An employee's perspective on H&R Block

Although clients report paying high fees of $200, $300, or more for relatively simple tax returns at franchise tax preparers, relatively little of that money goes to the actual preparers. The standard arrangement is a commission-based scheme which typically results in wages not much higher than than the minimum wage, according to this East Bay Express article written by a Block employee.

One thing H&R Block is very up-front about is that anyone can walk in off the street, get his return done, see the results, and then drop the whole thing and walk away owing Block nothing. In other words, a customer has no obligation to file or pay for the return Block prepares for him. This is a real boon to clients, but Block pays for its generosity on the backs of its workers.

Customers often abandon returns — for example when they're hoping for big refunds that they don't have coming. Customers of modest means often don't have $100 to $200 set aside to pay for tax preparation unless they get such refunds. Every time a customer walks away from a return, an employee who is hoping for a year-end bonus loses money.

Since preparers earn a base-rate of $8 per hour, commission-based bonuses provide heavy incentives to sell "add-on" products such as "Peace of Mind" audit insurance.

To make any money as preparers, we were pressed to push add-ons. These are services at the heart of lawsuits Block has paid more than $100 million to settle in recent years, according to company filings with the Securities and Exchange Commission.The first money-making gem went by the Orwellian title, "Peace of Mind," though seemingly designed to foster anxiety. Although Block said it stood behind its work and will pay penalties and interest due to any error it makes, for a mere $29 it offered customers the "guarantee" that if they lose up to $5,000 due to a company error, Block will pay the taxes owed and send a representative to participate in any audit.

I tried hard to get my arms around this. A mistake will apparently have cost a taxpayer as much as $5,000, yet the government will not return the money — nor will Block be responsible for the taxes unless the requisite $29 (now $30) was paid. How can this happen? Does anyone truly believe our government won't return taxes paid or collected in error? Granted there may occasionally be circumstances in which "Peace of Mind" could be of use. But such eventualities are rare and the contingencies poorly understood by customers, which makes this a questionable purchase. SEC filings indicate that Block makes more than 70 percent margin on "Peace of Mind" — probably not counting the cost of lawsuits. Giving how little effort is involved, selling "Peace of Mind" is a much easier way to make money than tax preparation. So if workers want to make anything approaching a living wage, they have little choice but to push this guarantee.

"Refund anticipation loans," another add-on, also play on customers' lack of sophistication — which is clear from the many customers who throw away hundreds of dollars to get back thousands a few weeks sooner. Company securities filings again show that a big piece of Block's profit comes from these complex, aggressively promoted schemes by which the firm charges people double-digit interest rates to essentially borrow back their own money.

Another Block policy, its supposedly rigorous "Quality Plus Review," purported to ensure that some returns would be reviewed by a second Block worker. What it actually meant in our office was that the preparer eventually entered another preparer's ID number into the tax software, as if to notify the system that the second worker had signed off on the return. In my experience, no actual review of returns by a second preparer ever took place. It was clearly understood that none ever would. My colleagues and I understood this to be company policy, verified by our manager.