Employer Incentives | Criminal Records and Employment in Minnesota

This post is part of a series recommending changes to how Minnesota handles criminal records and employment. The full report is here: Criminal Records and Employment in Minnesota.

Role of Employers and Unions

The Committee recognizes that a major weakness of the collateral sanctions work so far is that it has not involved either employers or unions. Neither is represented on the Committee at present. If the Legislature decides to continue developing collateral sanctions policy and to enact changes in law and in state practices, so as to increase employment of Minnesotans with criminal records, both must be included in the work. If the Committee continues with its present members, it will be able to reach out to businesses and unions as “interested parties,” to survey them, to ask them for information and testimony, and so forth. It would probably be better, though, to expand the Committee to include representatives of these key stakeholders.


1. Involve employers and unions in minimizing unreasonable impact of criminal records on employment.

Employer Liability

The Committee has recognized and discussed some of the concerns that employers have when they encounter qualified prospective employees with criminal records. Throughout this report, there are references to the reality that many employers will not hire even people whom the criminal justice system does not categorize as having criminal records, if they have the slightest contact with the system. No doubt, employers share the widespread suspicion of ex-offenders; but, unlike most citizens, they are faced with real risks and responsibilities in making decisions about them.

Employers are vitally engaged with the questions raised by criminal data in the 21st century. They are interested in knowing as much as possible about the people they hire, because they want security for themselves, their employees, and their customers. But in many instances, particularly when evaluating people with misdemeanor records or less, they recognize that security is not a real problem. What is always a real problem is that, in the unlikely event the person who had a brush with the law hurts someone or is a thief, the employer will be sued. Employers are sued for not knowing the criminal history of these problematical employees, and they are also sued for knowing it. In several ways, this report recognizes the need to strike some reasonable balance between holding employers responsible for truly negligent hiring and relieving them of what may be crippling liability for the bad behavior of individuals who have some contact with the criminal system and whom it was reasonable to hire.


1. Eliminate employer liability for reasonable hiring of ex-offenders. See, Certificate of Good Conduct, subd.7 (d), (e), (f), p. 46.

Financial Incentives

It has long been recognized that government should invest in programs that would increase employers’ willingness to hire people who are consuming substantial public resources and have higher-than-average rates of unemployment. The United States Department of Labor’s Work Opportunity Tax Credit program and the Federal Bonding Service are two such programs, and each includes people with criminal records among the populations employers are given incentives to hire.

A. Work Opportunity Tax Credit (WOTC)

WOTC was part of the federal Small Business Tax Protection Act of 1996 and an important adjunct to the welfare reform effort undertaken by the 1996 Congress. In Minnesota, the program is funded by a U.S. Department of Labor grant and administered by our Department of Employment and Economic Development (DEED). Congress has continually reauthorized WOTC, but the reauthorizations have usually lagged, coming many months after the program had expired. This poor timing made it difficult for DEED to market the tax credit, since advertising had to be accompanied by the caveat that the state could not know for certain how long it would be available. In May of 2007, WOTC was reauthorized for an unprecedented 44 months, which will allow the state to advertise the credit with some confidence.52

Under the WOTC, employers qualify for tax credit by hiring individuals from a number of categories, one of which is ex-felons. An employer who hires an ex-felon within one year of that person’s conviction or release from a correctional facility may apply for a certification that allows the employer to claim a tax credit. People who are on work-release status are qualified members of the target group. The amount of the credit is calculated according to whether the employee works from 120 to 400 hours, or more than 400 hours, in the first year of employment; the maximum allowable credit is $2,400. It is not available after the first year of employment. The job on which the credit is based may be full-time, part-time, temporary, or seasonal. The credit is not available if the ex-felon has worked for the employer in the past. There is no limit to the number of new hires the employer may claim for WOTC.

DEED’s WOTC unit issued certifications for 1,467 ex-felons hired for calendar years 2000 through 2006.53 The ex-felon category accounted for 3 percent of the certifications the unit issued during those years. There were about 420 employers who hired ex-felons. Thirty-one of these employers were temporary staffing agencies, and they hired approximately 43 percent of all of the ex-felons who qualified employers for tax credits under the WOTC.

The Committee has not gathered WOTC data from other states; and, without that data, it is impossible to tell how Minnesota compares to others in the number of people with criminal records hired under WOTC and the quality of their jobs. Since it affects fewer than 250 offenders per year, the program seems to be ripe for expansion. It does not seem unreasonable, given the fact that the program is now certainly available until at least August 2011, to hope that more employers seeking permanent workers will recognize the financial opportunity it offers and that the number of ex-felons hired will increase. Certainly, re-entry programs and non-profits that encounter substantial numbers of ex-offenders should be working closely with DEED. Minnesota’s political leaders, particularly those representing us in Congress, should be aware of the timing issue that has hampered implementation of WOTC and should do what they can to make sure that the program continues to be reauthorized in a way that maximizes its utility.


  1. Evaluate effectiveness of WOTC in Minnesota.
  2. Work with employers to maximize utilization of tax credits.

B. Minnesota Federal Bonding Service

Like WOTC, the Minnesota Federal Bonding Service (MFBS) is a program created by Congress and administered by DEED. The bonding provided under the MFBS is no-cost insurance that protects employers against employee theft of money or property. Individual bonds are available to employers for new or current workers who are denied coverage by commercial carriers because of criminal record (including arrest), history of chemical dependency, poor credit history, dishonorable discharge, and/or lack of employment history. The bonded worker may have a full-time or part-time job, and his wages must have federal taxes automatically deducted from each paycheck. Self-employment is not covered. There is no deductible on the coverage, and most bonds are issued in the amount of $5,000. The bonds are good for six months, after which a standard commercial policy is available from Travelers Property Casualty.

According to the DEED employee who administers the program in Minnesota, 5 bonds were issued in 2006 and 10 were issued in 2007. DEED does not know how many of them covered ex-felons, and it does not track the types of jobs in which they were employed. Clearly, the program has had no meaningful impact on increasing employment of Minnesotans with criminal records.

Under the heading “How Successful is the Program?” DEED’s website says “more than 40,000 bonds have been issued” and cites a Texas A&M University study indicating that Texas achieved substantial reduction in recidivism and substantial savings in prison costs by using the federal bonds “along with other services.” However, the study was done in 1992 as an evaluation of an ambitious Texas re-entry initiative undertaken in 1985; because bonds were just one component of many, the study does not shed much light on the impact of the bonds in particular.54 It is not clear where the 40,000 bonds referenced in the website were issued and over what period of time.

Because the creators of the Federal Bonding Service saw it as a useful means to lessen unemployment of people in the categories set forth above, and because it does seem probable that the program could, indeed, have that effect, there should be some exploration of how it has fared nationally. Whether or not some jurisdictions have employed the bonds profitably, Minnesota employers should be involved in discussion of whether the program might be made more effective here and how that might be done.


1. Determine why Minnesota businesses are not utilizing the Federal Bonding Service.

2. Increase utilization of Federal Bonding Service, or stop paying to advertise and administer the Service.

52 Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28 (2007).

53 All statistical data on WOTC and Federal Bonding provided by DEED in handouts to the 2007 Legislature’s Re-entry Working Group and the agency’s website (http://www.deed.state.mn.us/).

54 Finn, P. (1998).