Policy Responses Regarding the NDNH and the State Directory of New Hires Under PRWORA

ACTION TRANSMITTAL

AT-97-04

DATE: March 12, 1997

TO: STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS

SUBJECT: Policy Questions and Responses regarding the National Directory of New Hires and the State Directory of New Hires under the Provisions of the "Personal Responsibility and Work Opportunity Reconciliation Act of 1996"

BACKGROUND: The "Personal Responsibility and Work Opportunity Reconciliation Act of 1996" (PRWORA) requires States to develop a State Directory of New Hires that meets Federal requirements by either October 1, 1997, or October 1, 1998, depending on whether a State had a new hire reporting law in effect before August 22, 1996. The law requires the Department of Health and Human Services to develop a National Directory of New Hires by October 1, 1997. The National Directory of New Hires must be able to accept new hire reports and quarterly wage and claim data from every State Directory of New Hires by October 1, 1997. The Office of Child Support Enforcement (OCSE) has received numerous questions from States and individuals regarding the interpretation of PRWORA’s provisions for the State Directory of New Hires and the National Directory of New Hires. The purpose of this Action Transmittal (AT) is to inform States and other interested individuals and organizations of OCSE’s policy responses to the questions received regarding the New Hire provisions in PRWORA.

ATTACHMENT: Series of Questions and Answers regarding the New Hire Provisions under the "Personal Responsibility and Work Opportunity Reconciliation Act of 1996"

INQUIRIES: Office of Child Support Enforcement, Department of Health and Human Services, 370 L'Enfant Promenade, S.W., Washington, D.C. 20447, Attention: Director, Policy and Planning Division.

David Gray Ross
Deputy Director
Office of Child Support Enforcement

New Hire Provisions of the Personal Responsibility and Work

Opportunity Act of 1996 (PRWORA) [ The provisions relating to State Directories of New Hires are contained primarily in section 313 of PRWORA, Pub. L. No. 104-193. Section 313 added a new section 453A to the Social Security Act (Act), 42 U.S.C. 653A. The provisions relating to the National Directory of New Hires are contained primarily in section 316 of PRWORA which amended section 453 of the Act, 42 U.S.C. 653. Unless otherwise specified, references or citations are to the provisions of the Social Security Act.]

I. NEW HIRE REPORTING

Question 1: When must States meet the Federal requirements for State Directories of New Hire?

Answer: Section 453A(a)(1)(A) of the Social Security Act specifies that States which did not have a new hire reporting law in existence as of August 22, 1996 [ 2 Date of enactment of Pub. L. No. 104-193] , must establish a State Directory of New Hires by October 1, 1997, which meets the Federal requirements of Pub. L. No. 104-193.

Section 453A(a)(1)(B) allows States which already had new hire reporting laws prior to the enactment of new Federal mandates under Pub. L. No. 104-193 additional time to conform to the requirements of õ453A and to continue to operate under those State laws until October 1, 1998. However, States must meet requirements to report new hire and quarterly wage data to the National Directory of New Hires, as outlined at õ453A(g)(2), by October 1, 1997. Therefore, to the extent that pre-August 22, 1996 State laws may differ from the Federally-mandated elements, States may continue to operate their directories under the prior plan, but must meet Federal requirements on and after October 1, 1998.

Note: section 395 of PRWORA provides for a grace period for States which need to enact legislation to implement the new requirements. See questions 11 and 12.

Question 2: If a State had a new hire law in place for another program, such as Unemployment Insurance, before August 22, 1996, does the State have until October 1, 1998, to meet the new Federal requirements?

Answer: Yes. The statute does not specify that a new hire reporting law in existence before August 22, 1996, must have been for child support purposes. Thus, a State with a new hire reporting law for another program (such as Unemployment Insurance)

has until October 1, 1998, to meet the new Federal requirements under Pub. L. No. 104-193. However, all States must meet requirements to report new hire and quarterly wage data to the National Directory of New Hires, as outlined at õ453A(g)(2), by October 1, 1997.

Question 3: What data elements are employers required to report to the State Directory of New Hires?

Answer: Section 453A(b)(1) specifies that each employer (other than Federal government employers) shall furnish a report for each newly-hired employee which includes the following information: name, address, and social security number of the employee, and the name, address, and Federal tax identification number of the employer. The report must be sent to the State Directory of New Hires in the State in which the newly-hired employee works. In the case of Federal government employers, the report must be sent directly to the National Directory of New Hires. (See section IV of the AT for provisions regarding multistate employers.)

