Employment

A Verification System for New Hires Backfires


Two years ago the Asheville (N.C.) rumor mill lit up with speculation that local flower wholesaler Van Wingerden International was hiring undocumented workers. To ensure that he take on only legal employees, co-owner Bert Lemkes enrolled the $20 million business in E-Verify, a federal program that matches data on new hires, such as Social Security numbers, with government records.

Lemkes says E-Verify has made it harder to find enough workers for his 37 acres of greenhouses, especially during spring growing season, when he employs up to 350 people. Though the U.S. unemployment rate is stalled above 9 percent, business owners such as Lemkes say few native-born workers are willing to do tough jobs, leading employers to hire immigrants. “Those who want to work fail to pass E-Verify, and those that pass fail to work,” he says.

E-Verify can be used only to check immigration status after a worker is hired, not to screen job candidates or check on existing employees. Lemkes says he has had to fire more than 60 recent hires. Although E-Verify’s proponents argue the unemployed will replace the undocumented, Lemkes says that hasn’t happened. “Without comprehensive immigration reform, [verification requirements are] going to kill agriculture,” he says.

At its launch in 1997, E-Verify was voluntary, and today about 300,000 employers—less than 5 percent of U.S. companies—use it. As states strengthen sanctions against illegal immigrants, 18 have passed laws making the program mandatory for certain employers, according to the National Conference of State Legislatures. In five states—Alabama, Arizona, Mississippi, South Carolina, and Tennessee—all employers are required to use it or will be by 2013; in three others, all but the smallest companies will have to use it by then. On Sept. 21 a congressional committee passed a measure by Representative Lamar Smith (R-Tex.) that would require use of E-Verify by all U.S. businesses, including those with just one employee.

Some farmers, contractors, and restaurant owners who rely on foreign-born labor argue that a patchwork of regulations will prompt undocumented laborers to cross state lines or work for employers who pay them off the books. Small companies will be particularly burdened by E-Verify because they lack dedicated human resources staff to manage the system, says Rebecca Smith, an attorney at the National Employment Law Project. While businesses with fewer than 500 workers employ about half the U.S. labor force, if the program were mandatory those companies would bear 99 percent of the $2.7 billion in costs for E-Verify (mostly paying their own staffers or consultants to do the searches), Bloomberg Government estimates.

Opponents worry that more full-timers will be registered as contract workers by companies seeking to avoid E-Verify, cutting payroll tax revenues. “You bring on E-Verify, that simply pushes more illegal immigrants over to employers who are willing to misclassify them as independent contractors,” says Norm Adams, a Houston insurance broker who helped defeat legislation that would have mandated use of E-Verify in Texas. “The more E-Verify laws we have in this country, the more payroll taxes we’re going to lose.” A 2008 Congressional Budget Office report estimates that requiring E-Verify nationally would cut federal tax revenue by more than $17 billion.

In Arizona, where E-Verify became mandatory in 2008, the program has caused worker shortages across industries from construction to food service, says Julie Pace, an employment lawyer in Phoenix. “They can’t find the workers,” Pace says. “It’s a big cost that is not captured in the use of E-Verify.” Still, she supports making the program mandatory nationwide so all employers share an equal burden, which could prompt Congress to create a “logical and reasonable guest worker program to really meet the labor needs of this country.”

The bottom line: Small businesses may bear 99 percent of the cost of using E-Verify, a program that checks whether new hires may work in the U.S.

Nick-leiber_75x75
Leiber is Small Business editor for Businessweek.com, Entrepreneurs editor for Bloomberg.com, and covers small business for Bloomberg Businessweek.

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