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DHS finalizes Social Security mismatch regulations:
Employers beware

By Rob Smith, Ceridian manager of Government Relations

On August 15, the Department of Homeland Security (DHS) published final regulations that will require employers to take certain steps if they receive a "mismatch" letter from the Social Security Administration (SSA) or the DHS. The regulations will go into effect on September 14, 2007. If employers follow these guidelines and terminate employees whose information cannot be reconciled with SSA files, they will be granted a "safe harbor" from prosecution for employing illegal workers. This rulemaking reflects the immense pressure the federal government is under to combat illegal immigration and aims to correct unclear guidance the SSA has provided employers regarding these letters in the past.

Current mismatch notice inconsistent
Each year, the SSA sends approximately 150,000 mismatch letters to employers with 10 or more employees. These mismatches are detected after employers report workers' W-2 data to the SSA and the reported Social Security number and name combination does not match. Unfortunately, the SSA hasn't given employers clear guidance about what to do when they receive a mismatch letter. The previous guidance is at best inconsistent and at worst potentially harmful.

Under existing law and regulations, if a business receives a mismatch letter and chooses to take no action, it can be held liable for "knowingly employing" an individual who is not authorized to work in the United States which can result in fines and prosecution if the business is audited by the DHS. However, the mismatch letter states: "You should not use this letter to take any adverse action against an employee -- just because his or her Social Security number appears on the list. Doing so could, in fact, violate state and federal law and subject you to legal consequences."

This may have been enough guidance in the past when the federal government made little effort to police illegal workers, but the DHS has recently put employers on notice that it intends to crack down on work authorization violations. The new regulations clearly state that receiving a mismatch letter will be deemed "constructive knowledge" that the employer may have an unauthorized worker on payroll.

Given this context, the safe harbor guidelines should be beneficial. But complying with these requirements will undoubtedly bring a wave of compliance-induced headaches for HR and Payroll managers.

New "safe harbor" guidelines
The DHS first proposed the regulations in June 2006, but delayed implementation to give Congress an opportunity to enact comprehensive immigration reform legislation. If enacted, this legislation would have required all employers to verify employees' I-9 documents through a federal Electronic Employment Verification Service, which would have virtually eliminated mismatch letters. After the latest attempt to overhaul immigration law faltered in the Senate in late July, the administration decided to take action on its own.

Under the new regulations, employers must comply with the following guidelines in the event they receive a mismatch letter to qualify for safe harbor from prosecution. These guidelines will be included in a document from the DHS that is sent with the mismatch letters employers receive from the SSA:

• Within 30 days of receiving a no-match letter from the SSA, the employer must check the notice against the employee's records, make any necessary corrections and verify these changes with the SSA.
• If the employer does not find any errors in the records, the worker must be notified of the discrepancy between the information provided to the employer and the SSA's records. The worker then has 90 days after the employer received the letter to contact the SSA to correct the mismatch. If the mismatch is corrected, the employee must inform the employer, and the employer should confirm the correction with the SSA. The worker must be terminated if he does not attempt to resolve the mismatch within this 90-day period.
• If the worker tries, but is unable to resolve the mismatch during that period, he has three days to fill out a new I-9 form. The worker cannot provide the document containing the Social Security number that was the subject of the mismatch letter, and the worker is required to submit a document with a photograph to complete the I-9.
• On the 94th day after the employer received the mismatch letter, if the worker cannot provide this documentation, the employer must terminate the worker. If the employer does not terminate the employee, the employer is now deemed to have constructive knowledge of employing an illegal worker.

It is important for employers to document every step of this process in writing, including the date and time they contacted the SSA, which should be filed with the employee's I-9.

These rules go into effect on September 14. It's important to note that, as under current policy, a mismatch letter by itself does not give any indication of an employee's immigration status. Employers who take adverse action against an employee based on a mismatch letter alone may find themselves in court for violating discrimination and/or labor laws.

Why worry? Avoid mismatches in the first place
Although employers will have new responsibilities under the new rules, the mismatch letter process will not change. Because the SSA can only detect mismatches when employers submit workers' W-2 information, it is possible that a business could employ an illegal worker for nearly a year before the SSA becomes aware of the mismatch and sends a letter. What's more, even after the employer receives the letter, the employee could remain on payroll for another three months while the employer attempts to resolve the discrepancy.

