THE IMPLICATIONS OF INDIANA’S NEW IMMIGRATION LEGISLATION FOR EMPLOYERS

by Jay F. Brubaker November, 2011

For employers, verifying that a prospective employee is legally eligible to work in the United States is nothing new. For quite some time, federal law has prohibited employers from hiring non U.S. Citizens who are not authorized to work in the U.S. That law sets out the procedures for verifying a prospective employee's eligibility to work in the U.S.

However, this summer the Indiana Legislature enacted legislation which imposes new obligations on employers for verifying new employee work eligibility, as well as new consequences for employers who hire persons who are not authorized to work in the U.S. Those obligations and consequences are even more significant for business entities that perform work on Indiana state or local government contracts.

Identified as Senate Enrolled Act No. 590, the law was ostensibly passed to address concerns regarding undocumented immigrants. While several portions of the act that related to criminal enforcement have been since been blocked by a federal court, the obligations imposed on employers by the new law remain intact.

Implications for Employers in General

For employers in general, hiring a person who is not authorized to work in the U.S. can subject that employer to tax consequences as well as liability for repayment of unemployment benefits. First, employers who hire employees who are not legally authorized to work in the U.S. are not eligible for state tax deductions for wages paid to employees As a practical matter, this means that, in calculating the employer's taxable income for Indiana tax purposes, the employer is required to add back any deductions that were taken in filing Federal income taxes for any employee without proper work authorization. Second, the law authorizes the Indiana Department of Workforce Development to file a civil action against employers (who knowingly hire unauthorized employees) for reimbursement of unemployment insurance benefits paid by the Department on behalf of that employer.

There is an exception to these potential consequences if the employer uses the E-Verify system to verify the status of its employees. E-Verify is a Federal government database that employers can use to verify that their non-citizen employees are authorized to work in the United States. While the law does not require employers to use E-Verify, employers who do use E-Verify are exempt from any of the tax or unemployment benefit consequences if it turns out the work was in fact unauthorized.

Implications for Government Contractors

Business entities who perform work on contracts with the State of Indiana, any Indiana state agency, or any local government are subjected to additional obligations. In order to enter into such contracts (or receive grants), the contractor must enroll in the E-Verify system and use E-Verify to check all new employees to be sure they are eligible to work in the U.S. They must also sign an affidavit stating that they did not knowingly employ any unauthorized alien. If any of the work is subcontracted, the general contractor is also responsible for obtaining certification from all subcontractors that the subcontractor is enrolled in E-Verify and uses E-Verify to check the status of all new employees. This certification must be maintained on file by the general contractor.

If a contractor receives a notice that it has violated the law, such as by actually hiring an unauthorized worker or by failing to verify a new employee's status through E-Verify, the contractor is required to remedy that violation within thirty (30) days of the notification. If the contractor does not do so, the government agency is required to terminate the contract.

If a subcontractor violates its obligations, the general contractor may terminate the contract with the subcontractor. The subcontractor then has twenty (20) days to file an action in court to challenge the termination of the contract. If the subcontractor does not challenge the termination within that twenty (20) day period, then the subcontractor cannot bring a later action against the contractor for breach of contract.

Given the implications of Indiana's Immigration Bill, it is important that employers review their policies and procedures for verifying the eligibility of new employees to work in the United States. Employers also need to be careful that any such policies are implemented in a manner consistent with the other laws such as the Equal Employment Opportunity Act, and do not single out employees of certain racial or ethnic backgrounds.

Employers who wish to, or are required to, enroll in E-Verify can receive more information about E-Verify and enroll on-line at http://www.dhs.gov/e-verify.