Embedding E-Verify into Federal Funding: Where Immigration and Grant Compliance Converge

On May 29, the Office of Management and Budget (OMB) published a proposed rule that would significantly expand E-Verify obligations for employers that receive federal funding. Among the sweeping revisions, one provision stands out: a requirement that recipients and subrecipients of federal financial assistance broadly use E-Verify. The comment period closed on July 13, 2026. Nearly 500,000 comments were submitted, with more than 55,000 mentioning E‑Verify.

Background

Title 2, Part 200 of the Code of Federal Regulations, commonly known as the “Uniform Guidance” (Guidance), establishes the government-wide framework for the administration of federal financial assistance, including grants and cooperative agreements.

The proposed rule would further amend the Guidance and introduce additional measures aimed at promoting transparency, accountability, and oversight for federal awards across the Federal government. As part of these revisions, OMB proposes changes to 2 C.F.R. § 200.303 (internal controls and compliance) that would expand existing obligations to require recipients and subrecipients to use E-Verify for covered employees performing work in connection with federal awards and, potentially, certain categories of contractors depending on how the requirement is ultimately interpreted and implemented.

What This Means for Certain Employers

If an organization receives federal grants or cooperative agreements, the proposed rule would require enrollment in and use of E-Verify for employees working on those federally funded activities. The rule would apply broadly to all recipients of federal grants, including nonprofits, colleges and universities, health care systems, state and local governments, and tribal entities.

For many employers, this would be a meaningful shift. Organizations that are not already subject to the federal contractor E-Verify rule, FAR 52.222-54 (or “E-Verify FAR rule”) would need to stand up a new compliance program quickly.

Who is Impacted?

Every recipient or subrecipient that receives Federal grants or cooperative agreements, including colleges and universities, hospitals and health care systems, nonprofits, state and local governments, and tribal entities. If your organization receives Federal funding either as a direct recipient or indirect subrecipient, this applies to you. Again, many impacted organizations may already be E-Verify participants pursuant to the E-Verify FAR rule that was implemented in 2008.

Scope of E-Verify Requirement

OMB’s proposed rule would require both recipients and subrecipients of Federal grants to create an E-Verify case for each employee performing work in the United States on a federal award, and potentially certain categories of contractors depending on how the requirement is implemented.

The proposal would also introduce new reporting obligations requiring recipients to report Final Nonconfirmation (FNC) results to the awarding agency (a case receives a FNC case result when E-Verify cannot confirm an employee's employment eligibility). Organizations that are not currently E-Verify participants would have to enroll in the program.  However, it is important to note that this proposal goes beyond new hire verification.

Employers would be required to:

• Create E-Verify cases for employees performing work on a federal award and potentially certain categories of contractors, depending on how the requirement is ultimately implemented.
• Apply the requirement to existing employees assigned to covered work.
• Report any FNCs to the awarding agency.

Taken together, these requirements represent a meaningful shift from traditional E‑Verify use. This approach is more aligned with the federal contractor model than traditional E‑Verify use and carries similar operational and compliance obligations.

Importantly, current E-Verify program rules do not permit employers to create cases for independent contractors (e.g., individuals issued Forms 1099), and participation is limited to employees within the meaning of federal employment eligibility verification requirements. To the extent the proposed rule contemplates coverage of “contractors,” this raises a threshold question as to whether, and how, E-Verify’s underlying framework would need to change to accommodate such workers. While the proposal does not resolve this issue, it is one to watch. From a forward-looking perspective, there are indications that the government may be evaluating whether to expand E-Verify’s scope more broadly, including in both the federal grant and federal contractor (FAR) contexts. If adopted, such changes would represent a significant shift in long-standing program limitations and could materially expand employer compliance obligations across the government contracting and funding landscape.