Few, if any, businesses want to risk employing a worker who could make them liable for federal fines and other penalties. And not many businesses look for workers they may have to terminate in a year's time.

Thankfully, employers can virtually eliminate mismatch letters and avoid the new compliance requirements that will go with them by taking advantage of several government services that are already available.

The SSA and DHS already offer free services that employers can use to verify workers' Social Security numbers. Rather than waiting up to a year to receive a mismatch letter, employers can quickly check employees' information against the SSA's database using either the Social Security Number Verification Service (SSNVS) or the DHS's Basic Pilot program. Both of these services are fairly easy to use, and businesses can designate a third-party agent to facilitate submitting data, receiving and distributing notices, and communicating with employees. Also, the DHS explicitly stated in the August 15 regulations that the new safe harbor requirements and constructive knowledge liability do not extend to information employers receive through these services regarding workers' status.

The SSNVS is accessible by phone at 800-772-6270 or online. This program electronically checks employees' Social Security numbers against the SSA database. Employers can use the system to verify Social Security numbers for new hires and current employees, but it cannot be used to pre-screen potential hires. As with mismatch letters, labor and discrimination law bars employers from using a negative response from the SSNVS to terminate an employee.

Also, while it's illegal to require new workers to provide a Social Security number on an I-9 form under immigration law, employers can obtain this information from the employee's W-4 form, and many employers ask to see a Social Security card upon commencement of employment to ensure the employee's Social Security number is accurately recorded in employment-related documents, such as the Form W-4 and in the HR/Payroll systems.

Employers can also enroll in the Basic Pilot program, which the government plans to rename "E-Verify." This electronic federal system instantly checks new hires' I-9 information against the SSA and DHS databases. As with the new DHS regulations, employees have a set period of time to correct any mistakes, and those whose information cannot be verified must be terminated. E-Verify can be used only to screen new hires' information, but an employer could use the SSNVS to verify current workers' numbers.

Both of these systems provide employers with certain advantages. Using E-Verify and/or the SSNVS will ensure that employees are receiving earnings credits with the Social Security Administration. It's easy for the federal government and employers to transpose numbers or misspell names, which can cost workers later when they become eligible for Social Security benefits. Employees should appreciate the extra effort, and employers will have the security of knowing their records are correct.

What's more, businesses that use these systems, especially E-Verify, may avoid hiring illegal workers. Privacy law prohibits the DHS from accessing SSA records or using SSA mismatch letters to find illegal immigrants, but an illegal worker whose employer informs him that his information doesn't match up is unlikely to report for work the next day. Illegal immigrants live in constant fear of getting caught and deported, and even the suggestion that the government might know where they are is usually reason enough for them to move on.

No-match letters are no match for ID theft
One unintended effect of the no-match regulations will be a rise in ID theft. As long as an employee presents a legitimate Social Security number and the name associated with it -- whether it is the employee's or someone else's -- the W-2 would not generate a mismatch. Ultimately, the new regulations may lead illegal aliens to seek legitimate Social Security numbers that are attached to the corresponding names. This can have dire consequences for the individuals whose information has been stolen. A federal tamper-proof, biometric identification system would eliminate this problem, but the technology and the infrastructure necessary to manage such a system on a national scale have not been developed.

New era of enforcement to focus on employers
Up until now, the government's approach to reducing the growing illegal immigrant population has been to take a series of stop-gap measures to increase border patrols and fencing. But the fact remains that illegal aliens will continue to find ways into the U.S. as long as the pull of American jobs exists.

As the new mismatch regulations clearly show, the government is turning its attention towards the source of those jobs -- employers -- and the new mismatch requirements are only the first steps. On the same day the regulations were finalized, the DHS announced new proposed regulations that would require all of the approximately 200,000 federal contractors and vendors to use the E-Verify system. It is only a matter of time before all other employers will be required to enroll in the program. In the meantime, employers would do well to sign up for E-Verify in advance while it is free and relatively few other businesses are using it.

The days when law enforcement turned a blind eye to unauthorized workers are over. Employers must ultimately be responsible for the employees they hire, and the more proactive they can be about making sure that their workers are authorized to work, the better off they'll be.

If you would like more information, the DHS has developed an online Safe Harbor Information Center for employers.

For additional questions, call the DHS Immigration and Customs Enforcement No-Match Letter hotline at 800-421-7105.