Software Council of Southen California

State Will Pay for Staff Training
Get reimbursement from the CA ETP fund
by Judy Turner, Manager, Multistate Tax Services, Deloitte & Touche LLP

Looking for opportunity to offset the cost of needed workforce training? Perhaps the State of California can lend a hand. Last year, the California Employment Training Panel (ETP) reimbursed companies over $100 million for their training costs. This is NOT a tax credit. Companies can qualify without having any California tax liability. However, the actual amount of the agreement is calculated based on the number of hours of training and the number of trainees. On average, approved training proposals approximated $400,000, with an individual trainee rate of over $1,200.

Effective January 2001, Governor Gray Davis and the California Legislature made the ETP a permanent fixture in the growing California incentives and credits arsenal. The benefits of the program are significant to anyone who pays California unemployment insurance tax and provides training to their workers to remain competitive in the marketplace.

The original designers of the program funded it by taxing the first $7,000 of subject payroll wages at one tenth of one percent, amounting to an annual maximum of $7 for each California employee. Your tax dollars are deposited into the Employment Training Tax fund from which eligible companies can offset the cost of training to upgrade the skills of their existing workforce or to train new employees. For fiscal year 2001-2002, this resulted in $81.9 million for California companies to use to offset the cost of training. The Panel spent all of this year's tax dollars at the May 2002 Panel meeting, with new funding becoming available on July 1, 2002.
Company eligibility requirements
§ To qualify for funding, a company must experience "out-of-state competition." Software developers are considered to be manufacturers and are deemed to automatically meet this criterion.

§ Qualified companies coordinate with the ETP staff to develop a contract with terms mutually agreeable to both. The company determines training needs, the trainees, how the training will be provided and who will provide the training - either outsourced California vendors or in-house staff.

§ Almost any type of training curriculum will qualify, short of new hire orientation or mandated regulatory training, such as OSHA training.

§ The training must be customized to address the unique needs of the company. Frequently, companies that are expanding, adding new facilities or implementing new technology or business processes should consider applying for ETP funding to offset the cost of retraining their workforce.
§ Wage and hour requirements
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§ Employers have a maximum of 21 months to complete all of the training following contract approval. Each trainee must receive between a minimum of 40 and a maximum of 200 hours of training during this period.

§ For the company to be eligible for reimbursement, the incumbent trainees must earn a minimum wage between $11.15 and $12.16 per hour at the completion of training. The wages can include premiums paid by the company on behalf of the employee for health, vision or dental insurance. The minimum wage requirement varies based upon the location of the facility where the training is given and may be waived for certain communities with high levels of unemployment.
Performance-based contract
§ Since the agreement is a "performance based" contract, reimbursement is based on completion of the training for each individual trainee followed by a 90-day retention period. Trainees completing less than 80% of the hours stipulated in the agreement are not reimbursable.

§ As each trainee completes the designated training and is retained for 90 consecutive days, the company invoices the state for cash reimbursement at a predetermined rate, predicated by the kind of training and the number of hours of training.
Employer contribution
§ Employers often absorb the cost of the trainees' wages during training and lost productivity while training is in progress. This would be considered their "in-kind" contribution for ETP purposes.

The ETP does not want to supplant training funds previously identified by companies for training. In fact, the enabling legislation requires that companies pay for a portion of the training costs. The intent of the program is to subsidize the cost of training efforts and assist companies in focusing on significant training programs for their front line workers that will enhance the company's competitiveness in the marketplace.

Now more than ever, during this slower economic environment, software companies are seeking to develop strategies to effectively increase productivity and minimize costs. Workforce training is key to equipping employees with the skills they need to generate the business results required to maintain your competitive edge in the marketplace. Now may be the time to access your tax dollars to generate needed funds back to your company to support needed training. If you don't, your California competitors may!

Judy Turner is a manager for Deloitte & Touche, LLP, in its Credits and Incentives Group of the MultiState Tax Practice of the Los Angeles office, providing professional services to companies to assist them with the development and administration of ETP agreements. She can be reached at (213) 688-5236 or juturner@deloitte.com.