Phase 1 Report of Feasibility Study on New Hire Programs for Canada: New Hire Programs in the United States

IV. STATE DEVELOPMENT OF NEW HIRE PROGRAM

IV. STATE DEVELOPMENT OF NEW HIRE PROGRAM

When Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), about half of the states had new hire programs. About half of these registries were located in the state's child support agency, and the other half were housed in the state employment security, tax or administration agencies.

Early Steps

Before employers reported new hires, child support agencies relied on quarterly wage reports from state labour departments to find non-custodial parents. Employers file this wage report with the state every three months, along with their remission of state unemployment insurance taxes. The report contains each employee's Social Security Number (SSN), full name and total wages for the quarter.

As a tool for finding people in arrears, quarterly wage reports have fundamental weaknesses. The reports do not contain the employee's address; it can take four to six months before the information about a new hire reaches child support agencies; and the reports are not good at tracking mobile workers. As a Connecticut official told the House Ways and Means Committee in May 1988, “By the time the data [were] received and the child support worker sent out the appropriate forms to place an income withholding order, the non-custodial parent had often already terminated employment.”

In Washington state, a 1986 Governor's Executive Task Force proposed an employer reporting program to respond to the needs of the child support agency. The Task Force met with business community and state government representatives, and the employer reporting program began in 1988, first as a pilot project and subsequently as an established program. The program was designed to speed up the transfer of employment information to the support enforcement agency, allowing child support orders to be both established and enforced more quickly. “The emphasis of the program has been on the rapid transfer of information from employers to the Support Enforcement Office (SEO), so they can send legal notices or take collection actions before the non-residential parent has a chance to move to another job” (Welch, July 1992:2).

The 1992 evaluation report of the Washington program confirmed that people who work in construction or who manufacture transportation equipment are highly mobile, both from job to job in one industry and between industries.[7] As one respondent noted, “certain industries employ individuals on a seasonal or cyclical basis, hire and lay off as needed for projects, or have rapid turnover.”

Other states adopted similar employer reporting programs. For example, in Arizona, the voluntary new hire program provided “an additional locate tool” that allowed child support staff to find non-custodial parents more quickly. Texas had “previously obtained the information quarterly from another state department but this method would allow for faster matching with open child support cases.” In Alaska, the program evolved from an in‑house examination of child support payers working in different industries:

We [child support staff] did a computer run on our caseload to find out who our top 100 employers with obligors were. We wanted to track new employees in seasonal fields. We discovered that Alaska's work is seasonal, with the exception of some businesses and state employees. We found it difficult to track new employees because they were so mobile, so we set up the new hire program to catch obligors faster.

In Alaska, as in most other states, the program was primarily designed to get wage withholding orders against child support payers who deliberately evade the system by changing jobs frequently (Alaska Child Support Enforcement, Department of Revenue, 1992:1).

Differences among State Programs

By 1994, some two years before the PRWORA, there were 15 new hire programs in the United States.[8] The first new hire programs either encompassed all employers in the state or targeted specific categories of businesses (for example, in terms of size or type of industry). In some cases, businesses were encouraged to participate, but the state legislation did not demand compliance.

In many states, the distinctions between comprehensive and targeted programs were not clear cut. In Washington state, for example, child support enforcement “aggressively pursued increased reporting from employers who are not required to report.” In 1994, about 3 of 10 “matches” between new hire data and child support caseloads came from industries that were voluntarily reporting (Washington DSHS, 1995:2).

In Florida, where the program was limited to businesses with more than 250 employees, program staff found that some employers with smaller numbers of employees reported, either because they had to report in other states, because they thought reporting would become a federal requirement or because they wanted to help reduce government welfare costs.

An Arizona report found if an employer had any employees in a state where reporting was mandatory, it would often send a list of new hires to every state's child support agency. Other companies who reported voluntarily wanted to reduce both taxes and unemployment insurance fraud.

An Iowa respondent said that since federal legislation was coming, she wanted to start a voluntary reporting program, on a smaller scale, to get the systems in place before the program became mandatory. She also said that it was not difficult for multi-state employers to report to her state if already obligated to do so elsewhere. Texas also started its voluntary program in anticipation of the PRWORA.

Of the first 15 employer reporting programs, those in Arizona, Texas and Oklahoma were voluntary, while the remainder were mandatory (see Table 1). Six programs were targeted towards specific industries, such as construction, building contracting, mining and manufacturing. The days to report ranged from 7 to 35, with about half of the programs requiring that employers report more or less monthly.