Question 4: May States require employers to report more extensive information about newly-hired employees than the data specified under Federal requirements?

Answer: Yes. However, any requirement that employers report information beyond the six Federally-mandated data elements must be made under authority of State law. If States choose to require additional information, it may necessitate the filing of a separate report by employers since employers are given the option of complying with the Federally-mandated requirements by submitting a W-4 form. Internal Revenue Service regulations prohibit the alteration or defacing of W-4 forms. See also question 7 of this section.

Question 5: What data elements will States be required to send to the National Directory of New Hires and when must States submit such data?

Answer: Section 453A(g)(2) requires that the State Directory of New Hires shall furnish the information regarding a newly-hired employee to the National Directory of New Hires within three business days of entering the data into the State Directory of New Hires. The "information regarding a newly-hired employee" that must be submitted consists of the 6 Federally-mandated data elements which employers are required to report pursuant to õ453A(b)(1): name, address, and social security number of the employee, and the name, address, and Federal tax identification number of the employer. The National Directory of New Hires will have the capability to accept two addresses for employers in the event the reported address is different than the payroll address needed for wage withholding purposes.

Additionally, State Directories of New Hires will have the option to report three additional data elements to the National Directory of New Hires - date of hire, State of hire, and employee's date of birth. These optional data fields will improve States' fraud detection efforts and administration of programs. The National Directory of New Hires will have the capability to receive and transmit these three optional data elements.

Question 6: May States require employers to report new hires in less than twenty days after the date of hire?

Answer: Yes. Section 453A(b)(2) governs the timing for submittal of required reports. It states that "[e]ach State may provide the time within which the report required shall be made with respect to an employee, but such report shall be made (A) not later than 20 days after the date the employer hires the employee[.]"

Because Federal law allows each State to set the reporting period for employers, subject to Federal statutory limits, States have flexibility and may impose requirements more stringent than "within 20 days of hire," such as "within 5 days of hire." Allowing employers no more than 20 days after hiring to report the required information establishes a maximum allowable amount of time for employers to comply. If a State elects to allow 20 days, employers must transmit the information about a newly-hired employee at some point between the date of hire and 20 days thereafter. Certainly, an employer could report immediately or within a few days and not utilize the full range of 20 days.

Question 7: May States require employers to submit the Federally-mandated information on a form developed by the State?

Answer: No. The reporting format for employers to use in submitting information to State Directory of New Hires is specified under Federal law. Section 453A(c) requires that reporting must "be made on a W-4 form or, at the option of the employer, an equivalent form" (emphasis added). Employers are given the choice to define an "equivalent form." Congressional intent was to provide employers maximum flexibility regarding the mechanism for submitting the new hire information. States are permitted to develop forms for employers to report Federally-mandated new hire data as long as it is clear that the use of such forms is optional.

Question 8: Is a master file of Employer Identification Numbers (EINs) available from the Internal Revenue Service (IRS) to the States for the purpose of facilitating accuracy in the new hire reporting data requirement?

Answer: The law does not appear to provide authorization for States to have access to a master file of Federal EINs from the IRS. DHHS and IRS are looking into this issue and we will notify States if it can be resolved. An alternative option for State Directories of New Hires is to utilize the capability of State Employment Security Agencies to cross-reference State EINS with Federal EINs.

Question 9: Can a State choose where to locate the State Directory of New Hires?

Answer: Yes. Section 453A does not specify that the State Directory of New Hires must be located in a specific agency. States may determine where to house the State Directory of New Hires, e.g. child support agency, State employment security administration, revenue department, private vendor under contract with the State or local child support enforcement agency.

Question 10: Will the State Directory of New Hires be required to keep new hire data for a specified time period? How long will the National Directory of New Hires keep new hire data and quarterly wage and unemployment compensation data on file?

Answer: There are no Federal time requirements in section 453A or section 453 for maintaining new hire data in the State Directory of New Hires or the National Directory of New Hires. States that currently operate new hire programs maintain data for the following time periods: Minnesota - 9 months; New York - 9 months; Iowa - 6 months. A final decision has not been made as to how long data will be maintained on file in the National Directory.

Question 11: Must a State pass a law to implement a new hire program?

Answer: No. Section 454(28), as added by section 313(a)(3) of PRWORA, requires that the State plan provide for the operation of a new hire directory, but there is no specific State law requirement under õ466. The State would simply need to ensure that its procedures comply with the Federal mandate.

