Undocumented Worker Legislation - A New Reality For California Employers

When Michael Young* received a “No Match Social Security” letter from the Social Security Administration, he discounted it, as he had always done in the past. As the owner of Growing Expectations*, a small landscape design company in Southern California, he was too busy hiring employees, processing payroll and managing his insurance obligations. “I receive letters like this [from the SSA] all the time. I just don’t have the time to verify the information they need. So, I usually just disregard them.” While this attitude may have sufficed in the past, times have changed.

GROWING CALIFORNIA RISKS

With the firestorm still raging in Congress over the status of illegal immigrant workers, several new regulations have been passed by the Bush Administration to crack down against employers who violate newly enforced laws. As of September 14, 2007, The Department of Homeland Security began increasing enforcement efforts and levying larger fines against employers who employ undocumented workers. The DHS is enforcing its new guidelines for employers who receive “No Match” letters from the Social Security Administration. A No Match letter is issued when tax documents submitted for an employee do not match the information on file at the SSA. In the new guidelines, the DHS states that improper handling of No-Match letters may indicate knowledge by an employer that a worker is illegal, and may lead to civil or criminal enforcement action.

In early July, the Bush administration announced that employers who knowingly employ undocumented workers may be eligible for fines up to $12,500 and a felony prosecution. On the state level, the number of laws against illegal immigrants has more than doubled since 2006, to over 170.

These new guidelines present employers in California with an even greater challenge than employers in the rest of the nation. Consider the following statistics:

o California has the largest unauthorized population of any state—almost 2.5 million, almost a quarter of the nation's unauthorized immigrant population.

o The percentage of undocumented workers was almost twice as high in California (6.9 percent) as in the rest of the United States (3.6 percent).

o There are about 1 million unauthorized immigrants in the Los Angeles metropolitan area, almost double the number of any other metro area. In 2004, about two-fifths (41 percent) of California's unauthorized immigrants resided in Los Angeles.

o Almost all unauthorized immigrant men work. The employment rates are substantially higher for undocumented male employees than for legal immigrant or U.S.-born men.

o In California, 94 percent of unauthorized men age 18–64 were in the labor force in 2004, versus 84 percent of legal immigrants and 82 percent of native-born men.

(Source: “The Characteristics of Unauthorized Immigrants in California, Los Angeles County, and the United States”. By: Randolph Capps, Karina Fortuny)

It is clear that the new laws will have a greater impact on California employers than on employers in any other state.

HR OUTSOURCING - A HOPE FOR CALIFORNIA EMPLOYERS

The average small to mid-sized California employer faces the greatest risks posed by the new regulations. While large corporations typically have the infrastructure in place to address No Match letters and make the proper employment decisions, small employers are less equipped to tackle these newfound liabilities. The risk of non-compliance is substantially greater for them than with their larger counterparts.

Over the past decade, a visible trend has been emerging in the small and mid-market business sector in the area of Human Resources Outsourcing. Small employers recognize their limitations when it comes to compliance in the areas of employment liabilities and human resource policies, and the new undocumented worker laws will continue to help this trend gain momentum.

In an HR Outsourcing relationship, the employer engages the services of a professional firm and hands over many aspects relating to the management of their employment responsibilities. These areas can include:

• Labor law compliance
• Employment administration
• Management training and development
• Employee health benefits
• Risk Management
• Insurance services
• Recruiting
• Payroll and Tax services.

In some instances, only specific, select functions are outsourced. In other situations, organizations see the value in outsourcing the entire human resource package and entrust the HR Outsourcing firm with all the functions.

CPEhr – A CALIFORNIA COMPLIANCE EXPERT

One such firm is CPEhr, one of California’s oldest and largest independently owned HR Outsourcing and Professional Employer Organization (PEO) companies. Founded in 1982, CPEhr has over 25 years of experience assisting California-based employers in human resource and labor law compliance. In response to the new undocumented worker regulations, CPEhr has begun offering customized services to help small employers comply with the new laws and avoid non-compliance penalties.

With years of experience dealing with the SSA and the Immigration and Naturalization Service (INS), CPEhr creates and implements aggressive I9 and employment verification policies, responds to No Match Letters and corresponds with the SSA and INS on its clients’ behalf.

Peter Escalante, a Human Resources Consultant with CPEhr, summarizes CPEhr’s compliance process. “First, we check all employee files for valid I9s and confirm they are stored in a separate folder, away from their personnel file,” explains Escalante. “Then, if a client gets a notice from the SSA, they forward them to CPEhr. We check the letter against their information on file, and if the information is incomplete, we request completed documentation. If they didn’t have them we would have recommend terminating the employee if they could not provide the proper documentation in a timely manner.”

CPEhr recommends that all employers have an undocumented employee policy included in their Employee Handbook. In it, the employee acknowledges that if their Social Security Number is challenged by the SSA, they have 30 days to produce valid documentation, or be fired. This type of involvement by the employer is extremely valuable, says Escalante, when faced with an investigation or fine by a governmental agency.

“If an agency finds the employer to be proactive in any regard, they will be more forgiving and typically reduce the severity of the penalty,” he notes. “The government realizes employees have rights and employers can’t just fire them. They are understanding of employers who have policies in place and show an effort to cooperate.”

Only time will tell precisely how the new legislation and its enforcement will impact the California business climate. However, in the interim, employers must take a proactive role in addressing the new responsibilities. While the process may be complex, it is their good fortune that HR Outsourcing firms such as CPEhr are here to help them through it.