Table 1: The Main Features of the First 15 New Hire Programs in the United States
  Implementation date Days to report All or targeted employers? Mandatory or voluntary? Information shared with other agencies?
Washington 7/90 35 Targeted Mandatory No
Alaska 1/92 30 Targeted Mandatory No
West Virginia 1/93 35 All Mandatory Yes
Massachusetts 3/93 14 All Mandatory Yes: unemployment insurance, workers' compensation, welfare
California 5/93 30 Targeted Mandatory Not known
Georgia 7/93 10 All Mandatory Yes
Maine 7/93 7 Targeted Mandatory Not known
Virginia 7/93 35 All Mandatory Not known
Missouri 9/93 30 All Mandatory Yes
Texas 9/93 35 Targeted Voluntary Yes: unemployment insurance, workers' compensation, welfare
Oregon 11/93 14 Targeted Mandatory Not known
Iowa 1/94 15 All Mandatory Not known
Arizona 7/94 15 All Voluntary Yes: welfare
Connecticut 7/94 15 All Mandatory Not known
Oklahoma 9/94 20 All Voluntary Not known

Notes: In most documentation, Hawaii is listed as having an employer reporting program for child support purposes. However, when contacted, a state representative said that, although there is employer reporting, it has never been used for child support enforcement. There was also a voluntary new hire program in Tennessee, which was used to monitor unemployment insurance payments, and the Department of Human Services used the information for child support and other programs.

Between 1986 and 1995, Minnesota had a program that required employers to ask all new employees about any child support obligations. A Minnesota publication noted that new hire reporting is less intrusive for employers and employees than was the original law. A newspaper report noted that many businesses were unaware of the original law or did not make reporting the disclosure a priority. In addition, employers were apparently required to get the child support order from the caseworker and then to notify the county where the order was made. Not surprisingly, employers viewed this process as cumbersome.

In addition to their targeted or voluntary nature, the 15 original programs differed in other ways. For instance, employers in some states sent new hire data directly to the enforcement agency, especially in states with computerized child support records. In other states, employers sent the data to another state government department, such as the state employment security agency (SESA). As the Washington evaluation noted, “many states do not have centralized computer systems, and it is difficult to imagine a successful Employer Reporting Program without one” (Welch, 1992:2).

Programs also differed in the number of data elements required; some just asked for basic W‑4data elements, while other programs wanted more information, usually the employee's date of birth, which made it easier to double-check SSNs. Some states also asked for medical coverage information and the date of the hire.

Also, in most states employers could send the data by facsimile, mail, or diskette, with the large numbers of options intended to increase the likelihood of cooperation. This feature did vary much from program to program.

Finally, in several states, although the initial program was “mandatory,” there were no penalties for employer non-compliance. Even in the states that had penalties, these were rarely, if ever, imposed. This is discussed later under employer compliance.

The First 15 New Hire Programs in the United States: Program Types

  • Voluntary: all employers (2 states)
  • Voluntary: targeted employers (1 state)
  • Mandatory: all employers (7 states)
  • Mandatory: targeted employers (5 states)

Targeted New Hire Programs

Some states chose to target their program towards specific types of businesses. This section describes the rationale they used to select these industries.

Washington state, for example, picked industries with mobile staff, such as building construction, other construction, manufacturing of transportation equipment, business services and health services. An evaluation done after the first 18 months of the Washington program showed that building and other construction companies recorded more payers than average after employer reporting began. It also found that non-residential parents frequently moved from job to job, both within and among targeted industries (Welch, 1992). A respondent suggested that both occupational mobility and political factors might have been involved in the selection. In 1994, Washington expanded its program to include an additional industry category, focusing on the “industries that return the largest benefits” to child support enforcement. The state identified these by analyzing: the industries that had the highest numbers of non-residential parents on the caseload of the child support agency; collection data from industries voluntarily reporting: and industries that had higher rates of hire and rehire movement(Washington DSHS, 1993:2).

The program developed in Oregon followed the Washington model. It started as a two‑year pilot and required eight industries to report new hires within 14 days.[9]It was mandatory for about a third of Oregon employers. A review of the program's first year found that, in the targeted industries, the new hire database and the child support caseload matched quite often, from 8 percent of time for business services to 20 percent for employees hired by general business contractors. Industries voluntarily reporting had the lowest match rate, at 7 percent.

