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► I-9 Employment Verification And PEOs - What To Do?

Every employer is required to have a new hire complete the Form I-9 within three business days of hire (sometimes referred to as the “Thursday” rule). This is because the Form I-9 is used to substantiate that a worker is authorized to work in the United States.

In addition, some employers may be required to run E-Verify cases with the U.S. Citizenship and Immigration Services which is an agency of the Department of Homeland Security (“USCIS”), whether by virtue of being a government contractor or as may be required under state law. Like the Form I-9, E-Verify gives an employer the ability to confirm a worker’s authorization to work in the United States, but the results are usually immediate, whereas a worker presents documents for the Form I-9 that may or may not be genuine.

As a result, some employers choose to run E-Verify cases even where they are not required to do so since it gives more immediate certainty as to work authorization.

So how is the Form I-9 handled when an employer contracts with a professional employer organization (“PEO”)?

How To Navigate as a PEO

A PEO co-employs a client employer’s (or worksite employer’s) workforce. The worksite employer’s employees are then paid under the PEO’s tax identification number (or FEIN).

Since the PEO becomes a new employer, does the PEO then have to complete a new Form I-9? Not necessarily.

If the worksite employer is compliant with Form I-9 obligations, then it already prepared the workers’ Forms I-9 in conformity with the Thursday rule. The USCIS rules state that an employer cannot require a worker to complete another Form I-9 while still employed by that employer.

Can a PEO have the worksite employees (a term used for the worker employer’s employees being co-employed by the PEO) complete a Form I-9?

For many years USCIS has published the M-274, which is an employer’s handbook that provides guidance on both the Form I-9 and e-Verify. At the end of the M-274, there is a question and answer (“Q&A”) section. That Q&A section used to contain the following:

Question: My company uses a professional employer organization (PEO) that “co-employs” its employees. Is my company responsible for Form I-9 compliance for these employees or is the PEO?

Answer: “Co-employment” arrangements can take many forms. As an employer, you continue to be responsible for compliance with Form I-9 requirements.

If the arrangement into which you have entered is one where an employer-employee relationship also exists between the PEO and the employee (e.g., the employee performs labor or services for the PEO), the PEO would be considered an employer for Form I-9 purposes and:

  • The PEO may rely upon the previously completed Form I-9 at the time of initial hire for each employee continuing employment as a co-employee of you and the PEO, or
  • The PEO may choose to complete new Forms I-9 at the time of co-employment

If more employees are subsequently hired, only one Form I-9 must be completed by either the PEO or the client. However, both you and your PEO are responsible for complying with Form I-9 requirements, and DHS may impose penalties on either party for failure to do so.

Penalties for verification violations, if any, may vary depending on:

  • A party’s control or lack of control over the Form I-9 process;
  • The size of the business;
  • Good faith in complying with Form I-9 requirements;
  • The seriousness of the party’s violation;
  • Whether or not the party was an unauthorized alien;
  • The history of the party’s previous violations; and
  • Other relevant factors.

However, several years ago, USCIS removed the above from the Q&A. The industry tried to get clarification from the USCIS on why they removed it, but USCIS has not definitively explained why. It’s possible that USCIS removed this Q&A to rescind and no longer allow for the process as outlined.

Equally possible is that the USCIS removed this Q&A to shorten the M-274 (such as to comply with the Paper Reduction Act). Or, it could have decided that the guidance is unnecessary.

Where does that leave the PEO with respect to the Form I-9? Conventional wisdom says:

  • The PEO can choose to rely on the previously completed Form I-9 because the worksite employer already had the worker compete it; or
  • The PEO can choose to have the worker complete a new Form I-9 as a new employer.

What About E-Verify?

The E-Verify process is a bit clearer.

The PEO can choose to assist the worksite employer by serving as its agent for purposes of initiating an E-Verify case (using the worksite employer’s E-Verify case) or it can choose to run an E-Verify case as the employer under its E-Verify account. Note that the Thursday rule applies equally to the E-Verify case process.

Then, there are state laws that require employers to run E-Verify cases.

Many state laws have a small employer exception. For example, the newly enacted Florida E-Verify law applies to employers with twenty-five or more employees. Does the PEO qualify as having to comply with the Florida law? Does the PEO aggregate all of the worksite employees from each of its clients or does it only count internal staff?

In many states, the answer is unclear, but as far as Florida goes, the relevant portion of a recently published Q&A states:

What responsibility does an employee leasing company (ELC) have in certifying eligibility of a new employee for a client company?

What About Employee Leasing Companies (ELCs)?

An employee leasing company (ELC) is responsible for certifying the employment eligibility of any new employee of a client company that meets the definition of a private employer with 25 or more employees or is a public agency. Responsibility for verification and certification of employment eligibility using E-Verify may be transferred from the ELC to the client company only by written agreement or written understanding.

If this occurs, the ELC will continue to file reports with the Department, and the client company will be required to certify use of the E-Verify system.

Note that the PEO industry has been successful, generally, in obtaining clarification of employer coverage and headcount by getting lawmakers and regulators to confirm that such is determined on the client (worksite employee level), so each worksite employer’s employee count is independently considered and worksite employees are not aggregated at the PEO level.

By Gordon M. Berger. Mr. Berger is a partner FisherBroyles, LLP.


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