This is confirmed in client's system and my own system.
Now that the auto-complete functionality is truly enabled after the recent hot fix I discovered this.
New auto-complete functionality for payroll when departments are not enabled.
Auto complete returns the department number. For example employee TOMR returns 00-TOMR. Since the system is not expecting the 00- it claims that the employee does not exist or that there is an invalid character or the employee number exceeds seven characters.
Workaround: Enable departments or don't use the autocomplete.