Phase 1 Report of Feasibility Study on New Hire Programs for Canada: New Hire Programs in the United States
- Child Support Enforcement in the United States
- The Development of New Hire Programs
- Measuring Program Success
- Sharing of New Hire Information
- Confidentiality and Privacy Issues
- United States Federal Government Involvement
- Employer Reporting in Other Commonwealth Countries
New hire or employer reporting programs began in the late 1980s in the United States to speed up the process of finding people on the caseloads of child support agencies. In 1996, federal legislation, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), established the National Directory of New Hires and required all states to set up their own state directories, which report regularly to the National Directory. The act also established the Federal Case Registry for all child support orders.
It has been said that the program has “dramatically” increased child support collections and saved the states millions of dollars. Because of the interest these claims have generated in Canada, the Child Support Team at the Department of Justice Canada studied the rationale and development of this program, and the issues raised by the concept of employer reporting.
We reviewed state and federal government documentation; we reviewed internal reports provided by state officials; and we telephoned key people in states with different types of programs. Few evaluations appear to have been done. Despite the amount of material we found, it was hard to compare situations across states, in terms of success and program costs, because of the variable nature and depth of detail in the documentation.
In addition, we contacted officials in the United Kingdom, Australia and New Zealand for information on the use of employer reporting in those countries.
By federal law, child support programs establish paternity, establish the child support order and enforce the awards. Although the states run the child support system, the federal government has considerable authority through legislation and financial incentives.
Child support caseloads are composed of voluntary and mandatory clients. Mandatory clients are those getting public assistance or such benefits as food stamps and Medicaid. The state programs are, for the most part, funded by the collections made on behalf of mandatory clients; those collections are remitted to the state and federal governments. Voluntary clients receive all the collections made on their behalf. Many predict a decrease in welfare cases in the caseloads of child support programs, because the PRWORA restricts eligibility for public assistance benefits. This may effectively reduce government revenues.
New hire programs are one component of an integrated approach to child support enforcement found in the PRWORA. This legislation uses a three-fold approach:
- increase states' ability to locate persons and their assets (which would include the new hire program);
- process cases en masse using information technology; and
- aggressively enforce orders using such administrative processing as automatic income withholding.
The third element includes eliminating the complaint-driven approach to enforcement and replacing it with expedited procedures for routine cases. Child support agencies, in this legislation, have sufficient authority to process most cases without court intervention. Through administrative mechanisms they can take many actions, including ordering income withholding, seizing lump sum payments, seizing assets in financial institutions and increasing the amount of the monthly payment to cover overdue amounts.
Before these programs came along, states had access to quarterly wage reports. However, this meant using information that was as much as six months old. By the time child support cases were matched with the wage reports, many non-custodial parents had already left their jobs.
New hire programs require all or selected employers to remit the names of all newly hired or rehired employees to a central state agency, often the child support agency itself. With computerized case data, it became feasible to match cases to reports of new hires, using the employee's Social Security Number (SSN) and name. Regular case matches led to quicker wage withholding orders.
The first U.S. program, in Washington state, was mandatory for targeted industries, such as construction, that were believed to have mostly male labour, high staff turnover and frequent layoffs. While other states took the same targeted approach, almost half of the programs launched before 1995 were mandatory for all employers. A few states developed voluntary programs, in part because state officials wanted to test systems in preparation for the anticipated federal program.
Employers supplied different information from state to state. Some states “kept it simple” and asked employers to remit basic information contained in a tax form that companies already completed each time they hired a new employee. This form, called the W‑4, contains the employee's name, address and SSN as well as the employer's name, address and federal identity number.
Other states developed their own forms, and added data elements such as the employee's date of birth, the date of the new hire and medical coverage information. This practice has been very unpopular with multi-state employers, who would far prefer standardized reporting formats. In addition, some extra information—especially medical coverage information—is maintained separately from the payroll department, which makes reporting much more cumbersome for employers.
Some states do not require employers to report if there is no hiring or rehiring during the time period, but this means the absence of a report could mean either an omission to report or a lack of hiring activity.
Almost all states gave employers a number of options for sending the new hire data:>fax,telephone, mail, diskette, magnetic tape and (more recently) the Internet.This flexibility probably made it easier to get employer cooperation.
About half of the states required the new hire information within one month of the hiring, although the time varied from 5 to 35 days. Employers generally preferred the longer period, and the state that requested the data in 5 days encountered employer opposition.
The keys to program success, according to the literature and the people we interviewed, are employer involvement in developing the program and ongoing employer outreach. Some states paid far less attention to public relations and educational activities than did others, doing little more than mailing information about the law to employers. Sources claimed that the new hire programs in these states were less successful, but this assumption cannot be confirmed.
The costs to employers of new hire programs were available from only one state. The median annual cost went from $60 for firms with 50 or fewer employees, to $240 for employers with 250 or more employees (in 1993 U.S. dollars). Start-up costs averaged less than $100. The response rate for this survey is not known. One payroll processing company charged employers about $2 per report of a new hire or rehire.