In Alaska, a special computer run determined the top 100 employers with child support payers on staff. The employer base was gradually increased so that, by April 1998, 180 employers were required to report and more than 700 reported voluntarily.

Employer participation in Texas was voluntary, but the state targeted seven industrial categories with high turnover rates, which made up 0.15 percent of employers in the state:[10] petroleum and gas, contracting, construction, business services, and nursing and personal care facilities.

California targeted 17 industrial classifications, and excluded employers with fewer than five employees, although there is no documentation explaining why either it or Maine made the choices it did.

Obtaining Employer Cooperation

1. Methods of Obtaining Cooperation

States usually reached employers by mail, but they also used advertisements in business publications and in newspapers. Some states, such as Missouri and Texas, did little more than mail brochures to educate employers. These states had minimal feedback from employers, but other states worked more closely with employers.

In Minnesota, employers could discuss employee reporting at monthly seminars. New hire staff attended seminars held by the Minnesota Association of Accountants, state and local chambers of commerce, employer organizations and payroll processing firms to disseminate information about employer responsibilities. In Arizona, employer liaison staff collaborated with the Department of Revenue in regular meetings on tax issues. In those meetings, staff described the purpose and functioning of the program and received feedback from the employer community. The meetings reached many businesses and were considered to be one of the most useful approaches to employer outreach.

In Florida, the legislature created the Advisory Council on Accelerated Employment Reporting, made up of members of the business community[11] and state and local governments. The Advisory Council was responsible for making recommendations on the methodology and format of employer reports.[12] The Council helped with definitions, rules, data reporting elements, public awareness activities and system start-up. The Council decided that employers would be required to report only the minimum data needed to match databases. This approach may have contributed to the success of the Florida program, as 60 percent of large employers complied after just one mailing.

The states of Washington, Alaska and Massachusetts also had employer involvement early in the planning process, enabling employers and employer organizations to voice their concerns and to negotiate with program staff over many details. A representative of the Massachusetts new hire program said that this communication was central to the smooth development of the program. Reporting time turned out to be an issue in Massachusetts, while Alaskan program staff were asked to offer disk and tape reporting as well as paper reporting.

In order to make reporting more “palatable” to employers, many state new hire programs emphasize that the data are shared with other state benefits programs to help detect overpayment and fraud. In a Texas program brochure, four benefits of new hire reporting are outlined for employers:

  • new hire reporting improves each step of the child support enforcement process;
  • new hire reporting establishes more paternities and more new child support orders;
  • new hire reporting reduces government spending on welfare; and
  • new hire reporting helps prevent unemployment insurance benefit overpayments.

The last two points often spark the most interest from employers. New hire program staff, in their marketing to employers, suggest that the benefits of child support will eventually reduce state taxes.

The 1994 annual report of the Arizona program, which was voluntary, suggested that the reporting time frame might affect employer compliance. In Arizona, employers were asked to report every 15 days, but the report recommended a longer time lag so that payroll-processing organizations would be able to participate “without the threat of penalty” as “many of these organizations require longer than 15 days (but less than 35 days) to process the new hire information.”

2. Views of Employers towards Employer Reporting

In fiscal year 1992, the Legislative Budget Committee (LBC) of Washington state found that 73 percent of targeted businesses surveyed favoured or strongly favoured the program's continuation, while 27 percent opposed or strongly opposed this. Of the 3,800 employers who called the state's new hire program before 1994, fewer than 20 objected to the program and most felt that the state should require all employers to report.

Ohio found that most complaints came from small businesses, which objected to “the additional work and costs involved in reporting.” The majority of concerned Ohio employers felt that “the state employment security agency is receiving the same information.” Similarly, small employers in Arizona were concerned that the information duplicated what was already collected.

According to program staff in Ohio: “Once you explain[ed] the difference in the length of time the SESA [state employment security agency] ha[d] to enter information and why the time factor [was] crucial, it allayed most employers' concerns. After the first few months of operations, we rarely had any complaints other than a small number of employers who had philosophical problems with the program.”

Staff of other state programs echoed these sentiments. In most cases, only a few employers remained openly critical of the program after their reporting duties were put into the context of locating defaulting child support payers and, especially, of reducing state taxes. Alaska employers, according to one program contact, “see it as a burden but realize the importance of collecting child support.”

