Have you received a “no-match” letter? As the federal government ramps up immigration enforcement efforts, California employers are left to maneuver a difficult conflict between federal and state objectives on immigration related employment practices.
It is increasingly important that employers strictly follow required procedures to verify an individual’s employment eligibility and promptly respond to notices indicating that a Social Security Number provided by an employee does not match the information in a federal database.
Background
The Immigration Reform and Control Act of 1986 formally drafted employers around the country into the federal immigration law enforcement goal of deterring unauthorized immigration. Congress placed the burden on employers to verify the employment authorization of every employee and maintain records of that verification, which are to be made available for inspection by the Department of Homeland Security (“DHS”).
Form I-9
This verification procedure is formalized through Form I-9. Form I-9 requires employees attest to their employment eligibility and employers attest to their verification of that eligibility by inspecting supporting documents.
- The employee must complete Section 1 and attest to their eligibility status at the time of hire;
- the employer must examine the provided document(s) and attest to their examination in Section 2 within 3 days;.
- the I-9 paper form with original signatures or an electronic version with acceptable signatures must be retained and be made available for inspection for three years after the employee’s hiring or one year after their employment is terminated, whichever is later; and
- if copies of supporting documents are made, they must be retained with the I-9 form or stored with the employee’s other records.
Violations
When a Department of Homeland Security investigation uncovers simple technical or procedural violations, employers are given ten days to cure these deficiencies to avoid penalties. DHS may issue fines ranging from $230 to $2,292 for substantive paperwork violations that call into question the reliability of the verification process. Employers may also face civil penalties, ranging from $573 to $22,927 and criminal prosecution for knowingly hiring or continuing to employ individuals not authorized to work in the U.S.
While employers are prohibited from employing individuals not authorized to be employed in the U.S., the law does not serve to make employers a law enforcement or investigative arm of federal immigration authorities. Thus, employers will not be found liable, even if some technical or procedural violations are uncovered, if they comply with the verification requirement in good faith. However, employers may face liability for knowingly employing people not authorized to work in the U.S. if they fail to properly respond to notices from federal agencies regarding tax record discrepancies and circumstances suggest that the employer has constructive knowledge of the employee’s unauthorized employment status.
Social Security Administration “No Match Letters”
Part of the increased scrutiny on employers by federal immigration law enforcement agencies is the resurgence of the Social Security Administration (SSA) “no match” letters. When employers submit W-2 wage and tax statements to the SSA, the administration determines what Social Security benefits a worker may be eligible for and posts those earning to its Master Earnings File. When the employee’s Social Security Number (SSN) and name on the W-2 does not match the SSA’s records, those earnings are posted to an Earnings Suspense File until they can be matched.
This file likely contains millions of mismatched earnings, only a portion of which represent earnings from unauthorized work. Mismatches can also result from typographical errors, name changes, compound last names and inaccurate employer records. SSA sends “no match” letters when the information provided by the employer on W–2 records differs from the administration’s database so that earnings can be properly credited.
The SSA does not have an enforcement mechanism related to these “no match letters” and cannot issue sanctions for employers who ignore the notice. The database used by SSA to confirm employee identification and to credit accounts is not identical to the IRS database. Thus, a SSA “no match” letter is not an IRS notice and will not lead to IRS penalties. However, an employer may check their records and re-solicit an employee’s SSN in response to a SSA letter to obtain the correct information prior to filing their W-2s.
IRS Notices for Incorrect Filings and Statements
The failure to provide correct information may lead to fines from the IRS for not filing correct information returns or not furnishing correct payee statements. Employers whose tax filings and statements contain incorrect SSNs may receive a 972CG Notice of Proposed Penalty from the IRS, which must be answered within 45 days. The notice contains an explanation of the proposed penalty, an explanation of how to respond to the notice, and a record of each submission considered in the total penalty. Employers face penalties ranging from $50 to $270 per return or statement, depending on if and when the incorrect information is corrected. However, employers may qualify for a reasonable cause waiver if they follow the proper solicitation procedure and the discrepancy is not due to willful neglect.
Solicitation Procedure
An employer seeking a reasonable cause waiver from IRS penalties must send in the applicable portion of the correspondence slip and submit a written statement indicating that they are seeking a waiver under the “event beyond filer’s control” provision. The employer must also set forth all of the supporting facts that are the basis for the request for the waiver and establish that the employer acted in a responsible manner. An employer who, in good faith, relied on an incorrect SSN provided by an employee must demonstrate that they acted in a responsible manner by making the required solicitations.
