Comment by nrmitchi
I dont think the math works out in a way such that individual employees are not interchangable. It's based on engineer labor cost as a whole; there is no difference if the 3yr year employee was Jack or Jane.
The net result here seems to be a tax-induced penalty to any (software) organization < 5 years old, as compared to a (software) organization with 5 years of employee history.
I don’t fully understand your comment but it seems that we agree that the answer to “does that create incentives to try to keep employees longer-term in order to make them more cost-efficient?” is “no”.