CVS Benefits by Outsourcing the Administration of Workforce Tax-Credit Programs

By Gary N. Bowen

CVS/pharmacy (CVS), the largest retail pharmacy in the United States, continues to aggressively expand its footprint. With over 6,000 retail and specialty drug stores in 43 states and the District of Columbia, its growth is fueled by identifying and promoting good employees.

As it develops more hiring and training programs in urban, suburban, and rural areas, workforce development remains a high priority. CVS's need for employees is often leveraged through federal and state Welfare-to-Work programs that help put people back to work.

The pharmacy giant was an early convert to using such plans to financially support its recruitment and employee development, which is funded in part by grants and other subsidy sources. It impacts a 150,000--and growing payroll.

But managing such a sophisticated funding program is not easy because it entails identifying new government incentive opportunities, becoming involved in both state and federal legislation, and monitoring benefits of existing programs.

"We don't have the capacity to do this internally," according to Marie Simmons, the company's Manager of Workforce Development Initiatives. "We would rather focus on our core mission of hiring, training, and developing people. Outsourcing is the answer."

Since 2001, with its partner First Advantage Corporation, CVS has developed a benchmark private-public-sector Welfare-to-Work program called "a template for success in American industry" by President Bush; the program has also won recognition from the Ford Foundation.

Since the program's inception, CVS has hired tens of thousands of people, most of them receiving some sort of public assistance. More than 60 percent of these people are still actively employed. The majority has been promoted at least twice, both significant benefits when considering turnover in the retail industry can average 200 percent.

"Woodrow Wilson once said, 'I not only use all the brains I have, but all I can borrow,'" says Paul Connolly, Senior Vice President for the TCC Group, which monitors the grant industry and consults with federal and state governments in developing grant programs. "This is why outsourcing grant research and application functions saves time and money, taps expertise, and offers objectivity for operations that cannot afford to go it alone."

It's also the perfect prescription for CVS's Welfare-to-Work program.

Orderly Tax-Credit Programs Put People Back to Work

First Advantage's specialized knowledge of the mechanics and availability of federal and state grants helps fund the CVS Welfare-to-Work program, significantly augmenting multimillion-dollar hiring and training budgets.

Many states in which CVS does business also offer tax-credit incentive grant programs, so the retailer can reap additional benefits from federal hiring grants. The retail pharmacy chain has used its provider to help target programs that have lowered hiring and training expenses for over 25,000 employees since 2001, saving millions of dollars.

"These numerous state and federal programs generate money for CVS's employee hiring and training budgets primarily through tax-credit incentives, location and training grants, and negotiated incentives with each state," says Larry Waite, Vice President-Taxes in First Advantage's Tax Consulting Services unit, which is part of the provider's Employer Services Segment. Waite adds that additional benefits come to CVS from federal and some state Welfare-to-Work and Work Opportunity Tax-Credit programs.

The total number of these highly sophisticated state and federal tax-credit programs can be staggering, running into the hundreds. This further complicates the environment for aligning needs of a specific state or community with the reimbursement opportunities open to CVS.

"With federal hiring programs, individual stores are more intimately involved in making it a success," she notes. "There has to be good communication along all levels of our organization as our outsourcing partner must deal successfully with everyone, from our Store Support Center to individual stores."

But equal diligence and provider expertise is necessary at each state grant level. "Employers must show how grant-funded workforce training programs fit into their business plan," says Jean Genovese of the State of New York's Department of Labor. "And employers must make a compelling case for how they benefit our citizens and taxpayers. You can't just fill out pro-forma paperwork and expect acceptance."

CVS renewed its outsourcing engagement with First Advantage in 2005 because, according to Simmons, it works. "This program is a win-win for both CVS and its surrounding communities. It helps put disadvantaged people on solid career paths, enabling them to become productive citizens and taxpayers."

A Comfortable Partnership Broadening in Scope

Simmons adds that it was apparent early that both teams work well together and share the same priorities. "There seemed to be a good cultural fit. The reason things have gone well is because our provider works hard at listening to us."

"We view it as a partnership," adds Waite. "We communicate weekly and consistently bring new program opportunities to CVS." Both cite this close communication as the reason bumps in the road over the life of the now six-year engagement haven't turned into obstacles.

When the pharmacy giant enters a new state, the hiring- and training-grant landscape can be a little different from other states in which it has filed for reimbursement grants. Something new is often necessary when it comes to research or filing in order to conform to the tax-credit rules in those states that generate the reimbursement funds for CVS's hiring and training operation. Simmons says First Advantage's ongoing expertise in this constantly changing world is a continuing benefit and delivers great support for its workforce programs.

"Eighteen months ago we were in 37 states," she notes. "Now we're in 43."

First Advantage's demonstrated skill and talent to find tax incentives enables us to focus on doing what we do best: training and developing our people."

"Some companies aren't intimately familiar with the forms required to secure such training-credit reimbursement grants," says Genovese. "Good providers not only help expedite paperwork but also find the most cost-effective programs that save these companies a lot of money."

Lessons from the Outsourcing Journal:

There are hundreds of state and federal work incentive and reimbursement grants available to companies, offering a confusing welter of opportunities. An outsourcer offers the best chance to reap the benefits of highest return without the management headaches.

The financial impact on large firms that outsource the research and filing for government hiring and training reimbursement grants can be millions of dollars over the life of the engagement with their provider, producing a generous percentage of savings in both its employee hiring and training budgets. Outsourcing Welfare-to-Work tax-credit management produces more qualified, trained and motivated employees who help businesses grow.