Each State must assess for itself whether a law is needed to implement a new hire program (for example, a law to specify the reporting frequency, establish the civil penalty, or designate the particular agency to conduct information

comparisons). Under õ453A(b), employers are directly required to comply with the reporting requirements, so a State law requiring them to do so may not be necessary.

Question 12: How long will States which need to enact legislation have to implement the newhire program?

Answer: The deadline will vary depending upon each State's legislative calendar, but generally will not be beyond January 1, 1998. Under section 395 of PRWORA, States needing a legislative change are granted a grace period until the first day of the first calendar quarter beginning after the close of the first regular session of the State legislature that begins after enactment of P.L. 104-193 (August 22, 1996). Each year of a two-year legislative session is deemed to be a separate regular session.

II. DEFINITIONS FOR NEW HIRE REPORTING

Question 1: What is the definition of "employee" for new hire reporting purposes?

Answer: Section 453A(a)(2)(A)(i) defines an "employee" as an individual who is an employee within the meaning of Chapter 24 of the Internal Revenue Code of 1986 (IRC). Thus, an individual who is an employee for purposes of federal income tax withholding from wages is also an employee for new hire reporting purposes.

Chapter 24 of the IRC and the regulations promulgated thereunder define an "employee" as every individual performing services if the relationship between the individual and the person for whom the services are performed is the legal relationship of employer and employee (see IRC section 3401(c) and 26 CFR 31.3401(c)-1). Generally, the legal relationship of employer and employee exists when the person for whom the services are performed has the right to control and direct the individual who performs the services not only as to the result to be accomplished but also as to the details and means by which that result is to be accomplished. It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he or she has the right to do so.

An individual’s status as an employee or an independent contractor may be determined by filing Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the local IRS office, or by reference to IRS Publication 15A--Employers Supplemental Tax Guide. IRS forms and publications may be obtained by calling 1-800-TAX-FORM (829-3676).

Question 2: What is the definition of "employer" for new hire reporting purposes?

Answer: Section 453A(a)(2)(B)(i) provides that the term "employer" has the same meaning as in section 3401(d) of the Internal Revenue Code (IRC) of 1986 and includes any governmental entity and any labor organization. At a minimum, in any case where an employer is required to give an employee a Form W-2 showing the amount of taxes withheld, the employer must meet the new hire reporting requirements.

Section 3401(d) defines "employer" as the person for whom an individual performs any service of whatever nature, as the employee of such person. Section 3401(d) goes on to provide in part that "if the person for whom the individual performs or performed the service does not have control of the payment of the wages for such services, the term "employer" . . . means the person having control of the payment of such wages." Thus, every entity (including governmental entities and labor organizations) is an employer if the entity exercises or has the right to exercise control and direction over an individual who performs or has performed any service for the entity unless the entity does not have control of the payment of the employee’s wages. In these cases, the entity having control of the payment of such wages is the "employer." All entities satisfying 3401(d) of the IRC must meet the new hire reporting requirements set forth in section 453A(b)(1) of the Social Security Act, as amended.

Question 3: When is an individual considered a new hire?

Answer: An individual is considered a new hire on the first day in which an individual performs services for remuneration, i.e. first day of work. This is the first day in which an employer begins to withhold amounts for income tax purposes.

Question 4: Must an employer report an employee who is being recalled from a layoff or who is returning from a leave of absence?

Answer: If the employer/employee relationship has been severed and a returning individual is required to submit a W-4 form to the employer, the employer is required to furnish a new hire report to the State Directory of New Hires.

Question 5: Do entities hiring independent contractors or subcontractors have to report new hires? Do independent contractors or subcontractors have to report new hires?

Answer: Entities do not have to report the hiring of independent contractors or subcontractors. However, entities must determine whether or not the individual is in fact an independent contractor/subcontractor or whether the individual is really an employee. Entities must use the test and factors discussed in question 1 of this section (concerning the definition of an employee) to determine if the individual is an employee whose hiring must be reported.

Although an independent contractor or subcontractor may not be an employee of the entity which hired him or her to perform a particular job or function, he or she may be his or her own "employer" and/or an "employer" of others and may be required to report new hires as an employer under section 453A. The contractor must determine whether the legal relationship of employer and employee exists to determine if he or she or others hired are employees; i.e. does the person for whom services are performed have the right to control and direct an individual who performs the services not only as to the result to be accomplished but also as to the details and means by which the result is to be accomplished. If further information is needed regarding the definitions of independent contractors/subcontractors and employees, the IRS publication referenced in question 1 may be helpful.

