Economy

E-Verify mandate: A 'pain in the neck' for Main Street   

July 18, 2013 at 10:03 AM ET

Demonstrators march against amnesty for illegal aliens, during a rally against the immigration reform bill in Pennsylvania Avenue in Washington July 1...
JOSE LUIS MAGANA / Reuters
Demonstrators march against amnesty for illegal aliens, during a rally against the immigration reform bill in Pennsylvania Avenue in Washington July 15, 2013.

As President Barack Obama called on the House to pass a comprehensive immigration bill, which includes expanded employment verification rules, you could have heard an audible groan from some small-business owners.

An immigration measure passed by the Senate last month would have far-reaching effects on Americans looking for work and on employers seeking to hire them.

Some smaller companies say that meeting employment verification requirements would be costly and add to their uncertainty, which has hampered job creation. The bipartisan bill that cleared the Senate says that within five years all employers must use the system called E-Verify to check the legal work eligibility of every job candidate, including U.S. citizens.

"We expect it to be a significant fixed cost," said J. Kelly Conklin, president of an architectural woodworking firm in Bloomfield, N.J. "It's going to be a complete pain in the neck."

A small business would likely pay about $3,000 or less to meet E-Verify rules, according to an estimate from Jeff Vining, an analyst at tech research firm Gartner. Vining's ballpark estimate includes dedicated equipment, software and payroll system modifications.

Costs could rise if there’s a dispute, said Conklin, whose 35-year-old business, Foley-Waite Associates, employs 11 people.

Poor timing

Other small-business owners argue E-Verify would level the playing field among employers.

"I am tired of losing work to people who cheat the system and undercut my prices because they don't have the same overhead as I have because I follow the rules," said Charlie Arnold, who has been running a power-washing business in Lewes, Del. for 13 years. "I am for it simply because in the long run it will help my business."

Discussions about the sweeping immigration mandate spook Main Street, a traditional driver of economic recoveries. Faced with issues that include mandatory federal spending cuts and looming expenses associated with Obamacare, smaller employers have largely postponed big-ticket decisions such as taking on more workers.

Small businesses account for roughly half of private sector jobs, and though hiring plans rose slightly, according to the latest June reading from the National Federation of Independent Business, the incremental upticks haven't been overwhelming.

Delays to the Affordable Care Act have exacerbated the uncertainty. The Obama administration recently announced a one-year delay, until 2015, of the implementation of its mandate that larger employers provide health coverage for workers or face penalties.

(Read more: Delay in Obamacare could save jobs—for now)

E-Verify criticism and costs

Launched as a pilot program in 1997, E-Verify is used by about 7 percent of employers. It's largely voluntary but is mandatory in some states. It lets employers electronically submit prospective workers' Social Security numbers or other information to be checked against government databases.

(Read more: Customers remain 'scarce and cautious': NFIB)

In his weekly Internet and radio address, Obama said that overhauling the immigration process could boost the economic recovery. Citing former President George W. Bush's support for a comprehensive solution, Obama called on the House of Representatives to act. Republican leaders, meanwhile, have said they will focus on much narrower legislation.

Citizenship and Immigration Services, which helps administer E-Verify, says the program has become progressively easier to use and is more accurate, according to the Associated Press. The agency is part of the Department of Homeland Security.

"This sounds like much less of an immigration challenge now and much more of an on-boarding HR issue, especially since most of my hires do tend to be residents or citizens," said Alex Salazar, co-founder and CEO of Stormpath, a Silicon Valley start-up.

With California hiring rules already cumbersome, Salazar said he bit the bullet and outsourced human resources. "It was becoming a full-time job for me," he said.

(Read more: Best and worst US cities for small-business workers)

Lack of immigration reform hurts start-ups

While verification rules could be costly and frustrating for smaller employers, the immigration measure could also benefit them.

Tech start-ups, for example, have had a tough time securing highly skilled foreign workers, especially engineers. The immigration bill the Senate passed would let tech companies bring in more foreign-born specialists on temporary work visas.

"I've been blown away by how much the immigration policy has been kicking us in the teeth," Salazar said previously. "In Silicon Valley it's a war for talent—an all-out knuckle-drag war."

(Read more: How lack of immigration reform harms start-ups, US economy)

Sam Blair, network director for the Main Street Alliance, which represents small businesses, said he finds it perplexing that the same politicians who like to complain loudly about 'burdensome regulations' on small business are also pushing for mandatory E-Verify.

E-verify, Blair said, “will add new administrative burdens for every small employer in the country."

By CNBC's Heesun Wee. Follow her on Twitter @heesunwee

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