Illegal hires put pressure on owners following law

Small businesses in U.S.don’t want to be undercut

Consuelo Gomez, who runs a cleaning and landscaping business called Marty K, says she won’t hire illegal immigrants, a decision that small business owners say is costly.

NEW YORK — She could save money, and there’s a good chance she wouldn’t get caught, but Consuelo Gomez says she won’t hire illegal immigrants to work for Marty K, her cleaning and landscaping business.

Ms. Gomez says she believes she’s being undercut by competitors that hire workers who are in the United States without permission from the government. When potential clients tell her that her competitors can do the same work for a lot less, it makes her suspicious.

“I’ll hear, ‘They’re $2,000 cheaper than you,’ and I say, ‘That’s impossible,’ ” says Ms. Gomez, whose business is in Bellevue, Wash. “I can’t fathom how they do it because we would lose money.”

If Ms. Gomez’s hunch is correct, she’s dealing with a little-talked-about problem that a lot of small business owners say makes survival difficult. Competing with companies that hire illegal immigrants is tough for a small business that follows the law because of the cost. Often, businesses pay illegal workers less, and they also save on taxes.

Sixty-eight percent of business owners surveyed last month by the advocacy group Small Business Majority said too many companies gain an unfair advantage by hiring illegal immigrants.

In 2008, the Pew Research Hispanic Center estimated that 8.3 million illegal immigrants were working in the United States. Current estimates put the total number of illegal immigrants at about 11 million. The issue is in the forefront as lawmakers propose ideas to reform the country’s immigration laws.

“What small businesses want the most is a level playing field where they can compete fairly,” says John Arensmeyer, chief executive officer of Small Business Majority. “Unless we fix the immigration system, small businesses are going to continue to operate at a disadvantage with companies that aren’t following the law.”

The use of ineligible workers divides small business owners.

“Our members have told us that while they follow the rules — committing time and resources to the hiring process — they remain frustrated with their competition when they cut corners and don’t adhere to the same rules,” said Kate Bonner, manager of House legislative affairs for the National Federation of Independent Business.

The number of businesses that hire illegal immigrants is hard to pin down, although a study last year by the Federal Reserve Bank of Atlanta found that 1.6 percent of the 365,000 businesses it examined in Georgia had employees who weren’t authorized to work in the United States.

It also showed that those employers had an advantage. Companies that employed illegal immigrants had a 23 percent chance of failing, compared with an average for all companies of 28 percent. The study confirmed what anecdotal evidence has shown: Businesses get a competitive benefit from hiring illegal immigrants, says Julie Hotchkiss, one of the study’s three authors.

It’s widely believed that ineligible workers earn far less than people who are eligible to work in the United States. That’s not always the case. A 2002 study by researchers at University of Illinois at Chicago found that the average hourly wage earned by illegal workers was $7, higher than the minimum wage of $5.15 at the time.

But the competitive advantage that comes with hiring illegal immigrants is not just about salary. Companies also pay Social Security and Medicare taxes on each worker. For example, a company with a $500,000 annual payroll is required to pay more than $38,000 in federal taxes. States may collect additional payroll taxes from businesses. Soon, many small business owners will be required to provide affordable health care insurance, or pay a penalty. If a business is paying a significant number of workers off the books, it can save it thousands of dollars a year.

Some companies hire illegal immigrants because they can’t find enough legal workers with either the ability or the willingness to do certain jobs. With others, it’s plain old greed. Either way, they face hefty penalties if they get caught.

Companies that knowingly employ people not authorized to work in the United States face federal fines of $375 to $16,000 per worker. But studies show that many companies decide it’s worth the risk because they save money.