This April the Social Security Administration (“SSA”) began sending out so-called “no-match letters” to employers for the first time since 2007. These letters inform an employer that an employee’s reported Social Security Number did not match the employee’s name. If not properly managed, a no-match letter can lead to major liability for an employer. On one hand, if the employee continues to work, the employer risks the penalties for hiring and employing an unauthorized worker. On the other hand, if the employer immediately terminates the employee, it risks an unlawful termination lawsuit. When hiring, an employer must now have a plan on how to manage the receipt of a no-match letter.
The Immigration Reform and Control Act of 1986 (“IRCA”) subjected employers to civil and criminal liability for “knowingly” employing or continuing to employ unauthorized workers. An employer is found liable if it had “actual” or “constructive” knowledge that it had hired an unauthorized worker. “Actual” knowledge, which is rare, occurs when an employer actually knows for certain that it hired an unauthorized worker. More commonly, an employer will be found to have “constructive” knowledge, where it should have known that the employee was unauthorized—for example, the newly hired employee fails to complete a Form I-9.
Many employers use the E-Verify program, which creates the rebuttable presumption – that is, it is taken as true unless proven otherwise – that the employer has not knowingly hired or employed an unauthorized worker. Its use does not, however, create a safe harbor from work site enforcement.
The Effect of Receiving a No-Match Letter
After receiving a no-match letter, the employer needs to be aware of its responsibilities to at least four government agencies: (1) the Social Security Administration, (2) the IRS, (3) the Department of Homeland Security/INS, and (4) the Department of Justice.
Social Security Obligations
The SSA considers its no-match letters to be only a notification of a potential issue. The receipt of a no-match letter does not mean that the employee is unauthorized to work. The letter could be due to, for example, an unreported name change, an input error by the SSA, a reporting error, identity theft, or fraud. However, the no-match letter should not be ignored. It can be used as evidence that the employer had constructive knowledge of an unauthorized employee.
The IRS can fine employers for providing incorrect information on wage forms. Furthermore, the SSA is required to provide the IRS with information on W-2 forms that lead to mismatches. Therefore, an employer must follow-up on any no-match letters to ensure that it did not send incorrect information to the IRS. The IRS could find that an employer who ignored a no-match letter was no longer acting in “good faith” and therefore could be subject to fines.
Department of Homeland Security Obligations
The Department of Homeland Security has an obligation to investigate all immigration law violations. While the no-match letter does not, by itself, put the employer on notice that the employee is unauthorized to work, actual or constructive knowledge is determined on a case-by-case basis. Continued or willful ignorance of an employee’s authorization status may be proven through evidence that an employer ignored no-match letters.
Department of Justice Obligations
Finally, an employer needs to be careful not to discriminate or differentiate between employees based on ethnicity or background. For example, an employer cannot create different rules for different types of employees based on race and ethnicity.
An Effective Plan for Handling No-Match Letters
Step 1: Check to make sure that the discrepancy is not the employer’s error. Within 30 days after receiving the no-match letter, the employer should check its records for any typographical or clerical errors. If the employer discovers it made an error, it should correct its records and notify the SSA of the error to verify that the corrected name and Social Security Number match. The employer should also complete a revised IRS Form W-2C to reassign the income to the correct Social Security Number. The employer should be sure to document each step and to retain those documents in its payroll records for three years after the date the employee was hired, or one year after the employee’s termination, whichever is later.
Step 2: If Step 1 did not solve the issue, ask the employee to confirm his or her information in your records. If the employee agrees that the employer’s records are correct, the employee must resolve the discrepancy directly with the SSA. The employer should inform the employee that he or she has about 90 days to solve the problem. The employee should contact the SSA directly, but the employer should follow up with the employee at least once every two weeks.
If the employee reports that the discrepancy was solved, review the documents the employee chooses to produce for the revised Form I-9. If the employee indicates that the SSA issued a new Social Security card, the employer may ask to see a copy of the card for tax purposes. However, the employer cannot require the employee to produce a letter from the SSA explaining how the no-match issue was resolved.
The employer should then repeat Step 1 with the newly provided information to ensure that the Form I-9 and all other documents are accurate. The documents should then be re-submitted to the SSA, or E-Verify, to ensure the employee is authorized to work. It is important to document each step of this process.
Step 3: If, in about 120 days after the receipt of the no-match letter, the discrepancy still has not been resolved, the employer should give the employee one last chance to complete a correct Form I-9. The employer should process the Form I-9 in the same way as it would for a new hire, with the exception that it cannot accept any documents containing the same Social Security number that was the subject of the no-match letter. If the discrepancy is still unresolved, the employee may be terminated. Once again, document each step.