- An initial solicitation must be made when the employee was first hired, which may be satisfied by relying on the information provided by the employee on Form W-4.
- If an employer is notified that the information provided is incorrect, an employer is required to make an annual solicitation to obtain the correct information from the employee before the end of the year or by January 31 of the following year if the employer was notified in December.
- The solicitation can be in person, by mail, or over the phone.
- Once an employer receives an updated SSN, they must use that number for any future filings.
- If an employer receives notice in any following year that the updated information is also incorrect, the employer must make a second annual solicitation.
- IRS guidelines suggest that once an employer has made two annual solicitations in addition to the initial solicitation, they do not need to make further solicitations of that employee, even if they receive new IRS notices.
However, while employers may be relieved from IRS penalties by relying on the information provided by an employee, SSA “no match” letters and IRS notices may result in increased scrutiny from DHS. Aside from reviewing an employer’s procedures in verifying an employee’s employment eligibility, DHS looks for evidence that an employer is knowingly employing people not authorized to work in the U.S.
The 9th Circuit Court of Appeals has found that SSN “no match” letters are not themselves constructive notice of an employee’ unauthorized status, as the notices do not serve immigration-related purposes. Furthermore, an employee’s reactions to the notice and their failure to respond to it quickly are also not constructive notice to the employer of their status. However, DHS routinely requests SSN “no match” letters as part of the required supporting documentation when conducting I-9 inspections. Ultimately, DHS is looking for a combination of factors that would establish that the employer, through exercise of reasonable care, should have known that an employee was not authorized to work and continued to employ him or her.
Conflict Between State and Federal Objectives
With increased enforcement efforts launched by the federal immigration agencies, California took a step in the opposite direction and enacted several pieces of legislation to protect immigrants in California. Chief among those enactments is AB 450, which prohibits employers from complying with federal immigration officers without a judicial warrant, prohibits employment authorization re-verification not required by federal law, and requires employers to post notice of DHS I-9 inspections within 72 hours of being notified by DHS and to inform affected employees of the results of the inspection.
However, the bill, along with other state immigration-related laws, was challenged by the federal government on preemption and Supremacy Clause grounds. The district court granted the federal government’s request for a preliminary injunction and enjoined enforcement of the provisions of the law prohibiting reverification and interactions with immigration enforcement officials. The 9th Circuit Court of Appeals later upheld the district court’s refusal to enjoin the employee notice requirement. Thus, California employers facing an I-9 inspection by DHS may also be subject to state civil penalties ordered by the Labor Commissioner for failing to notify their employees within 72 hours. The penalty is between $2,000 and $5,000 for a first violation and between $5,000 and $10,000 for subsequent violations.
The Takeaways
Takeaway #1: I-9 Verification
- Employers should prioritize the I-9 verification process and make sure that all of the required information is completed correctly, including the section filled out by the employee.
- An HR representative in charge of the onboarding process should review the Form I-9 section completed by the employee at the time of hire and ensure that the employer section is completed within three days.
Takeaway #2: Supporting Documents
- While making or retaining copies of documents presented by employees to establish their identity and/or their eligibility to work in the U.S. is not required, doing so may be in the employer’s interest.
- When the Form I-9 is found to have errors or to be missing some information about the supporting documents, attached copies of the document may supplement the form and serve to downgrade a substantive violation to a technical violation.
Takeaway #3: IRS and SSA Notices
- Employers should respond to IRS notices about any discrepancies by making additional solicitations and updating tax filings and statements with the correct information.
- In response to SSA “no match” letters, employers should notify the employee of the discrepancy and give them a reasonable period of time to contact the SSA to correct the issue.
- Employers should regularly follow up with employees to monitor their progress in correcting the error with the SSA and document these interactions. Doing so may deter DHS scrutiny.
Takeaway #4: Discrepancies and Re-verification
- Employers must not make solicitations or seek to re-verify employment eligibility without sufficient justification.
- As discrepancies regarding an employee’s SSN may arise under a variety of circumstances, employers should not jump to conclusions about an employee’s legal status. Employers must accept any document presented by the employee as required by the form as long as the document reasonably appears to be genuine and cannot request more or different documents.