Despite this generally positive picture, business representatives were concerned about overly complex and burdensome requirements. For example, some states asked for medical insurance information for new hires. This request concerned employers because that information could cross over company departments, since payroll departments usually handle new hire reporting and human resources departments deal with medical insurance. This makes it harder to meet reporting deadlines.

Georgia initially allowed employers only five days from the date of hire to submit a report. Employers with a large turnover, such as temporary help agencies, found reporting especially onerous under those conditions. As one employer-oriented publication noted, “It is clear that some states drafted their laws without soliciting the input of employers, which may well explain why there is little employer support for their programs” (ProPub Inc., 1993:2). Multi-state employers were especially concerned about the state differences in new hire programs.

Another issue was the definition of a “rehire”; employers believed that some states had a restrictive definition not typically used by employers. A rehire by state definition might include an employee who was laid off and called back to work; who took an unpaid leave of absence or vacation; or who was a seasonal employee. In West Virginia, for example, state law required any employee with a lapse in pay of one week or more to be reported as a new hire. Some state legislation was so vague that employers needed specific guidelines on rehires.

Another employer-related issue was the question of employees who lived in a state other than the one in which they worked. It was unclear whether the employer was required to meet the reporting requirements in these cases.

A business publication (ProPub Inc., 1993:4) made the following recommendations under the heading “federal requirements may be welcome relief.”

  • The regulations should mandate uniform new hire reporting requirements for all states. A better alternative is to report all new hires to one national data bank.
  • The regulations should require employers to report no more frequently than monthly—the employer should have the option of selecting the date each month.
  • Reporting exclusions should be granted to small businesses, such as employers with fewer than 20 employees.
  • Employees who work sporadically or earn less than a certain dollar amount (such as $300 per month) should be excluded from the reporting requirements.
  • Rehires should be specifically and reasonably defined (e.g. any employee with a lapse in pay of one month or more).
  • Employers should have the flexibility of reporting in a variety of formats.
  • Penalties should not be excessive, particularly in the first year of implementation (e.g. penalties only after warnings, $50 for non-wilful violation).

3. Costs to Employers

The Washington state survey also asked targeted industries about the costs of reporting new hires and rehires, which could include staff time, paper, photocopying, postage and, for those sending information electronically, computer programming, tapes, diskettes and time on mainframes. Ninety‑three percent of respondents to the survey reported no or minor additional costs.

The mean start‑up cost for employers varied from nothing to $4,000 (two firms that reported start‑up costs of $20,000 and $25,000 were dropped from the analysis but no reasons for doing so were provided). The overall average start‑up cost per firm was $97. The mean monthly operating cost was $27. The costs incurred varied considerably by the size of the business. For example, the mean monthly costs of reporting were twice as large for firms with 250 or more employees than for companies with 50 or fewer employees. However, when the mean and median cost per new employee is calculated, it is clear that it is more of a financial burden for smaller employers: a median of $12 compared to $1 for employers with 250 or more employees. (All figures are in American dollars.)

Table 2: Costs to Employers by Firm Size, Washington 1992 Survey (in U.S. Dollars)
Size of firm (number of employees) Mean start-up costs Mean monthly costs Median monthly costs Mean hires/year Mean per unit cost Median per unit cost Number of firms
0-50 $36.66 $13.66 $5.00 11 $57.10 $12.00 82
51-249 $90.41 $33.75 $20.00 82 $13.17 $3.63 88
250+ $133.12 $27.44 $20.00 262 $3.49 $1.00 44
Mean, median or total $97.32 $26.67 $10.00 90 $27.71 $3.14 214

Source: Washington DSHS, 1993.

A survey of a sample of Florida businesses found that the total time that businesses with more than 250 employees spent reporting in 1995 was less than 30 minutes per reporting period (Florida Advisory Council, 1995:3).

We were told that, recently, some large payroll processing firms have been charging businesses $2 per new hire.

4. Employer Compliance

Relatively little information is available on the extent to which employers complied with requests to transmit new hire and rehire data, probably because monitoring and enforcing compliance has not been a priority in new hire programs.

