How Does a Government Shutdown Affect Employers and Federal Contractors?

A government shutdown significantly impacts private-sector employers through suspended E-Verify services, scaled-back federal enforcement, and contract disruptions for federal contractors. Based on Society for Human Resource Management (SHRM) data, approximately two-thirds of businesses experience operational effects from a shutdown lasting more than one week.

What Happens to E-Verify During a Government Shutdown?

The E-Verify system, a web-based program for electronically verifying employee eligibility, becomes unavailable during a government shutdown due to a lapse in funding for the Department of Homeland Security (DHS). This means employers cannot access services like myE-Verify accounts, Self Check, or customer support.

Despite this, employers must still complete Form I-9 for new hires within the standard three-business-day timeframe. Those using DHS-authorized remote verification procedures can continue doing so if they were in good standing with E-Verify when the shutdown began. However, employees cannot resolve Tentative Nonconfirmations (TNCs), which are mismatches between employee-provided information and government records. The DHS will extend the resolution period by the number of days the system is offline.

How Do Federal Agencies Scale Back Enforcement?

Key regulatory agencies significantly reduce their activities, pausing many planned regulations and non-essential investigations.

• U.S. Department of Labor (DOL): The DOL continues monitoring imminent safety threats but halts technical assistance, compliance aid, and research. Major regulatory actions, such as potential changes to the overtime salary threshold and independent contractor classification rules, are put on hold.
• U.S. Equal Employment Opportunity Commission (EEOC): The EEOC will accept charges necessary to preserve a claimant's rights but will not investigate them unless required to protect life or property. Existing litigation continues unless a continuance is granted.
• National Labor Relations Board (NLRB): The NLRB stops docketing new representation case petitions and unfair labor practice charges but continues actions needed to protect ongoing cases.

What Challenges Do Federal Contractors Face?

Federal contractors may encounter paused funding or stop-work orders, potentially leading to employee furloughs or layoffs. For contractors, wage and hour compliance is critical. A key rule to remember is that salaried, exempt employees generally must be paid their full salary for any workweek in which they perform any work. Contractors must also assess obligations for providing advance notice of pay changes and meeting final paycheck requirements.

Based on our assessment experience, employers should proactively:

• Document all I-9 completions and prepare to create E-Verify cases once the system resumes.
• Communicate clearly with employees about the inability to resolve TNCs until the shutdown ends.
• Review contractual obligations and plan for potential funding pauses if you are a federal contractor.
• Stay informed on DOL and EEOC guidance, as shutdown protocols can evolve.