Following a legal challenge led by business and labor groups, the Department of Homeland Security is planning to revise a controversial rule to punish employers who fail to verify worker social security information.

Last month, a federal judge put a hold on the proposed rule, which is part of the Bush administration's clamp down on illegal labor, saying the government had failed to gauge its impact on smaller employers as required under federal law.

In a motion filed Friday, the government said it would conduct a small-business economic impact assessment early next year and amend the rule, which currently gives employers 90 days to resolve conflicts between payroll tax data and employee social security records. Those that don't run the risk of federal prosecution for hiring illegal immigrants.

Business and labor groups have argued that employee identity errors, which the Social Security Administration issues to employers in so-called "no-match" letters, are common and would lead to unnecessary job losses under the proposed rule.

"More than half a million working women and men would have been affected by the rule, and many risked being fired even though fully authorized to work," John Sweeney, president of the AFL-CIO, said in a statement.