The voluntary reporting programs in Arizona and Texas did not consider enforcing compliance, since employers could decide whether they would participate. In 1996, only one percent of Arizona employers reported new employees and approximately two percent did so in 1997. The 1996 annual report noted that employer compliance with the 15‑day deadline varied, but many employers reported every two weeks. Other employers chose to report based on their pay cycle. Since reporting was voluntary, employers reported on a timeline convenient to them. The program tracked some of the larger employers and found that reports were usually submitted within 7 to 30 calendar days of the hire. Some larger Arizona employers did not report because the program could not accept electronic transmissions. A respondent from Arizona noted that small employers were more resistant than large companies because they lacked routine reporting systems.

The mandatory Massachusetts new hire program did not consistently investigate compliance, but staff cross-matched new hire data with quarterly labour data to find new employees of whom they were not aware. Instead of fining companies suspected of not reporting, staff sent them reminder letters.

Similarly, the program coordinator in Washington state said that “those who did not comply generally had good reasons,” such as staff changes. She found that a “can we help” type of letter was a better public relations strategy than a formal warning letter.

In Florida, 61 percent of the targeted, large employers complied with the program after one mailing of an information package. Non-complying businesses often had fewer than 250 employees, were unaware of the program or did not realize that being a subsidiary of a parent company with more than 250 employees meant they had to report. Florida expected a second mailing to increase compliance (Florida Advisory Council, 1995:3).

In Alaska, non-compliance was generally due to misunderstanding rather than outright refusal to participate. Sometimes, as staff turned over, the former employee did not hand on the reporting function. However, the state took a stricter hand with a few employers who initially refused to participate. Although no formal legal action was taken, the Alaska Attorney General sent a letter to resisting employers threatening to fine them the $1,000 penalty found in the state legislation.

Other states with penalties for non-compliance did not view legal action as cost effective, given the small fines involved. For example, in Washington, the penalty was $25 per month. New hire staff in Washington were even more hesitant to take action because, under state legislation, businesses that failed to report a new hire could be held liable for the debts of their employees.

In Ohio, the penalty was $25 for each report intentionally not submitted. Nobody was actually fined, although a match of the new hire database to the quarterly wage reports found that “a large number of employees were not reported.” Instead, Ohio sent “a letter to each identified employer reiterating program reporting requirements, offering assistance and advising that sanctions will be imposed for continued non-compliance” (Ohio DHS, no date).

Despite the importance of employer compliance, there is little documentation on compliance rates other than the estimates for the voluntary programs. States were probably reluctant to impose penalties because of the small fine amounts and the desire to maintain the cooperation of the business community.

5. Suggestions for Obtaining Employer Cooperation

Based on input from staff of new hire programs and from representatives of American business associations, these are some of the most effective ways to approach new hire reporting.

  • Include the input of local employers as much as possible. The best way to gain employers' support is to involve them in developing the program. Early involvement of employer representatives will educate program staff about such issues as seasonal workers and employee turnover. These representatives can also negotiate such details as reporting times and methods of reporting, which can affect employer compliance. They should also participate in focus groups and review drafts of new hire brochures.
  • Be clear to employers about how the data will be used. Employers are less resistant to reporting when they see the social benefit of effectively collecting child support. They are generally pleased to hear that state departments will use the data to detect fraud and overpayment in other social programs, and this can be part of a “marketing strategy to gain employer acceptance,”according to one Massachusetts official. One of the main “selling points for business representatives is the benefit to them of reduced state expenditures on social assistance, unemployment insurance and other programs.
  • Include a variety of reporting methods. Businesses have varying levels of technological sophistication, so reporting should be as easy as possible. According to new hire program staff, large companies generally prefer to send their new hire information by magnetic tape or, if possible, by uploading their data over the Internet. Smaller businesses prefer to have a variety of options, including electronic mail, fax and regular mail.
  • Police employer compliance carefully. Sending employers friendly reminder letters generally improves employer compliance. It is also easier to identify non-compliance when states require employers to notify them regardless of hiring activity, since it is otherwise hard to distinguish non-compliance from non-activity.
  • Ask for simple data elements. According to business representatives, programs should only ask for easily obtainable information, such as the information provided on W‑4 forms. Before the PRWORA, the lack of standardization of data elements and reporting mechanisms among states made reporting difficult for multi-state employers. Companies were not able to standardize their procedures because the necessary information would vary by state.
  • Set up an employer hotline (a toll-free number) so employers can get answers to their questions quickly.
  • Have wage garnishments sent to a central location. Before the PRWORA, some states required wage withholding to be sent to a central location, while other states dispersed the mailing locations. For example, in Texas, 200 county courts and employers frequently complained that they were not certain which court was the most appropriate.