Question 6: Are placement agencies or temporary employment agencies that place individuals with third parties required to report the employee as a "new hire"?

Answer: Placement agencies or temporary employment agencies must report newly-hired employees pursuant to section 453A(b)(1) if a legal relationship of employer and employee exists within the meaning of Chapter 24 of the Internal Revenue Code of 1986.

EXAMPLE A: ABC Employment Service is engaged in the business of providing secretarial services to a number of different companies on a temporary basis. ABC Employment Service maintains a registry of secretaries interested in performing such services and companies contact ABC Employment Service when in need of temporary secretarial services. A secretary performs services at a company ’ s place of business, under the direction and control of the company. The secretary may perform their services at a different company every day. An employment relationship exists between the secretary and each company within the meaning of 26 CFR 31.3401(c)-1. The company pays an hourly rate to ABC Employment Services, which retains a portion of the hourly rate as a fee for its services and then pays the secretary ’ s wages. Although an employment relationship exists between the secretary and each company, because ABC Employment Service is in control of the payment of wages, ABC Employment Service is the employer within the meaning of IRC section 3401(d)(1). Accordingly, ABC Employment Service is responsible for reporting the " new hire."

EXAMPLE B: A-1 Personnel is engaged in the business of placing secretaries with companies on a permanent basis. When a secretary is placed with a company, a one-time fee is paid to A-1 Personnel by either the secretary or the company. The secretary performs services at the company ’ s place of business, under the direction and control of the company. An employment relationship exists between the secretary and the company within the meaning of 26 CFR 31.3401(c)-1. The secretary ’ s wages are paid directly to the secretary by the company. In this case, the company is the employer within the meaning of IRC section 3401(d) and, therefore, is responsible for reporting the " new hire."

See questions 1 and 2.

Question 7: Are labor organizations required to report their members under the new hire reporting program?

Answer: Only those labor organizations which satisfy õ3401(d) of the IRC are required to report individuals under the new hire reporting requirements of õ453A. A labor organization is not required to report members simply as a result of their status as members. It also need not report those who are referred for employment unless the labor organization meets the definition of "employer" in relation to those individuals.

At a minimum, a labor organization is an employer under õ3401(d) of the Internal Revenue Code of 1986 and must meet the reporting requirements of õ453A with respect to any individuals that perform any services for wages. Additionally, the labor organization could also be brought within the definition of "employer" under õ3401(d)(1), which states that in cases in which the person or entity for whom services are performed does not have control over the payment of the wages for those services, the employer is the person or entity having control over the payment of those wages. Thus, if a labor organization actually pays the individuals whom it refers (as opposed to having them paid by the person or entity to whom they have been referred), the labor organization would be considered the "employer" and subject to the reporting requirements in section 453A.

Question 8: Why are hiring halls included in the list of organizations that must report new hire information?

Answer: Hiring halls were included in the definition of employer to ensure that the employees of the hiring hall are reported to the State Directory of New Hires. Hiring halls which refer individuals for jobs with employers, or other similar entities, are required to

report for purposes of õ453A if they satisfy the definition of "employer" at õ3401(d) of the Internal Revenue Code of 1986. See prior question.

Question 9: What is the intent of the new hire reporting exemption for an employees of Federal or State agencies performing intelligence or counterintelligence functions?

Answer: Section 453A(a)(2)(A)(ii) provides an exemption to new hire reporting for an employee of a Federal or State agency performing intelligence or counterintelligence functions"if the head of such agency has determined that reporting [new hires] ... could endanger the safety of the employee or compromise an ongoing investigation or intelligence mission." The intent is to provide a discretionary test for the heads of Federal or State agencies engaged in intelligence or counterintelligence activities to determine if the reporting of a newly-hired employee is appropriate given the criteria stated in õ453A(a)(2)(A)(ii). This exemption applies only to Federal or State employees and is not applicable to local or county employees.

III. PENALTIES

Question 1: May States choose to impose penalties on employers for noncompliance which exceed the amounts provided in the statute?

