," says Hoffman. "Which says: These people do want to work." Employers, however, are learning some important lessons about the special needs of welfare recipients and what they must provide to keep them on the job.

Hard-core issues in employing welfare recipients.
During a welfare-to-work conference last May shortly before the law went into effect, Vice President Al Gore spoke of the challenge of keeping welfare recipients on the job: "Current studies show that more than 50 percent of welfare recipients entering the workforce for the first time lose their jobs within the first year. We must make sure that former welfare recipients have the support they need to stay on the job." Gore encouraged innovative approaches like long-term mentoring to keeping former welfare recipients employed. Three other important keys to employing people on welfare that Gore didn’t mention are: include providing help with child care, transportation and job-readiness training.

According to Linda Hall Whitman, president of Minneapolis-based Ceridian Performance Partners, organizations that give their employees access to information and resources that help support welfare recipients’ personal lives off the job help tremendously in retaining these individuals on the job. For example, Ceridian’s ResourceNet service provides entry-level workers with toll-free telephone support for any number of job, personal and life issues. A team of experts and counselors are on hand to assist callers on its 24-hour hot line and help with issues ranging from child care and parenting issues to landlord and tenant issues. The program also includes support for employers in recruiting and screening welfare recipients, job skills training and supervisor mentoring.

Employers who use this service have seen their retention of low-wage workers improve 35 percent over employees who don’t have access to such a service. "These services are likely to make the difference between the employee making it on the job or failing on the job," says Whitman. Ceridian started ResourceNet specifically to support the federal Welfare to Work Partnership and offers the program at Ceridian’s cost to employers who participate in the partnership.

Marriott International, based in Washington, D.C., has provided Ceridian services to its low-wage workers for the past five years and has seen a 4-to-1 payback on its investment. But employers don't have to buy outside services to help low-wage workers. They can provide help through staff mentors or through community-based organizations. For example, many of Marriott’s Pathways to Independence programs throughout the nation also use on-staff counselors to help individuals struggling to break free from welfare pasts stay with the program. Pathways to Independence is a reality-based, 180-hour training program (60 hours of classroom training and 120 hours of occupational training) that helps disadvantaged individuals develop the skills they need for full-time employment with Marriott or other hospitality industry employers. Participants who successfully complete the program are guaranteed an offer of full-time employment with benefits.

From the HR perspective, companies that start a welfare-to-work program need to dedicate a portion of staff responsibility to working directly with people in the program—to help make them as successful as they can be. For instance, Darcie Kawasaki, now HR manager at the Los Angles Airport Marriott hotel, started the Pathways program in 1995, and her job at the time (training manager) was almost solely dedicated to working with individuals going through the program. In addition, most of the individuals who enter the program are participating through a community-based organization, and Marriott makes sure that each trainee has an assigned counselor who’s also available for questions of both a personal and a professional nature. "One of the biggest challenges in this type of program is being able to reach participants [on a personal level]," says Kawasaki. "We try to bond with them and stay in touch with them constantly." Although each person works with a trainer and a supervisor to learn the ropes as they move through the program, they need individual attention on issues that other workers may have already addressed during their work careers or may never have had to deal with, such as how to deal with criticism or how to overcome the stereotype of being a welfare recipient. "If they never bond with anyone, they usually can’t be successful," says Kawasaki. So far, the Los Angeles Marriott’s program has graduated 110 participants and placed 80 people in jobs. Of those, 83 percent have been retained.

Another big issue for most welfare recipients is transportation. According to a recent speech by Clinton, 94 percent of welfare recipients don’t have automobiles. That’s not surprising when you figure the cost to own and operate a car averages $6,000 a year. Studies done at the University of California at Los Angeles show that car owners work more regularly, make more money and have more job choices. Experts agree that the mass transit system in most communities can’t meet the needs of disadvantaged individuals trying to get to their jobs on a regular basis.

This is especially true with the lower-level jobs that welfare recipients are most likely to get; they’re usually long distances from the bus routes or at odd hours when suburban transit shuts down. The mass transit problem for low-income citizens is being described by experts as "reverse commuting" and is a top urban-development.

