Restaurant Hiring Challenges: How WOTC Can Help You Build a Stronger, More Cost-Effective Workforce
The restaurant industry has always faced high turnover and seasonal staffing challenges, but today’s hiring landscape is even more difficult. Many restaurant owners and general managers are struggling to fill open positions while balancing rising labor costs due to minimum wage increases, inflation, and ongoing workforce disruptions from the COVID-19 pandemic.
These pressures are squeezing profit margins, making it harder than ever to maintain a stable workforce while keeping costs under control. However, one often-overlooked solution can help restaurants expand their talent pool while reducing tax liability, the Work Opportunity Tax Credit (WOTC).
By integrating WOTC into your hiring strategy, you can lower payroll costs, tap into a more diverse workforce, and receive tax credits for hiring employees who may otherwise struggle to find work. When paired with workforce management technology and expert HR consultation, this approach can help restaurants optimize operations and gain a competitive edge in a challenging labor market.
Content
- Understanding Today’s Restaurant Hiring Challenges
- Rising Minimum Wage and Labor Costs
- Lingering Staffing Shortages from the COVID-19 Pandemic
- Post-Pandemic Restaurant Labor Shift
- Inflation and Supply Chain Disruptions
- Current Immigration Policy and Its Impact on Restaurant Staffing
- What is The Work Opportunity Tax Credit (WOTC)?
- General Steps to Apply for the WOTC
- How WOTC Can Help Restaurants Lower Costs and Expand Hiring
- Using Workforce Management Technology to Simplify WOTC and Staffing
- Long-Term Impact of WOTC on Restaurant Operations
- General FAQs
Understanding Today’s Restaurant Hiring Challenges
Restaurant owners and general managers know that staffing isn’t just about filling shifts, it’s about finding reliable, skilled employees who can help deliver great customer experiences. However, several factors are making it increasingly difficult to hire and retain the right people.
Rising Minimum Wage and Labor Costs
Several states have recently enacted significant minimum wage increases, directly impacting labor costs for restaurant operators:
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- New York: Effective January 1, 2025, New York’s minimum wage increased to $16.50 per hour in specific areas and $15.50 elsewhere, with indexed raises commencing in 2027. Tipped workers are also affected, as employers must ensure their combined tips and wages meet the minimum threshold, otherwise, they must supplement the difference.
- Illinois: Under legislation signed by Governor J.B. Pritzker in 2019, Illinois has been on a scheduled path to raise the state minimum wage to $15 an hour by 2025. The law includes a tax credit for small businesses to help manage rising labor costs. Tipped employees can still be paid a lower wage, but employers must ensure their total earnings meet the full minimum wage threshold.
- District of Columbia: Initiative 82, passed in 2022, mandates gradual increases in the tipped minimum wage, aiming to equalize it with the standard minimum wage by July 1, 2027. As of July 1, 2025, the tipped minimum wage will be $12.00, with further increases scheduled until parity is achieved. This fundamentally changes how restaurants must structure wages and tips to stay compliant.
Federal law still allows for a lower tipped minimum wage, but as more states move toward eliminating tip credits, restaurant owners are forced to rethink pricing, service models, and payroll strategies to stay profitable. Labor cost increases are putting intense pressure on already thin margins, making workforce efficiency and tax-saving strategies, such as leveraging WOTC, more essential than ever.
Lingering Staffing Shortages from the COVID-19 Pandemic
The COVID-19 pandemic fundamentally reshaped the restaurant labor market, leaving lingering workforce shortages that continue to challenge restaurant owners and general managers.
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- Worker Exodus and Industry Shift
Many experienced restaurant employees left the industry during the pandemic due to health concerns, job instability, and prolonged closures. Despite the recovery, a large portion has not returned, opting instead for roles in different industries that offer higher wages, better benefits, and more predictable schedules. - Increased Operational Costs and Unstable Labor Market
Restaurants continue to struggle with higher costs for food, rent, and supplies due to inflation. These financial pressures have forced many establishments to limit operating hours, reduce staff, or stretch fewer employees across more roles, further increasing burnout and turnover.
- Worker Exodus and Industry Shift
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Post-Pandemic Restaurant Labor Shift
A report from the U.S. Bureau of Labor Statistics shows that while overall employment in food service has largely recovered, the composition of these jobs has changed significantly: Source: U.S. Bureau of Labor Statistics.
This data highlights that full-service restaurants were among the hardest-hit sectors, as reflected in the steep decline of waiters and waitresses (-12.9%). Meanwhile, bartender employment actually increased (+12.2%), possibly due to the faster recovery of bars and casual dining establishments that adapted more quickly to post-pandemic consumer habits.
According to Forbes, “While employment has largely recovered, the makeup of how these jobs are distributed has drastically changed. Compared to 2019, 2023 saw an increase in the number of Supervisors and Cooks, and a decline in the number of Serving workers. A further breakdown of Serving workers shows the largest decline came from waiters and waitresses, likely since full-service restaurants were one of the most affected during COVID.”