Answer: No. Section 453A(d) gives States the option to choose to impose or not impose a penalty for noncompliance. It then sets the limits on the monetary penalties that the State may impose at less than $25.00, or less than $500.00 if there is a conspiracy between the employer and employee. Therefore, although the State has the option to have a penalty, if it chooses to do so, maximum amounts may not exceed those in õ453A.

Question 2: May States also provide for non-monetary civil penalties against an employer who fails to comply with the reporting requirements?

Answer: Yes. Although the statute provides maximum amounts for States electing to use the civil monetary penalties, it does not specifically preclude any other legal remedies available under State law for noncompliance. Thus, a State could impose a fine (civil monetary penalty), but also provide for another sanction so long as the maximum financial penalty imposed for the failure to report is less than $25.00 (or $500.00 in the case of a conspiracy).

Question 3: How is the penalty to be applied - per employer, per employee, per report, per reporting period?

Answer: The apparent intent of the law is that the penalty be imposed for each new employee that the employer fails to report. DHHS is recommending that a technical amendment be made to õ453A(d) which would clarify that the penalty is "per failure to meet the requirements of this subsection with respect to a newly hired employee". The technical amendment would clarify that the penalty can be applied for each new employee that the employer fails to report.

IV. MULTISTATE EMPLOYERS

Question 1: What are the requirements for multistate employers to report new hires?

Answer: Section 453A(b)(1)(B) provides multistate employers with an exception from reporting that is intended to simplify the reporting of new hires (specified in õ453A(b)(1)(A)). A multistate employer is defined as an employer who has employees who are employed in two or more States and who transmits reports magnetically or electronically. Multistate employers have the option to report all new hires to a single State, chosen by the employer, in which the employer has employees. To exercise this option, Federal law requires that multistate employers designate one State (in which the employer has employees) for reporting new hires and must notify the Secretary of Health and Human Services in writing as to the employer's chosen State.

Question 2: The law states that a multistate employer can designate 1 State in which the employer has employees to which the employer will transmit the report. Can a multistate employer designate more than one State in which to report? Can a company opt to report most new hires to one central location but continue to have some local offices report to individual States?

Answer: No. Section 453A(b)(1)(B) allows multistate employers the option to "designat[e] one State" for submitting new hire reports. Multistate employers may exercise the option of reporting all new hires to one designated State, or under õ453A(b)(1)(A) must report new hires to the respective States in which employees are working.

Question 3: If a multistate employer exercises the option to report to one State, how should the employer notify the Secretary of Health and Human Services which State the employer designates for reporting?

Answer: The only federal requirement is that multistate employers notify the Secretary of Health and Human Services in writing as to which State the employer designates for the purpose of sending new hire reports. The Office of Child Support Enforcement is preparing an optional form which multistate employers may use for reporting their chosen State to the Secretary. The Office of Child Support Enforcement will be notifying States and employers of the address which multistate employers should use to report their designated State to the Secretary.

Question 4: How will States know where a multistate employer has chosen to report?

Answer: Section 453(i)(4) requires the Secretary of Health and Human Services to maintain within the National Directory of New Hires a list of multistate employers that are exercising the option to report to one State and the State to which the employer is reporting. OCSE is seeking input from the Expanded Federal Parent Locator Service Work Group, which includes Child Support and State Employment Security Agency representatives, regarding the best mechanisms for making the list of multistate employers available to States.

V. FUNDING

Question 1: Is enhanced FFP available for the development and operation of a State Directory of New Hires?

Answer: Enhanced FFP is available for the development of a State Directory of New Hires under certain circumstances. It is not available for the operation of the Directory.

Section 455(a)(3)(B), as added by section 344(b) of PRWORA, provides that Federal reimbursement at the 80 percent FFP rate is available for costs incurred by States for changes to their Statewide automated Child Support Enforcement (CSE) systems. If a State chooses to locate its State Directory of New Hires within the Child Support Agency as part of its automated child support enforcement system, then the State may seek reimbursement for 80% of the system development costs to establish that Directory.

Section 453A of the Social Security Act requires States to implement a State Directory of New Hires. However, Congress gave the States flexibility in where they locate the State Directory of New Hires. There is no requirement that the State Directory of New Hires be developed as an integrated part of the automated child support enforcement system. Therefore, the State Directory of New Hires may be a separate unit that interfaces with a State's automated child support enforcement system. When the State Directory of New Hires is developed under contract with an outside agency or organization, Federal funding at the 80 percent FFP rate is only available for costs associated with developing the necessary interface between the automated CSE system and the outside State Directory of New Hires.

