1099 Risk Blog

Latest E-Verify Legal Research

The latest legal update on E-Verify compliance for government contractors is now available. Jointly produced by Michael Best & Friedrich LLP and MBO, E-Verify Requirements for Contractors offers a groundbreaking preview of the shape of new regulations to come. On June 6, 2008, President Bush signed an Executive Order mandating E-Verify I-9 checks for persons working on government contracts -- for both new and existing workers.

While the compliance burden is staggering, beyond the obvious problems, E-Verify presents several sticky issues when it comes to the sub-contractors, small vendors, and independent consultants or contractors performing work for federal contractors. Even more attention-getting is the risk of getting it wrong -- failure to comply with the E-Verify rules can lead to penalties ranging from fines to debarment from federal contracting.

If you missed our Executive Briefing on August 15th, contact us to request to be added to our legal briefings guest list for the future. The briefing was delivered by Eric Rumbaugh from Michael Best, the person this author believes to be the leading legal authority on contingent workforce and 1099 risk issues, having litigated over 80 high profile cases on that topic.

Perhaps the most striking risk point revealed from the briefing, if I may recap, is that while the E-Verify compliance burden falls to the sub-contractors to abide with, if said contractors are found to have been misclassified and really should have been treated as employees, then the main contractor has failed to E-Verify employees working on a government contract. For large government contractors with 1000 or more independent consultants and independent contractors working on government contracts, the chances are very very good that in a percentage of cases some of them are misclassified.

E-Verify is just one more element of what Eric Rumbaugh has been calling a 'perfect storm' of 1099 risk issues. IRS fines and back taxes are one thing, but potential debarment from federal contracting could be a lethal consequence for businesses highly reliant on government contracts. As Gene Zaino said at the event, "This new E-Verify requirement heightens the risk of reclassification for subcontractors, whether they are 1099s or small incorporated consulting firms, and underscores the importance of getting contractor classification correct from the beginning."

In other words, your E-Verify compliance is only as good as your employee / contractor classification program. If government contractors are not implementing the best practices for contractor classification compliance -- and re-certifying that compliance for every new work order and contract -- now would be a very good time to start. But don't take my word for it. Read the paper, run your own research, and send us your comments and feedback. We'd love to hear from you.

Stay tuned to this blog for the most up to date information regarding the new regulations. The comment period on the rule is now closed, and detailed instruction is expected to be released as soon as November.