Penalties

If finalized, failure to comply with the E‑Verify requirements could be treated as noncompliance with the Uniform Guidance or the terms and conditions of a Federal award. The proposed rule does not create a standalone E‑Verify penalty framework. Instead, agencies and pass-through entities may rely on the existing remedies set forth in 2 C.F.R. § 200.339, which include:

• Temporarily withholding payments pending corrective action
• Disallowing costs associated with the noncompliance
• Suspending or terminating the Federal award, in whole or in part
• Withholding future funding or continuation awards
• Initiating suspension or debarment proceedings where appropriate

Agencies retain substantial discretion in how they apply these remedies. As a result, E‑Verify compliance under the proposed rule would become not only an immigration compliance issue, but also a Federal grant compliance issue, with potential consequences that extend far beyond traditional employment eligibility verification enforcement.  

Why this Matters for Certain Employers

• Federal Funding is on the Line. Noncompliance may result in remedies ranging from corrective action requirements and funding restrictions to suspension, termination of an award, or, in appropriate cases, debarment. For many organizations, the potential loss of Federal funding presents a significant operational risk.
• The E-Verify Effect. E-Verify is a useful compliance tool and is often viewed as a best practice for employers seeking to strengthen employment eligibility verification processes. While the program itself is free to use, it does require thoughtful implementation and ongoing attention. Employers should anticipate initial setup efforts, as well as continued administrative responsibilities to maintain compliance. In addition, E-Verify may raise employee relations considerations and, in unionized environments, could trigger bargaining obligations. The required E-Verify Memorandum of Understanding (MOU) also establishes additional program responsibilities and oversight expectations. As a result, employers should approach E-Verify as an active compliance program that requires regular monitoring and oversight, rather than a one-time implementation. Lastly, many states and localities have enacted laws that impact how E-Verify is implemented. For example, Illinois requires employers to provide certain E‑Verify notices and communications to employees in accordance with state law.
• E-Verify for Existing Employees. Because the proposal extends beyond new hires to include employees assigned to or performing work under a federal award, employers may be required to create E-Verify cases for existing personnel. This presents practical challenges. Under current E-Verify rules, creating cases for existing employees generally requires access to unexpired identity and work authorization information, making this more complicated than simply transferring data from an existing Form I-9.  Rather, similar to the Federal Acquisition Regulation (FAR) context, employers may need to review existing Forms I‑9 and, in some cases, request that employees present new, unexpired documentation establishing identity and work authorization. This process could require updating existing Forms I‑9 or completing new ones. Further, employers that utilize electronic I‑9 or E-Verify vendors should work closely with counsel and their systems providers to ensure compliant implementation.
• Workforce Tracking Challenges. Unlike traditional E‑Verify participation, which generally occurs at onboarding, the proposal ties verification obligations to work performed under a Federal award. Many organizations have employees who move between projects, departments, grants, funding streams, or cost centers. Determining which employees are subject to the requirement, when coverage begins, and how to monitor changes in assignments may itself present a significant compliance and administrative challenge.
• Additional Reporting Requirements. In addition to mandating E-Verify participation, the proposal would require grantees to report any FNCs to the awarding agency. This reporting would include the individual, the E-Verify case number, and any actions taken by the employer (i.e., termination). While E-Verify currently requires this information, providing it to the awarding agency creates an additional process step.
• Obligations Flow Downstream. If you issue subawards or contracts under a Federal grant, your subrecipients and contractors must also comply. You may be responsible for monitoring compliance by subrecipients and other downstream entities, depending on the structure of the award and final implementing requirements.  If a downstream partner fails to use E-Verify and it comes to light during an audit or agency review, it is your award,  and your organization's reputation, that is at risk. This approach is consistent with existing federal contractor requirements under FAR E-Verify provisions which similarly flow compliance obligations to subcontractors performing covered work.
• Increased Audit Scrutiny. While still too early to tell, noncompliance in this area could lead to broader oversight. Once an issue is identified, agencies may expand their review (given the increased cooperation we are now seeing) to additional programs, funding streams, or time periods, increasing the administrative burden and risk exposure for the organization.
• Reputational Harm and Public Disclosure Risks. Federal grants are often subject to audits, agency oversight, public records requests, and other transparency requirements. Significant compliance issues involving federal funding may attract scrutiny from awarding agencies and other parties. For organizations that rely heavily on federal funding, the resulting reputational impact can be as significant as the underlying compliance issue.