States should be aware that, pursuant to section 344(b)(2)(A) of PRWORA, there is a maximum aggregate amount of $400,000,000 available for enhanced funding for fiscal years 1996 through 2001. The Secretary of HHS is required to develop a formula for allocating this amount among the States.

Note: For more information, please see OCSE Action Transmittal 96-10, December 23, 1996, regarding, Availability of Federal Financial Participation at an Enhanced Rate Under the Provisions of the "Personal Responsibility and Work Opportunity Reconciliation Act of 1996."

Question 2: If the State Legislature chooses to locate the State New Hire Directory in a State Employment Security Agency (SESA) or another entity, will SESAs or other State agencies be reimbursed for their costs of operating the State New Hire Directory?

Answer: Section 455(a) authorizes the Secretary of the Department of Health and Human Services to pay Federal funds only to State Child Support Agencies for expenditures associated with the child support enforcement programs, including the State Directory of New Hires.

If a State opts to establish and operate the State Directory of New Hires outside of the statewide automated child support enforcement system, either at a State Employment Security Agency, other State agency, or with a private entity, then the Child Support Agency is eligible for reimbursement at the 66% rate for the costs it incurs in the development and ongoing costs for the State Directory of New Hires.

In such cases, State Child Support Agencies must establish negotiated agreements with SESAs, other State agencies, or other organizations to provide reimbursement for only the child support-related costs associated with the State Directory of New Hires. For example, where a State uses or also plans to use new hire data for detecting unemployment insurance fraud, it will be necessary to allocate costs in the negotiated agreement.

Question 3: How will States be reimbursed for the costs of transmitting new hire and quarterly wage and claim data to the National Directory of New Hires?

Answer: Section 453(k)(2) authorizes the Secretary of the Department of Health and Human Services to reimburse costs incurred by the State Directory of New Hires in furnishing new hire and quarterly wage and claim information to the National Directory of New Hires. The Department of Health and Human Services is seeking a technical amendment to Section 453(k)(2) to replace the reference to "subsection (j)(3)" with "section 453A(g)(2)." This technical amendment ensures that the Secretary is authorized to provide reimbursement for the costs of transmitting new hire and quarterly wage and claim information.

Section 453(k)(2) authorizes the Secretary to provide reimbursement for transmission costs which "the Secretary determines to be reasonable (which rates shall not include payment for the costs of obtaining, verifying, maintaining, and comparing the information.)" The Office of Child Support Enforcement will work directly with each State Directory of New Hires to determine the appropriate costs for furnishing the data to the National Directory of New Hires.

In addition, section 453(g) also authorizes the Secretary to provide reimbursement for data transmission costs incurred by Federal and State agencies in furnishing information requested by the Secretary. Section 453(g) ensures that transmission costs incurred by State Employment Security Agencies in reporting requested quarterly wage and unemployment compensation claim data to the Secretary will be reimbursed. Similar in language to section 453(k)(2), section 453(g) authorizes the Secretary to provide reimbursement for transmission costs which "the Secretary determines to be reasonable payment for the information exchange (which amount shall not include payment for the costs of obtaining, compiling, or maintaining the information)."

VI. TIMEFRAMES FOR ENTERING AND PROCESSING NEW HIRE DATA

Question 1: What are the exact timeframes which the State Directory of New Hires must meet for entering and processing new hire data?

Answer: Section 453A(e)-(g) lays out specific processing requirements for data in the State Directory of New Hires.

Within five business days of receiving reports from employers, the State Directory of New Hires must enter new hire reports from employers into its database.

Within two business days after the new hire data is entered into the State Directory of New Hires: (1) the State must conduct a match between the social security numbers in new hire reports and in the child support case registry; (2) the State must notify the Child Support Agency if a match occurs; and (3) if a matched employee's income is subject to wage withholding pursuant to õ466(b)(3), the Child Support Agency must generate and transmit a notice of wage withholding to the employer.

Within three business days after the new hire data is entered into the State Directory of New Hires, new hire data must be furnished to the National Directory of New Hires.

VII. ACCESS TO DATA

Question 1: Are State Employment Security Agencies authorized under the new legislation to have access to the Federal employer data in the National Directory of New Hires?

Answer: No. Access to data in the National Directory of New Hires is limited to those entities, and subject to the safeguards, listed in õ453(i) and (j).