These shifts mean that restaurants need to rethink hiring strategies and workforce management, ensuring they tap into underutilized labor pools while controlling costs.
Inflation and Supply Chain Disruptions
Restaurants aren’t just grappling with higher labor costs, inflation has driven up nearly every operational expense, putting additional pressure on already narrow profit margins. Food prices have skyrocketed, rent continues to climb, and energy costs remain volatile, all of which significantly impact a restaurant’s bottom line.
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- Rising Food Costs Inflation has led to substantial increases in the cost of key ingredients, forcing many restaurants to either raise menu prices or absorb the additional expense. For example, egg prices surged by over 50% in 2023 due to supply chain disruptions, and beef and poultry prices remain at record highs. Many restaurants that previously relied on fixed-price contracts with suppliers have found themselves paying significantly more than expected.
- Higher Rent and Utility Costs
Many restaurant leases include rent escalation clauses, meaning rental costs automatically increase each year. For example, in major cities like New York and San Francisco, commercial lease rates have continued to rise post-pandemic, making it even more challenging for independent restaurants to stay afloat. Additionally, higher utility costs, including electricity and gas, are compounding financial pressures. - Ongoing Supply Chain Issues
Despite some stabilization, supply chain disruptions continue to affect ingredient availability and delivery times. Certain imported items remain difficult to source, forcing restaurants to alter menus, find alternative suppliers, or manage inconsistent pricing fluctuations. Shortages of basic supplies, from takeout containers to cleaning products, further complicate operations and impact customer experience.
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With these financial pressures, restaurants must adopt smarter workforce management strategies to maintain profitability. Investing in technology-driven scheduling, labor cost tracking, and tax-saving hiring incentives like WOTC can help owners offset rising costs while ensuring their operations remain efficient.
Current Immigration Policy and Its Impact on Restaurant Staffing
The restaurant industry has long relied on immigrant labor to fill critical roles, particularly in back-of-house positions such as dishwashers, cooks, and food prep workers. However, current immigration policies, including stricter enforcement, E-Verify requirements, and work authorization challenges, are putting this workforce at risk.
- Increased E-Verify and I-9 Audits
Federal and state governments are cracking down on undocumented workers through increased I-9 audits and mandatory E-Verify programs in certain states. For example, Florida recently enacted a law requiring private employers with 25 or more employees to use E-Verify, making compliance even more critical for restaurants that depend on immigrant labor. Employers who fail to comply face fines, business license suspensions, and even workforce reductions if unauthorized workers are identified. - Work Visa Shortages and Delays
Many legal immigrant workers in the restaurant industry rely on temporary work visas such as the H-2B program. However, demand for these visas far exceeds supply, with the annual cap being filled almost immediately upon release. This has led to chronic labor shortages in states that depend on seasonal or temporary restaurant workers, such as California, Texas, and Florida. - The Risk of Sudden Workforce Depletion
If immigration enforcement intensifies, restaurant owners could wake up to a dramatically reduced workforce overnight, leaving them scrambling to fill critical roles. The industry has already seen cases of ICE raids leading to immediate labor shortages, forcing businesses to cut operating hours or temporarily shut down.
- Increased E-Verify and I-9 Audits
To mitigate these risks, restaurant owners must take a proactive approach to workforce planning. Diversifying hiring strategies by tapping into WOTC-eligible employee groups, such as veterans, long-term unemployed individuals, and vocational rehabilitation referrals, can help fill staffing gaps while providing tax incentives that offset labor costs.
Additionally, working with HR professionals who specialize in restaurant workforce management ensures that hiring processes remain legally compliant and strategically optimized, helping businesses navigate the evolving labor landscape.
What is The Work Opportunity Tax Credit (WOTC)?
The Work Opportunity Tax Credit (WOTC) is a federal program that offers tax credits to businesses that hire employees from certain target groups, such as:
- Individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits.
- Qualified veterans.
- Long-term unemployed individuals.
- Ex-felons seeking to reenter the workforce.
- Residents of designated low-income communities.
General Steps to Apply for the WOTC
Navigating the WOTC application process involves several key steps, from assessing eligibility to submitting necessary documentation. Here’s a detailed guide to streamline your application process and ensure compliance if you plan to apply for WOTC.
Step 1: Determine Employee Eligibility
The initial step is to assess whether your new hire qualifies under one of the target groups. This determination is critical as it dictates your eligibility to claim the credit. Collaborate closely with your HR team to evaluate each new employee’s eligibility, ensuring that all necessary documentation is collected during the hiring process.
Step 2: Complete IRS Form 8850
Once eligibility is confirmed, the next step is to complete IRS Form 8850, the “Pre-Screening Notice and Certification Request for the Work Opportunity Credit.” This form must be filled out by the employee on or before the date of the job offer. It must then be submitted to your state workforce agency within 28 days of the employee’s start date. Ensuring timely submission is crucial to prevent disqualification from the credit.
