The Department of Homeland Security said the 274-page rule will go into effect January 15, 2009. Companies that win a federal contract of more than $100,000—and subcontractors with contracts of greater than $3,000—will have to enroll in E-Verify, the electronic verification mechanism, within 30 days of being awarded the work.

The firms will have to check the eligibility of existing and new employees who directly work on federal contracts. The regulation was first issued as an executive order by President Bush in June. The original regulatory proposal received 1,600 public comments.

Currently, about 92,000 companies use E-Verify. The contractor rule could add an additional 150,000 to 180,000 employers.

Under the system, new-hire information from I-9 forms is electronically compared with Social Security and DHS databases.

Many employer groups have criticized E-Verify for being inaccurate, inefficient and unable to detect identity theft. They argue that the 4.1 percent error rate in the Social Security database could lead to millions of people being incorrectly ruled ineligible for work.

Supporters of E-Verify say the system confirms 96 percent of queries instantly and has an error rate of less than 1 percent. The program, which is voluntary, has become a foundation of the Bush administration’s stepped-up work-site enforcement efforts.

The crackdown intensified after the demise of comprehensive immigration reform in the Senate in 2007. Observers say the federal contractor requirement is a way for the DHS to significantly boost E-Verify participation.

“The administration is trying to accomplish through regulation what it cannot accomplish through legislation,” said Eric Bord, a partner at Morgan Lewis & Bockius in Washington.

The fate of the regulation, however, is not necessarily settled. Under the Congressional Review Act, Congress has 60 days to reject a regulation. But the E-Verify rule is scheduled to go into effect before the new Congress is seated in January. The current Congress probably wouldn’t act in a lame-duck session next week.

In addition, Congress could stop a rule by refusing to appropriate money for it. Beyond legislative challenges, businesses could sue to stop the implementation. Employer groups are questioning the legality re-verifying existing workers. They also say that the implementation is occurring too quickly.

“I don’t think the last word on the E-Verify contractor rule has been spoken,” said Mike Aitken, director of governmental affairs for the Society for Human Resource Management.

After Congress resumes work next year, it will have to reauthorize the law that established E-Verify, which is scheduled to expire in March. The program would have sunsetted this month if Congress hadn’t extended it to March earlier this fall.

It’s unlikely that President-elect Barack Obama will oppose the contractor rule, according to Bord.

“I would be surprised if an Obama administration’s first initiative in immigration would be to rescind something that is seen by the public as an enforcement tool,” Bord said.

He also anticipates an extension of the E-Verify law.

“The Obama administration will take a very low-key approach to E-Verify and endorse its quiet reauthorization in March in order to avoid opening the Pandora’s box of comprehensive reform,” Bord said.

Ultimately, employer groups such as the HR Initiative for a Legal Workforce, which is led by SHRM, want to overhaul E-Verify. They are promoting legislation that would create what they call a better and more secure approach to electronic verification.

“Instead of extending E-Verify to federal contractors, we should take the time to make improvements to the system,” Aitken said.

While Congress continues to mull E-Verify policy, Bord says all companies should prepare for its expansion.

“If you are a non-contractor, you need to see this as a preview of things to come because states will increasingly regulate in this area,” he said.

—Mark Schoeff Jr.

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