Section 453(i)(3) provides the Secretary of the Treasury with access to information in the National Directory of New Hires for the purpose of administering and enforcing tax compliance.

Section 453(j)(4) provides the Commissioner of Social Security with access to all information in the National Directory of New Hires.

Section 453(j)(5) gives the Secretary of Health and Human Services the discretion to provide researchers with access to the new hire data (reported by employers pursuant to õ453A(b)) for research efforts that would contribute to the IV-A (Temporary Assistance for Needy Families) or IV-D (Child Support Enforcement) programs. Any new hire data provided to researchers would not include personal identifiers.

Section 453(j)(3) directs the Secretary, to the extent and with the frequency that she determines necessary, to conduct data comparisons among different components of the FPLS (Federal Parent Locator Service) to facilitate the administration of the Title IV-A and IV-D programs and to disclose information to IV-A and IV-D State agencies.

Question 2: The new law specifies that new hire information in the State Directory of New Hires can be shared with State Employment Security Agencies and State agencies administering Income and Eligibility Verification System programs. Can new hire data be shared with other State agencies to assist fraud detection efforts?

Answer: Section 453A(h) specifies that the new hire reports submitted to the State Directory of New Hires by employers required under õ453A(b) shall be made available to: (1) State agencies responsible for administering Income and Eligibility Verification System programs specified in õ1137(b) of the Social Security Act for the purpose of verifying program eligibility [ 4 Programs which must participate in the income and eligibility verification system are: TANF, Medicaid program under Title XIX of the Social Security Act, unemployment compensation program under section 3304 of the Internal Revenue Code of 1954, Food Stamp program under the Food Stamp Act of 1977, and any State program under a plan approved under titles I, X, XIV, or XVI of the Social Security Act.] and (2) State agencies operating employment security and workers' compensation programs for the purposes of administering the programs.

Whether or not the State may share new hire reports with other State agencies depends on the location of the State Directory of New Hires and whether the operation of the State Directory of New Hires is part of the statewide automated data processing and information retrieval system required pursuant to section 454(16) of the Act. Where the State Directory of New Hires is located within the State Child Support Agency, any disclosure of information will have to be in accordance with the safeguards established under section 454(26). If the State Directory of New Hires is established or operated as part of the statewide automated data processing and information retrieval system, any disclosure of information would have to be in accordance with the safeguards established under section 454A(d). If the State Directory of New Hires is not located within the State Child Support Agency and is not established or operated as part of the statewide automated data processing and information retrieval system, Federal law would not restrict States from passing laws to expand access to new hire reports to other State agencies.

Question 3: Will a specific State agency be required to provide the quarterly wage and unemployment compensation data to the National Directory of New Hires and which agency would be held accountable if the data is not provided?

Answer: Section 453A(g)(2)(B) specifies that the State Directory of New Hires is required to furnish certain quarterly wage and unemployment compensation claim information to the National Directory of New Hires. The State Directory of New Hires must furnish the data at such time, in such format, and with the information, specified by the Secretary of Health and Human Services in regulations.

Section 313 of PRWORA also added a new IV-D State plan requirement, õ454(28), which mandates that States will operate a State Directory of New Hires in accordance with õ453A of the Act. Therefore, the State child support enforcement agency must ensure that the State Directory of New Hires, regardless of where the State Directory of New Hires is located, meets all Federal requirements, including quarterly wage and unemployment compensation data reporting requirements.

In addition, section 316(g) of PRWORA also contained two other amendments relating to wage and unemployment compensation reporting. The first amended section 3304(a)(16) of the Internal Revenue Code of 1986 (26 U.S.C. 3304(a)(16)) to add a new subparagraph (B) which requires the agency administering the State unemployment compensation law to provide wage and unemployment compensation information from the agency's records to the Secretary of HHS as specified in regulations. The second amended section 303(h) of the Act to require the agency administering the State unemployment compensation law to disclose quarterly to the Secretary of HHS wage and claim information from the agency's records as required by section 453(i)(1). Furthermore, pursuant to section 303(h)(3) whenever the Secretary of Labor, after reasonable notice and opportunity for hearing, finds that there is a failure to comply substantially with the requirements of quarterly wage and claim disclosure under section 303(h)(1), the Secretary of Labor shall notify the State agency that further payments will not be made to the State until the Secretary of Labor is satisfied that there is no longer any such failure. Until the Secretary of Labor is so satisfied, the Secretary shall make no future certification to the Secretary of Treasury with respect to the State.