Recommended Next Steps

• Monitor the Rulemaking. Seyfarth will continue to track developments and will provide updates if the proposed changes are finalized.
• Determine Whether You are an E-Verify Employer. Even if your organization already participates in E-Verify, this proposal is likely to introduce significant new obligations. Similar to the federal contractor requirements under the FAR, employers may need to expand E-Verify use beyond new hires to cover existing employees working on federal awards, implement new tracking and reporting processes, and ensure compliance across impacted business units and downstream partners. As noted above, applying E-Verify to existing employees is not a simple extension of current processes and may require updated documentation before cases can be created.
• E-Verify Employers: Update Policies and Procedures. The proposal may add the requirement to transmit FNC results to the awarding agencies. Employers should begin examining current policies and procedures to comply with this new requirement. 
• Consider Enrolling in E-Verify. Organizations that are recipients of federal funds and not yet enrolled in E-Verify should consider the business benefits of doing so. As detailed above, E-Verify is generally considered a best practice from a compliance standpoint, but it also presents meaningful legal and operational considerations that should be carefully evaluated.  Organizations should enlist competent immigration compliance counsel in making such a decision.
• Consider Reviewing Grant Agreements. Monitoring E-Verify compliance of subrecipients may be burdensome and difficult. If the proposed rule is finalized in its current form, then grantmaking organizations may want to include language in their grants that grant recipients will comply with the E-Verify requirements, if applicable, and failure to comply with such requirements may result in the termination and repayment of the grant.

Looking Ahead: Is This the Beginning of Broader E-Verify Expansion?

While this proposal is limited to recipients and subrecipients of Federal financial assistance, it may signal a broader policy trend. By embedding E‑Verify obligations into the Uniform Guidance, the government is leveraging Federal funding as a vehicle for immigration compliance. If finalized, this approach could serve as a model for future expansion of E‑Verify obligations in other contexts, including potential modifications to Federal contractor requirements, additional flow-down obligations, or other forms of Federal assistance.

Although no such proposals are currently pending, employers may view this rule as part of a broader movement toward increased employment verification requirements for organizations that receive Federal funds. For years, E‑Verify has expanded incrementally through state laws, federal contractor requirements, and targeted program mandates. This proposal represents another significant expansion point and may signal additional E‑Verify expansion efforts in the future.

At this stage, employers should resist the urge to overreact. This remains a proposed rule, not a final requirement, and the proposal generated an unusually large volume of public comments, including significant feedback on the proposed E‑Verify provisions. Given the level of stakeholder engagement, revisions to the scope, implementation, or final form of the rule remain possible. At the same time, the proposal signals that employment eligibility verification is increasingly being viewed as a component of federal grant compliance. Organizations that receive or administer federal financial assistance should begin assessing how a potential E‑Verify requirement could affect their operations, workforce, systems, and subcontractor relationships, while continuing to monitor developments and engage in the rulemaking process through direct comments or industry associations where appropriate.

For more information, please contact the authors or your Seyfarth relationship partner. Seyfarth's Immigration Compliance & Investigations specialty group is nationally recognized as a leader in the field, providing strategic, practical guidance to employers of all sizes, from Fortune 100 companies to emerging and growing businesses, across the full spectrum of immigration compliance matters.

The group advises on Form I-9 and E-Verify compliance; ICE inspections and worksite enforcement matters; internal immigration assessments and I-9 audits; DOL immigration-related wage and hour investigations; H-1B compliance; DOJ IER and OCAHO anti-discrimination matters, including enforcement actions involving allegations that U.S. workers were disadvantaged in favor of foreign workers; and deemed export and ITAR compliance issues.The team combines deep immigration compliance and investigations experience with Seyfarth's nationally recognized labor, employment, and litigation capabilities. For timely updates on immigration developments, subscribe to Seyfarth's immigration blog, Through the Immigration Lens.

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Thank you to Amy C. Hoang for her contributions.