Enforcement efforts of multiple agencies are targeting H-1B employers
USCIS fraud assessment investigations
An employer’s obligations as an H-1B employer do not end once U.S. Citizenship and Immigration Services (“USCIS”) has approved its H-1B petition for a foreign national worker. The obligations continue for the duration of the H-1B employment. In recent weeks, employers are reporting visits from USCIS investigators tasked with verifying that the H-1B employee is currently working for the employer in a specialty occupation at the wage rate stated in the H-1B petition. Investigators are requiring both an employer representative, as well as the H-1B employee, to confirm that the employment satisfies the H-1B requirements.
USCIS is using the revenue generated by the $500 fraud fee paid with every H-1B petition to hire contract investigators. In an effort to reduce fraud in the H-1B visa program, these investigators intend to conduct approximately 25,000 site visits. Unfortunately, these enforcement efforts appear to be targeted at all H-1B employers, and not just those perceived to be abusing the H-1B program. Therefore, every H-1B employer should be prepared to document its compliance with the H-1B program requirements, including the details of the position filled by the H-1B employee, the employee’s compensation, start date, and work hours. An employer should also be prepared to answer questions relating to its workforce more generally, such as the total number of H-1B employees, the number of employees that the employer has sponsored for permanent resident status, and the number of permanent resident employees.
While perhaps not an audit or investigation in the traditional sense, the risks are the same and employers must have an immigration compliance policy in place. Among other items, the policy should set forth the procedures for dealing with an H-1B site visit, including designating company officials to interface with the investigator, providing for records review, and contacting outside counsel if concerns develop from the site visit.
Finally, every H-1B employer should make sure that its public inspection files for H-1B employees are in full compliance with Department of Labor requirements.
Et tu, Internal Revenue Service?
The Internal Revenue Service is the latest agency to hop on the enforcement bandwagon. The IRS has recently announced that it will start conducting audits of withholding agents related to the payments made to nonresident foreign nationals. The IRS has indicated that this is a “Tier 1” issue, which means that it is of high strategic importance.
Generally, U.S. persons (individuals, corporations, partnerships, etc.) who make payments of certain types of U.S.-sourced income to nonresident aliens are required to: (i) withhold tax at a rate of 30% (or a lesser rate under applicable treaty); (ii) file an annual return (Form 1042); and (iii) report payments subject to nonresident alien withholding (Form 1042-S). Employers are responsible for properly reporting income earned and withholdings made to employees.
IRS efforts are focusing on the quality of the overall reporting and withholding systems and procedures of withholding agents to ensure proper classification of payments, sourcing, and the validity of documentation of foreign persons.
Failure to properly withhold tax and report such withholding may lead to liability and penalties, so it is important for employers of foreign nationals to review their policies and procedures. Some H-1B employees in their initial year of work may be classified as nonresident aliens, offering one more compliance issue for H-1B employers to consider.
While perhaps not an issue of great concern to employers at this time, there is little doubt that this announcement signals a trend, and that such IRS audits may well expand in the future to include a more direct link to employers of foreign nationals working in the United States.
Smaller employers are subject to a higher level of scrutiny?
In an effort to identify and curb fraudulent H-1B petitions, USCIS seems to be taking an overly suspicious view of petitions filed by smaller employers. Anecdotal evidence suggests that USCIS is issuing burdensome Requests for Further Evidence and even denials to smaller employers in disproportionate numbers. An internal H-1B adjudication worksheet used by USCIS, which was accidentally disclosed, indicates that characteristics common to smaller employers, such as gross annual income of less than $10 million, fewer than 25 employees, and less than 10 years in business, are viewed as indications of fraud. While efforts have been made to draw attention to the tenuous correlation between these characteristics and fraudulent petitions, smaller employers filing H-1B petitions should be prepared to provide additional evidence to establish the bona fides of both the company and its offer of employment.
H-1B visas still available for 2010 fiscal year
To the surprise of many employers and practitioners, H-1B visas are still available for the 2010 fiscal year, which will begin on October 1, 2009. The H-1B visa category permits U.S. employers to hire foreign nationals in professional positions that qualify as “specialty occupations” for a temporary period of up to six years. While in years past the annual allotment of 65,000 H-1B visas has been exhausted within days, this year, due no doubt to the general economic slowdown, new H-1B visas remain available. Nonetheless, employers interested in hiring foreign nationals in the coming year should consider filing H-1B petitions with USCIS on behalf of these prospective employees as soon as possible because the future availability of these visas is uncertain.