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USCIS Updates H-1B Guidance as Filing Season Begins

April 2, 2012 marks the start of the filing period for cap-subject H-1B petitions for Fiscal Year 2013. On that date, the U.S. Citizenship and Immigration Services (USCIS) will begin accepting petitions with a start date of October 1, 2012 or later, until the 65,000 cap is reached.

A recent report found that the USCIS has been denying H-1B petitions and issuing Requests for Evidence (RFE) at higher rates. Denial rates for all nationalities increased from 11% in FY 2007 to 29% in FY2009. It remained higher than in the past at 21% in FY 2010 and 17% in FY 2011.

RFE rates also skyrocketed from only 4% in FY 2004 to 18% in FY 2007 and to a high of 35% in 2009. The RFE rate for H-1B petitions in FY 2011 was 26%, which is still a dramatic increase from the past.

Given these high denial and RFE rates in H-1B adjudication, employers are reminded to follow USCIS regulations affecting H-1B employment. One such regulation is the Neufeld Memorandum which discusses the requirement to establish a valid employer-employee relationship throughout the requested H-1B validity.

Aside from the usual requirements for an H-1B petition (i.e., a beneficiary is coming to the United States temporarily to work in a specialty occupation and he/she is qualified for such occupation), the H-1B employer must demonstrate that it has the right to hire, pay, fire, supervise or otherwise control the beneficiary’s employment.

In the Q and A guidance dated March 12, 2012, the USCIS clarified certain issues regarding the right of control in non-traditional H-1B employment scenarios.

Where the petitioner is a consulting or staffing company, a valid employer-employee relationship could still be established if the petitioner has the right to control the work of the beneficiary. The petitioner can submit evidence showing that it will pay the beneficiary’s salary, determine the beneficiary’s location and relocation assignments, and perform supervisory duties over the beneficiary.

In cases where the beneficiary will be placed at a third-party worksite, the USCIS explained that the petitioner is not required to submit documentation from the end-client identifying the beneficiary, although such evidence would be helpful. A combination of any of the documents in the Neufeld Memo may establish that the required relationship exists.

Evidence that could be submitted in initial petitions include an itinerary of services or engagements, signed employment agreement, employment offer letter, and contracts between the petitioner and a client. For extension petitions, the employer may include pay records, payroll summaries or W-2 forms, work schedules and samples of the beneficiary’s work product, among other types of evidence. The types of evidence listed in the memorandum are not exhaustive.

Petitioners who fail to initially provide sufficient evidence of an employer-employee relationship may be given an opportunity to correct the deficiency in response to an RFE. In order to avoid unnecessary delay, however, it is better to submit all available evidence with the initial submission.

Petitioners of H-1B employees who will work in more than one location must submit a complete itinerary, which is required by the regulations, and an LCA specific to each work location.

The employer-employee relationship must also be shown to exist for the entire duration of the requested validity period. Otherwise, the USCIS will limit the validity to the time period of qualifying employment as established by the submitted evidence.

In case of continuation or change in previously approved employment, if the petitioner did not maintain a valid employer-employee relationship throughout the validity of the previous petition, USCIS will deny the extension unless there is a compelling reason to approve the new petition.

H-1B Employers Must Prove Employer-Employee Relationship

As of April 22, 2011, the USCIS has accepted approximately 8,000 petitions subject to the 65,000-cap and 5,900 out of the 20,000 H-1B master’s cap. If the trend for this fiscal year follows that of 2008 and 2009, 25-30% of these H-1B petitions will be the subject of a request for evidence (RFE). This is double the RFE rate for 2007.

An RFE is sent when an adjudications officer needs additional information on the pending petition or application. One of the main reasons for the increase in RFEs is the January 2010 guidance on employer-employee relationships issued by Donald Neufeld, USCIS Associate Director for Service Center Operations.

The Neufeld Memorandum requires an H-1B petitioner to show not only that the foreign national will work in a specialty occupation, but also that a valid employer-employee relationship will exist between the petitioner and beneficiary during the H-1B validity period.

An employer-employee relationship exists when the employer has the right to control the manner in which the services are to be performed by the employee. In the H-1B context, such a relationship may be lacking in certain instances where the beneficiary performs work at off-site locations or for third parties.

The memorandum lists eleven questions that must be addressed in order to establish an employer’s right to control, including whether or not the petitioner will supervise the beneficiary on-site; hire, pay and have the ability to fire the beneficiary; provide employee benefits; and evaluate the beneficiary’s work product.

The USCIS analyzes the evidence with a view to the “totality of circumstances”. The H-1B petitioner will pass the employment relationship test if it can prove its right to control the beneficiary’s employment, if not the actual exercise thereof.

The Neufeld Memo illustrates through different scenarios which types of relationships would be valid or approvable and which ones would not be eligible for H-1B status. The first type of valid relationship pertains to a traditional employment scenario where the petitioner exercises actual control over the beneficiary’s employment. In this scenario, the beneficiary works at a location owned or leased by the petitioner, is given benefits and compensated as an employee by the petitioner for tax purposes.

The three other examples of valid relationships involve placement at off-site or third-party work locations and vary according to whether the placement is short- or long-term. In these situations, the petitioner must clearly show its right of control through documentary evidence such as the employment agreement, contracts with its clients, pay stubs, and proof that petitioner reviews the beneficiary’s work product.

The memorandum also lists examples of situations where the employer-employee relationship is absent. Self-employment – where there is no employing entity that can exercise control over the beneficiary’s work – is not approvable for H-1B employment. Independent contractors do not have the status of employees and are not subject to the control of the petitioner.

Third-party placement or “job shops”, under which most staffing scenarios fall, also fail the control test and do not qualify for H-1B status, according to the USCIS memo.
Even when the I-129 petition is for an extension and not for initial H-1B employment, the USCIS requires evidence that the petitioner continues to have the right to control the beneficiary’s work.

The latest version of Form I-129 contains revisions that reflect this stricter policy. The employer must make additional attestations if the beneficiary is assigned off-site and include an itinerary with the petition.

The USCIS issued the Neufeld Memo after Congressional scrutiny in response to a 2008 report that showed that 21% of H-1B petitions contained either fraud or technical violations.

Since its release, the memorandum has drastically changed the way certain types of H-1B petitions and extensions are adjudicated. The Neufeld Memo particularly impacts IT staffing and consulting companies but has been shown to result in unintended consequences for other types of employers.

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