Companies doing business with the government would have to use E-Verify, an electronic system operated by the U.S. Citizenship and Immigration Service and the Social Security Administration, to prove each person they hire for a contract and each employee who works on it is legal.

The number of federal contractors totals more than 200,000. It’s unclear when the directive goes into effect.

In its announcement, the DHS said agencies responsible for federal acquisitions would send a notice regarding the contractor directive to the Federal Register on June 9. Its publication, expected within days, will trigger a 60-day comment period. After that, the DHS will write a final rule.

More than 69,000 employers use E-Verify on a voluntary basis. The agency says the system has processed more than 4 million employment verification queries in the current fiscal year. E-Verify supporters say 93 percent are confirmed instantly and that less than 1 percent of new hires successfully contest a non-verification.

The executive order is part of an ongoing work-site crackdown on illegal employment by the Bush administration following the demise of broad immigration reform last year in Congress.

“A large part of our success in enforcing the nation’s immigration laws hinges on equipping employers with the tools to determine quickly and effectively if a worker is legal or illegal,” Homeland Security Secretary Michael Chertoff said in a statement. “E-Verify is a proven tool that helps employers immediately verify the legal working status for all new hires.”

Large portions of the business community, however, resist E-Verify. The HR Initiative for a Legal Workforce, which is led by the Society for Human Resource Management, criticizes E-Verify for relying on the Social Security database, which has a 4.1 percent error rate and could mistakenly declare millions of people ineligible for employment.

“Republicans, Democrats, liberals, conservatives, people that are pro-immigration, people that are tough on enforcement all have said very clearly that E-Verify doesn’t work,” says Mike Aitken, SHRM director of governmental affairs.

SHRM led the charge last year to remove from appropriations bills language that would have required federal contractors to use E-Verify.

“It’s a backdoor mandate that overrides the intent of Congress to establish a voluntary program,” Aitken says.

The rule will deal a severe blow in the construction and janitorial sectors, says Hector Chichoni, a partner at Epstein, Becker & Green in Miami. Those industries struggle to fill jobs and rely on foreign help.

“A lot of people will disappear,” Chichoni says, referring to immigrants who will be scared away by the directive. “There are not enough Americans to provide these services.”

Chichoni says that companies will lose a big percentage of their workforces and then sharply raise wages to attract new employees.

“It is a negative, vicious cycle,” he says. “DHS has no regard for the economy of our country. They have nothing but an enforcement mentality.”

The expansion of E-Verify also gets resistance on Capitol Hill. Most of the testimony in a recent House Ways & Means subcommittee hearing was sharply negative.

“It would be very difficult to get a majority to vote for a nationalization of the E-Verify system at this point in time,” says Rep. Michael McNulty, D-New York and chairman of the panel. “This whole issue needs a lot more careful thought.”

McNulty expressed concerns that employment verification would overload a Social Security Administration already burdened with a massive backlog of disability claims.

Although immigration policy has stalled on Capitol Hill because of partisan tensions on the issue, Congress must act this year on employment verification. The law enacting E-Verify expires in November.

The HR initiative advocates a bill to replace E-Verify with an electronic system based upon an existing child-support enforcement network in which about 90 percent of U.S. employers participate.

But other bills that would extend and expand E-Verify also get strong support.

“E-Verify is doing the job it was intended: denying employment to people in the United States not authorized to work,” says Rep. Ken Calvert, R-California and author of the original E-Verify bill. “Let’s build upon what works and give the American people what they want: mandatory employment verification.”

—Mark Schoeff Jr.