Undocumented Worker Legislation - A New Reality For 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.

Ari Rosenstein is the Director of Marketing at CPEhr, a Human Resources Outsourcing firm and Professional Employer Organization. Founded in 1982, CPEhr provides Human Resources solutions to over 15,000 work-site employees nationwide through high-touch and customized service models. With corporate headquarters in Los Angeles, CPEhr is one of the largest, privately held Human Resources Outsourcing and PEO firms in the state.

CPEhr provides business leaders peace of mind through their team of experts in the following key areas:

- Human Resources Administration
- Employment Compliance
- Employee Benefits
- Risk Management and Workers' Compensation
- Payroll and Tax Administration
- Management and Employee Training
- Recruiting Services

Download our free HR white-paper: "Preparing for the Rebound" and learn how HR Outsourcing supports clients so they can focus on their key business goals - reducing personnel overhead, cutting employment risks, and improving employee job performance.

Payroll Essentials for New Employers

When should an Employer Register for PAYE

An employee is anyone who works on a full time, part time or casual basis for the business and includes company directors. Employers should register as soon as possible when a qualifying employee is appointed and may register up to four weeks prior to the first employees pay day. You should register as an employer and operate a PAYE system if your employee already has other employment, or if the employee's earnings are equal to or above the PAYE threshold. The PAYE threshold for 2007-08 is earnings of £100 per week or £435 per month at which point income tax and national insurance deductions may be required. These limits include the value of any benefits in kind that may be paid.

Employer Registration Information Required

Generally the information to be provided includes the business name, trading address, type of business, name and address of the employer, national insurance number and tax office reference of the employer, contact telephone number and email address if applying by email., In addition details will be required of the likely number of employees, frequency of payment, the date the first employee was appointed and the first payment date. Also have available the address where the payroll records will be kept and the contact details of the person responsible for the payroll. Where partners are involved details of each partner's names, addresses, national insurance numbers and tax office references will be required and the LLP number for Limited Liability Partnerships. Limited Companies will be required to supply the address of the company's registered office, date of incorporation and company registration number plus details of the directors; names, addresses, contact telephone numbers, national insurance numbers, tax office references

How to register as a PAYE Employer

Employers can register for PAYE online at the HMCE website. Click Employers - Register as an Employer - First steps as an Employer - scroll down the page until you can click email which then presents you with online registration form to complete and send. Alternatively contact HMCE Employer Helpline at 0845 6070 143.

PAYE and Payroll Records

Accurate payroll records are essential, full stop. Employers must keep payroll records for both HMCE purposes and employees. The employee records must include the name and address of the employee, national insurance number, date of birth, income tax code, all payments and benefits made and all deductions for income tax, national insurance and voluntary deductions. When registering to operate a PAYE system immediate arrangements should be made to ensure these records are maintained either by setting up the records yourself using the help and advice contained in the Revenue CD-ROM provided to all new and existing employers or employing a payroll service to produce the records or using a payroll software package. Various payroll software packages are available with different degrees of complexity. The DIY Accounting Payroll Software is an ideal solution for small employers being written on excel spreadsheets and in addition to producing the deduction calculations and payslips the payroll software also automatically completes an excel copy of the compulsory HMCE forms significantly easing the administrative burden.

Paying Employees

Employees must be paid the national minimum wage which for adults was raised on the 1st October 2007 to £5.52 per hour. Every employee must receive a payslip that shows the amount of income tax and national insurance deducted from the gross pay. In addition every employer must also calculate the employer's national insurance contribution. If you are an employer and not operating a payroll software system such as the DIY Accounting Payroll Software then you must design a payslip to give to your employees to satisfy legal requirements.

HMCE Payroll Forms

P11 Employees Deductions Working Sheet

The working paper is a record of the weekly or monthly pay for each employee and the income tax and national insurance deductions.

P14 End of Year Employees Deductions Summary

Summary of the employee income tax and national insurance deductions recorded on the P11 deductions working sheet

P35 Annual Employers Return

Summary detailed by employee of the annual totals of income tax and employee's national insurance deductions and employers national insurance liability

P45 Details of Employee Leaving

Only available from the Employer's helpline the P45 is a certificate of the amount paid to the employee and the income tax deducted during that employment. Every employee that leaves the employers employment should be issued with a P45.

P60 End of Year Employees Certificate

The P60 is a certificate of an employees total earnings and total income tax deducted during the tax year including previous those of previous employers and also the amount of national insurance deducted by the current employer and should be issued to every employee the employer has at the 5th April each year.

Each of these HMCE PAYE forms are automatically completed by the DIY Accounting payroll software which produces excel copies of the HMCE forms making the package highly suitable for both inexperienced employers and those wishing to minimise the administrative burden payroll can place on an employer.

PAYE Payments and Online Bonuses

Deductions of income tax, employees national insurance and employers national insurance must be paid to HMCE each month, the standard final payment date being the 19th of the month following the payroll month. If monthly payments of income tax and national insurance deductions including employer's national insurance are under £1,500 per month then employers have the option to pay the amount due to the HMCE on a quarterly rather than a monthly basis. Payments of income tax and national insurance to the HMCE can be made online electronically. At the end of each financial year, 5th April, every employer must submit the P35 Annual Employers Return .to HMCE detailing the amounts paid to each employee and the deductions made for income tax, employees national insurance and employers national insurance with the amount that has already been paid to HMCE in respect of the income tax and national insurance contributions. Employers with less than 50 employees are eligible for a tax free online bonus when the P35 Employers Annual Return is submitted online which has been a tax free £250 and £150 in recent years.

