This article by Frank Cania, president of driven HR – A USA Payroll Company, was originally published in The Daily Record, April 4, 2017.
On Wednesday, March 29, 2017, I had the honor and privilege to testify before the U.S. House of Representatives Small Business Committee, as part of a hearing regarding the effectiveness of the Paperwork Reduction Act (“PRA”) in reducing paperwork and reporting burdens on small businesses. The opportunity to observe, and participate in this process was an amazing experience.
My self-assumed role on the four-member panel of witnesses was adding context and a story or two to the facts and figures my distinguished peers offered. An important role because, as you’ll see, the magnitude of the data can be astonishing.
As a starting point, I’d like to explain – as fascinating as I’m sure you’ll find it – some of the important points about the current paperwork and reporting burden, as well as examples of potential fines.
Leah Pilconis, an attorney, and environmental law and policy advisor to the Associated General Contractors of America, explained the purpose of the PRA is, “minimizing paperwork and reporting burdens on the American public, and ensuring the maximum possible utility from the information that is collected.”
Ms. Pilconis further explained, “under the PRA, ‘burden’ is defined expansively to mean the total time, effort, or financial resources expended…to generate, maintain, retain, disclose or provide information to or for a Federal agency.”
According to testimony offered by Sam Batkins, director of regulatory policy for the American Action Forum, the cumulative paperwork burden has increased from 6.9 billion hours in 1997, shortly after the PRA was amended, to more than 11.6 billion hours today. That’s approximately 35 hours for every adult and child in the U.S., dedicated to filling out federal forms and retaining information for federal regulators. Further, of the 11.6 billion hours, small businesses shoulder an overwhelming 3.3 billion hours of compliance burdens annually, at a staggering cost of $111 billion!
Along with its 1995 amendments to the PRA, Congress set a goal to reduce government-wide burdens by 10 percent in fiscal years 1996 and 1997, and at least 5 percent from 1998 through 2001. In other words, reducing paperwork burdens from seven billion hours to approximately 4.6 billion hours. In reality, there was an increase in the paperwork burden to 7.65 billion hours by 2001, and to 8.2 billion hours in 2002.
The pace of the increasing burdens accelerated significantly during the Obama administration. Although the Treasury continues to be the main source of the paperwork burden – currently imposing 8.2 billion hours, or 71 percent of the cumulative annual total – other agencies have drastically increased their regulatory burden. For example, from fiscal year 2009 to today, the Department of Health and Human Services (“HHS”) has increased its paperwork requirements from 494 million hours to 1.3 billion hours. That’s an increase of 181 percent in approximately eight years. Also since 2009, the burden imposed by the Environmental Protection Agency (“EPA”) has increased 22 percent, and the Commodity Futures Trading Commission (“CFTC”) has increasing its paperwork total by 58 percent, just since 2013.
What makes the increase in this burden even more onerous for small business employers is that, for many of the forms, there are significant fines imposed for paperwork errors. Further, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the “IAA”) was passed by Congress to ensure fines and penalties charged by many of the agencies increase with inflation. According to a memorandum from the director of the Office of Management and Budget, this Act amends the Federal Civil Penalties Inflation Adjustment Act of 1990, “to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect.” That’s certainly appropriate for employers who intentionally violate laws and regulations. But, for employers who act in good faith and still make paperwork mistakes, the fines can be financially devastating.
Ok, that’s (slightly) interesting, overwhelming, and to many of us, ridiculous. But, what does it all mean? My testimony used the I-9 form to illustrate some of the issues. Every employer, regardless of size, is required to complete an I-9 for every employee. However, employers acting in good faith to properly verify their workforce are often faced with unwarranted liability, because of the I-9’s confounding instructions and requirements.
For example, the current I-9 rules restrict an employer’s ability to provide commonsense assistance to employees by suggesting which documents the employee may present to establish employment authorization and identity. Employers even risk fines by explaining which documents are most commonly presented – even when new employees request that information. Further, the instructions clearly state, “the employer or authorized representative, must physically examine, in the employee’s physical presence, the unexpired document(s) presented from the ‘Lists of Acceptable Documents’ to complete the Documents fields in Section 2.”
The process becomes even more complicated if the employee selects the “alien authorized to work” status. Here, the employer is required to track the expiration dates of the employee’s work authorization – both in Sections 1and 2 on the I-9 form. Yet, an employer is prevented from asking to see the documents used in Section 1 to verify the information. Further, an employer tracking the wrong date may be accused of failing to complete a timely reverification.
I-9 challenges are compounded for employers with multiple locations, or a remote workforce. One client, for example, has a workforce primarily comprised of remote, home-based employees located in several states. With no business need to bring any of the employees to the main office, the only reasonable solution for completing the I-9 is to find someone near the employee’s home willing to act as an authorized representative – preferably someone with at least a basic understanding of how to properly complete an I-9 form. To date, I’ve spent more than 25 hours contacting HR consultants, attorneys, and other professionals in various parts of the country on the client’s behalf. Most have refused to even entertain the idea, with many completely unaware of the “physical presence” requirement, and questioning why I would go to such trouble for one form. In one instance, the client paid an attorney more than $200 to complete a single I-9. Imagine the client’s frustration when I told him the completed form contained two errors.
While the cost of compliance is high, the cost of simple paperwork errors is often higher. In my experience, the average error rate on I-9 forms exceeds 75 percent. That means three out of every four I-9 forms my company has reviewed contains at least one error. Depending on the circumstances, and based on the most recent fine schedule for Technical/Substantive errors, the penalty for even a single mistake on the Form I-9 ranges from $216 to $2,126 per form. Penalties are normally assessed based on the percentage of I-9s with Technical/Substantive errors, including the failure to prepare an I-9 for an employee. For example, consider an employer presenting 100 I-9 forms for audit. With a relatively low error rate of 9 percent, the minimum fine likely to be assessed adds up to $1,944 (9 x $216). However, if its error rate is 75 percent, that small business could be fined $159,450 (75 x $2,126), or more. It’s also important to note that employers making a good faith effort to correct I-9 errors – but failing to follow the prescribed method for doing so – face additional fines. Similarly, employers who don’t follow the prescribed retention schedule, failing to maintain the forms “either 3 years after the date of hire or 1 year after the date employment ended, whichever is later,” can face additional fines. It difficult to understand why a business making a good faith effort to complete a two-page form should face such catastrophic repercussions.
The title of the hearing was, “Evaluating the Paperwork Reduction Act: Are Burdens Being Reduced?” Based on the collective testimony of the expert witnesses present, the answer is a resounding NO!
Please feel free to contact Frank at firstname.lastname@example.org, or 855-672-4142 with questions or for more information.
Disclaimer: This content is for informational purposes only, does not constitute a legal opinion, and is not legal advice. The facts of each situation should be considered and analyzed individually. Therefore, you should always consult with competent employment counsel regarding any issues discussed here.
Click HERE to learn more about Frank Cania, author of Employers’ HR Advisor.