Step 3: Submit ETA Form 9061 or 9062
In addition to Form 8850, you’ll need to submit either ETA Form 9061 or 9062. ETA Form 9061 provides information about how an applicant answered the WOTC questionnaire and utilized when no conditional certification exists. ETA Form 9062 is applicable for employees with pre-existing certification and who have been pre-screened for WOTC by an SWA. Submitting these forms to your state workforce agency confirms the employee’s eligibility and is a critical step in securing the credit.
Step 4: Receive Certification
After submitting the necessary forms, your state workforce agency will review your application. Upon approval, they will issue a certification confirming the employee’s eligibility for the WOTC. It is essential to retain this certification in your records, as it is a requisite for claiming the credit on your tax filings.
Step 5: Claim the Tax Credit
With certification in hand, you can claim the tax credit when filing your business’s federal tax return. Use IRS Form 5884, the “Work Opportunity Credit,” to calculate the amount you’re eligible to claim. Attach this form to your tax return to officially claim the credit, ensuring all documentation is accurate and complete.
How WOTC Can Help Restaurants Lower Costs and Expand Hiring
For restaurant owners and hiring managers, WOTC presents a win-win opportunity:
- Lower Payroll Costs Through Tax Credits
Restaurants can claim up to $9,600 per qualified hire in tax credits, significantly offsetting labor expenses. - Access to a Larger Talent Pool
By considering candidates from WOTC-eligible groups, restaurants expand their hiring options and increase their chances of finding dedicated, long-term employees. - Improved Retention and Workforce Stability
Many WOTC-eligible employees are looking for stable, long-term employment. When paired with proper onboarding and HR support, these hires can contribute to a more reliable workforce.
- Lower Payroll Costs Through Tax Credits
Using Workforce Management Technology to Simplify WOTC and Staffing
While WOTC offers significant benefits, navigating the paperwork and compliance requirements can be time-consuming, which is why many businesses overlook this opportunity. That’s where workforce management technology comes in.
At PeopleWorX, we integrate WOTC screening into the hiring and onboarding process, ensuring that businesses maximize their tax credit opportunities without adding administrative burdens. Our HR and payroll solutions help restaurants:
- Automate WOTC Screening & Compliance
Employees complete a simple questionnaire during onboarding, and our system flags eligible hires. We then handle the necessary paperwork and filings, so you don’t miss out on tax credits. - Optimize Scheduling & Workforce Planning
Minimize labor costs with smart scheduling tools that align staffing levels with business demand, reducing unnecessary overtime and improving efficiency. - Improve Payroll & HR Compliance
Ensure that wage calculations, payroll taxes, and compliance requirements are handled accurately, avoiding costly penalties. - Receive Expert HR Consultation
Our restaurant-focused HR experts provide strategic hiring and retention guidance, helping you develop policies that attract and retain top talent.
- Automate WOTC Screening & Compliance
Long-Term Impact of WOTC on Restaurant Operations
- Improved Employee Retention and Reduced Turnover: By hiring from WOTC-eligible groups, restaurants can increase employee loyalty and stability. Many individuals in these groups are looking for long-term job opportunities, reducing turnover and the costs associated with hiring and training new staff.
- Cost Savings and Increased Profitability: Restaurants leveraging WOTC can significantly lower labor costs, allowing them to reinvest in operations, improve employee wages, or expand business offerings. This tax credit helps businesses stay competitive without compromising financial stability.
- Enhanced Community Relations and Brand Reputation: Supporting underrepresented groups in the workforce strengthens community ties and enhances a restaurant’s public image. Customers appreciate businesses that provide job opportunities to those in need, increasing brand loyalty and customer engagement.
- How WOTC Promotes Workplace Diversity: Hiring from WOTC-eligible categories fosters a more diverse and inclusive workforce. A mix of backgrounds and experiences can enhance teamwork, creativity, and overall service quality in restaurants, creating a more positive work environment.
Don’t leave money on the table. Learn how WOTC and workforce management technology can help your restaurant thrive.
General FAQs
How long does it take to see the benefits of WOTC?
The timeline depends on factors such as the employer’s hiring process, the employee’s work duration, and IRS processing times. Most employers see the full tax benefits within the next tax cycle after filing their business return.
Can WOTC benefit a small restaurant?
Yes. Small restaurant businesses can also benefit from WOTC. It is available for all businesses, irrespective of their size.
Are there any risks associated with using WOTC?
While WOTC offers valuable tax savings, some challenges include administrative burdens, turnover risks, and compliance requirements. However, PeopleWorX can streamline the process and ensure compliance to minimize risk.
How does WOTC affect employee wages and benefits?
WOTC does not impact employee wages or benefits. It is a tax credit for employers, and employees receive the same compensation and benefits as any other hire.
Can WOTC be used for both full-time and part-time employees?
Yes! WOTC applies to both full-time and part-time employees, as long as they meet eligibility criteria and work at least 120 hours for a partial credit or 400 hours for a full credit.
If you need help with workforce management, please contact PeopleWorX at 240-699-0060 | 1-888-929-2729 or email us at HR@peopleworx.io
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