Several states reported that small businesses complained the most about the program. Employer compliance has not been well monitored, although one would expect that new hire databases could be easily matched with quarterly wage reports. According to our interviews, the first state programs did not fine employers who did not comply with the program, both for public relations reasons and because the amount of the fine was not worth the effort of enforcement. Some states had no legislated penalties.
In summary, the first new hire programs were implemented to improve child support collections by increasing the timeliness of employment data about non-custodial parents. Although quarterly wage reports were used to track child support payers, some payers moved too quickly from job to job to be captured by support enforcement mechanisms. By having all or targeted employers report new hires within one month or less of hiring, agencies could put more wage withholding orders in place. The program appeared to encounter fewer obstacles under the following conditions:
- when employers helped develop the program and when employer liaison was a priority;
- when the program involved few data elements, all of which came from one source, and when multi-state employers could use a standard set of data elements;
- when employers had many ways to send in the information;
- when employers were required to report, even when they hadn't hired or rehired anybody during the reporting period; and
- when employers could report monthly.
It is virtually impossible to determine whether different types of programs had different success rates. In the program material, success was measured by the following:
- the number of matches on child support cases as a percentage of the number of employees reported under the program; and
- the increase in child support collections attributable to the program.
Match rates were frequently reported in new hire documentation. They could sound impressive because they were often calculated on the total caseload of child support agencies, not just on obligated persons who were in arrears or who could not be found. The one state that did do matches on “delinquent obligors” reported a match rate of 0.5 percent. This can be compared to match rates for enforcement cases (not defined) from 2.5 to 5.9 percent, and overall match rates that ranged up to 11 percent.
The matching of the name is only the first step in obtaining support payments. Studies on this topic showed that child support agencies received additional payments in relation to only a minority of matches. There are many reasons for this, including the fact that employees had already moved on and that agencies knew about employers before the match.
We are concerned that the literature inflated the increase in collections attributable to new hire programs. Different sources sometimes provided widely differing estimates of increased collections. It is hard to directly attribute an increase in collections to new hire data, as opposed to quarterly wage reports, for example. This difficulty arises because the sources did not provide details on the calculations.
Five of the first states to implement new hire programs also provided cost-benefit ratios, which ranged from $1: $3.20 in Alaska in 1994, to $1: $22 in Washington in 1992. The large differences lead us to suspect that costs, collections or both were not tallied the same way. The available data did not permit any definitive conclusions on the cost effectiveness of employer reporting.
As might be expected, given the differences in cost-benefit ratios, the annual operating costs of new hire programs varied widely—from $104,000 for Arizona's voluntary program to just over $500,000 for Minnesota's mandatory program. The cost per new hire ranged from $0.27 to $1.45 in the six states that provided budget and new hire data.
We should be wary of uncritical extrapolation of match rates, collection figures and cost-benefit ratios to Canada.
- The child support caseloads of the two countries may differ in substantial ways, such as occupational mobility of payers. Certainly, the mandate of state child support programs is much broader than it is in Canada, since the American programs also establish paternity and orders.
- The quick transfer of successful matches leading to automatic wage withholding is a key aspect of the success of the new hire program.
- Locating the debtor's place of employment is only the first step in collecting the amount owing.
In this research, we paid special attention to the sharing of new hire information with other social programs, such as public assistance, workers' compensation and unemployment insurance. Information sharing helps reduce benefit fraud. As with child support, most of these other social programs had access to quarterly wage data to detect overpayments, but delays in getting timely data made it harder to avoid and recoup overpayments. Sharing is mandated by the PRWORA, but even before the federal legislation came into effect, some states routinely shared such information. The following factors contributed to information sharing.
- Information was more readily shared with other social programs if they were in the same departments and shared the same computer systems.
- In some states, legislation had restricted the new hire database so it could only be used for child support. Elsewhere, state legislation was the impetus for the exchange of data.
The new hire documents rarely raised this topic. However, a few states suggested destroying records to maintain confidentiality and privacy. The 1996 federal legislation does not indicate how long the information is to be kept.
Many of the data exchange provisions in the PRWORA are subject to Internal Revenue Service confidentiality laws, which limit the use of federal data to specified purposes. This “purpose” limitation is supposed to follow the information as it travels through the system so that state information systems have to be able to “tag” information according to its source and authorized purposes.
The federal government became more interested and more involved in new hire programs in 1993 and 1994, as 30 percent of child support cases in the United States involve non-custodial parents who do not work in the same state in which their children live. Mandatory reporting for all employers in all states was part of the Administration's welfare reform package. The National Directory started operations in October 1997, and all states were to begin reporting data in October 1998. There are as yet no data on the degree of success of the National Directory.
The location of the child support agency in the government bureaucracy seems to be a factor in employer reporting. In the United Kingdom, where support enforcement is part of the social services department, there is no program of this type, nor is the UK planning to establish one. In Australia and New Zealand, child support agencies are part of the tax department. Employer reporting of newly hired employees is done for tax‑related purposes. The child support agency has ready access to the data so that it can identify the employment status and employer of child support payers.
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