"One of the major challenges in providing transportation for our welfare-to-work program participants was initially finding a central point for our vans to pick people up," says Sharon Eby, HR manager for John Knox Village in Lee’s Summit, Missouri. John Knox Village a large continuing care retirement community and is a 24-hours-a-day, 7-days-a-week operation. Eby made arrangements with a community development agency in an area where several of their workers who are welfare recipients live. "The agency [sets up the] pickup point and locates child care," adds Eby. "Transportation and child care are the two major issues facing people trying to get off welfare and have meaningful jobs."

On the child-care side, Frisch’s Restaurants Inc. in Cincinnati helps subsidize employees’ child-care needs until they get on their feet financially. Managers also are flexible with their scheduling of people who enter the welfare-to-work program. According to Ron Heineman, vice president of HR for the 104-unit Big Boy restaurant chain: "Our goals are to understand this labor market. We plan to work out every issue that comes out on a daily basis and work out a generic action plan on transitioning these employees into the workforce. But it will take a lot of emotional labor on both sides to make this work." Heineman, and others who run welfare-to-work programs, is strong in his conviction that this is one HR issue with which you have to take a "better to give than to receive" attitude. However, most companies that have made the commitment to hire welfare workers are receiving back more than they ever imagined.

The benefits usually outweigh the costs.
While some firms build welfare-to-work programs for the staffing benefit, others build programs to give something back to their communities but have been realizing significant workforce benefits in return. Cessna Aircraft Co. in Wichita, Kansas, is one of those. Its 21st Street Training Program trains former welfare recipients in manufacturing skills and secretarial and administrative skills.

"You have to understand this has never been a staffing solution for us," says John Moore, senior vice president of HR for Cessna. The company opened its nationally acclaimed program in December 1990 and was the only aviation company recruiting at that time in Wichita, where three other major aircraft builders also are located. "We opened the 21st Street Training Program because we were concerned about a growing economic gap between those who had jobs and those who didn’t," says Moore. "We started this program to provide individuals who were considered unemployable with the skills that would enable them to be hired in our mainstream facility."

The 21st Street Training Program (named for the street on which it resides) has six features that set it apart from other welfare-to-work programs because of its comprehensiveness: 1) Trainees get a salary and benefits starting their first day; 2) Trainees have access to a counselor on staff to help with personal problems as they learn how to transition into a sophisticated workforce; 3) Trainees can take as much time as they need to learn the skills of their new jobs; 4) Trainees can live onsite in subsidized housing; 5) Trainees have access to onsite day care; and 6) Trainees are guaranteed jobs upon graduation.

Moore says the program is subsidized through both community and federal funding. For example, the federal Job Training Partnership Act reimburses half of the trainees’ wages for up to six months, and the state occasionally helps with other training grants. The modification of the original facility, an abandoned grocery store, was financed with block grants from the city of Wichita that Cessna has now repaid. The new training facility was just dedicated in November and is located on the same campus as the original facility. It was financed with a federal Housing and Urban Development (HUD) loan, which Cessna also will pay back. But Moore says this isn’t the type of project you undertake for financial gain. "You can’t look at this proposition from a bottom line. We don’t make money at 21st Street," says Moore.

What they do make is airplane parts. And they make them with the help of the 200 highly skilled and loyal employees that the program has graduated over the past seven years. "We’re glad we did it," says Moore. "The best investment you could ever make is in the people in your company and in your community. And while this program has a cost, it’s affordable for major companies." He invites other companies to call his department with questions.

"There’s a lot of legwork involved," says Fred Kramer, project director for Marriott’s community employment and training programs in Washington, D.C., who oversees all of the organizations’ Pathways to Independence programs. "The average cost to graduate a person is $5,000 to $6,000." The company typically applies for training grants and tax credits for people in the program, but usually only recoups half of what it costs to send people through the program. On the plus side, the program has graduated 800 people nationally since 1991 with a 65 percent retention rate after one year.

Those companies that look at employing welfare recipients as a way to give back to the community seem to be the ones that reap the most benefits. "It’s good for business, but it’s also good for your soul," says Burger King’s Hoffman. "We get productive workers, and they get a chance to become self-sufficient."

Says Cessna 21st Street graduate Jodee Bradley: "Now I can actually build aircraft parts. It’s such a good feeling. I could never have gotten to where I am now without the training program."

Hiring welfare recipients isn’t easy—but it’s never really easy hiring anyone. That’s because people are individuals, not labels.

Workforce, January 1998, Vol. 77, No. 1, pp.30-39.