Terry Cartwright is a qualified accountant in the UK designing accounting and payroll solutions for small to medium sized business of Accounting Software and Payroll Software specifically for self employed and limited companies in the UK that produce a fully automated final set of accounts on excel spreadsheets.

Payroll Essentials for New Employers

When should an Employer Register for PAYE

An employee is anyone who works on a full time, part time or casual basis for the business and includes company directors. Employers should register as soon as possible when a qualifying employee is appointed and may register up to four weeks prior to the first employees pay day. You should register as an employer and operate a PAYE system if your employee already has other employment, or if the employee's earnings are equal to or above the PAYE threshold. The PAYE threshold for 2007-08 is earnings of £100 per week or £435 per month at which point income tax and national insurance deductions may be required. These limits include the value of any benefits in kind that may be paid.

Employer Registration Information Required

Generally the information to be provided includes the business name, trading address, type of business, name and address of the employer, national insurance number and tax office reference of the employer, contact telephone number and email address if applying by email., In addition details will be required of the likely number of employees, frequency of payment, the date the first employee was appointed and the first payment date. Also have available the address where the payroll records will be kept and the contact details of the person responsible for the payroll. Where partners are involved details of each partner's names, addresses, national insurance numbers and tax office references will be required and the LLP number for Limited Liability Partnerships. Limited Companies will be required to supply the address of the company's registered office, date of incorporation and company registration number plus details of the directors; names, addresses, contact telephone numbers, national insurance numbers, tax office references

How to register as a PAYE Employer

Employers can register for PAYE online at the HMCE website. Click Employers - Register as an Employer - First steps as an Employer - scroll down the page until you can click email which then presents you with online registration form to complete and send. Alternatively contact HMCE Employer Helpline at 0845 6070 143.

PAYE and Payroll Records

Accurate payroll records are essential, full stop. Employers must keep payroll records for both HMCE purposes and employees. The employee records must include the name and address of the employee, national insurance number, date of birth, income tax code, all payments and benefits made and all deductions for income tax, national insurance and voluntary deductions. When registering to operate a PAYE system immediate arrangements should be made to ensure these records are maintained either by setting up the records yourself using the help and advice contained in the Revenue CD-ROM provided to all new and existing employers or employing a payroll service to produce the records or using a payroll software package. Various payroll software packages are available with different degrees of complexity. The DIY Accounting Payroll Software is an ideal solution for small employers being written on excel spreadsheets and in addition to producing the deduction calculations and payslips the payroll software also automatically completes an excel copy of the compulsory HMCE forms significantly easing the administrative burden.

Paying Employees

Employees must be paid the national minimum wage which for adults was raised on the 1st October 2007 to £5.52 per hour. Every employee must receive a payslip that shows the amount of income tax and national insurance deducted from the gross pay. In addition every employer must also calculate the employer's national insurance contribution. If you are an employer and not operating a payroll software system such as the DIY Accounting Payroll Software then you must design a payslip to give to your employees to satisfy legal requirements.

HMCE Payroll Forms

P11 Employees Deductions Working Sheet

The working paper is a record of the weekly or monthly pay for each employee and the income tax and national insurance deductions.

P14 End of Year Employees Deductions Summary

Summary of the employee income tax and national insurance deductions recorded on the P11 deductions working sheet

P35 Annual Employers Return

Summary detailed by employee of the annual totals of income tax and employee's national insurance deductions and employers national insurance liability

P45 Details of Employee Leaving

Only available from the Employer's helpline the P45 is a certificate of the amount paid to the employee and the income tax deducted during that employment. Every employee that leaves the employers employment should be issued with a P45.

P60 End of Year Employees Certificate

The P60 is a certificate of an employees total earnings and total income tax deducted during the tax year including previous those of previous employers and also the amount of national insurance deducted by the current employer and should be issued to every employee the employer has at the 5th April each year.

Each of these HMCE PAYE forms are automatically completed by the DIY Accounting payroll software which produces excel copies of the HMCE forms making the package highly suitable for both inexperienced employers and those wishing to minimise the administrative burden payroll can place on an employer.

PAYE Payments and Online Bonuses

Deductions of income tax, employees national insurance and employers national insurance must be paid to HMCE each month, the standard final payment date being the 19th of the month following the payroll month. If monthly payments of income tax and national insurance deductions including employer's national insurance are under £1,500 per month then employers have the option to pay the amount due to the HMCE on a quarterly rather than a monthly basis. Payments of income tax and national insurance to the HMCE can be made online electronically. At the end of each financial year, 5th April, every employer must submit the P35 Annual Employers Return .to HMCE detailing the amounts paid to each employee and the deductions made for income tax, employees national insurance and employers national insurance with the amount that has already been paid to HMCE in respect of the income tax and national insurance contributions. Employers with less than 50 employees are eligible for a tax free online bonus when the P35 Employers Annual Return is submitted online which has been a tax free £250 and £150 in recent years.

Terry Cartwright is a qualified accountant in the UK designing accounting and payroll solutions for small to medium sized business of Accounting Software and Payroll Software specifically for self employed and limited companies in the UK that produce a fully automated final set of accounts on excel spreadsheets.