In response to reports of alleged abuses of the H-1B (temporary specialty) and L (international transferee) visa categories, lawmakers in both the House and Senate appear to agree that major reform and increased enforcement activity are called for with respect to both programs.  The following discussion analyzes the impact of the changes included in S. 744, The Border Security, Economic Opportunity and Immigration Modernization Act (passed by the Senate, June 27, 2013) and H.R. 2131, The Skills Act (reported out of the House Judiciary Committee, June 26, 2013):

Reform in the Methodology for Reporting Prevailing Wages

Employers sponsoring H-1B workers are required to pay such workers the higher of the area prevailing wage or the employer’s actual wage for workers in the same occupation.  The determination of the required wage due to be paid to an H-1B beneficiary must be reported on the labor condition application filed with the Department of Labor prior to petitioning the U.S. Immigration Service for approval of the worker’s classification in the H-1B visa category.   The failure to properly classify the worker’s job duties within the correct occupational code and/or the failure to pay the applicable prevailing wage, as determined in hindsight by DOL in the course of an LCA enforcement audit, can result in millions of dollars in back wage liability for the H-1B employer.

Since 2005, DOL has reported Occupational Employment Statistics (OES) based on Standard Occupational Classification and Job Market and the wages paid to individuals so employed at the 10^th percentile (Level 1), the 25^th percentile (Level 2), the 75% percentile (Level 3) and the 90^th percentile (Level 4).  For purposes of determining the H-1B prevailing wage, DOL requires an employer to pick the wage level that best corresponds to the education and experience requirements for the job in question, the amount of supervision exercised over the worker, and the inclusion or exclusion of supervisory responsibilities.  Critics contend that many employers have misclassified jobs offered to H-1B workers as entry level and have excluded H-1B workers from participation in benefit plans offered to permanent workers – thereby exerting downward pressure on the wages and benefits offered to U.S. workers in certain geographic areas and occupations. 

S. 744 and H.R. 2131 would raise the floor on H-1B prevailing wages by reducing the number of wage levels from four to three.  Under the Senate bill H-1B dependent employers will be required to pay H-1B workers not less than the new Level 2 prevailing wage rate (which equates to the mean wage of all workers employed in the occupation in the same area).  The House bill permits the use of a private area wage survey in lieu of OES rates, and permits an employer to pay an H-1B worker at the same rate paid to U.S. workers, provided at least 80 percent of the employer’s workers in the same occupation are U.S. workers and the actual wage rate is not less than the mean of the lowest one-half of wages surveyed. 

The financial impact of the proposed reform in H-1B prevailing wage determination varies depending on the concentration of entry level versus fully experienced workers within each job market, as illustrated by the difference in percentage increases over current rates (Table 2) and reform rates (Table 3) payable to Software Applications Engineers in nine labor markets:

Table 2 – Sample FY14 Area Prevailing Rates for SOC Classification 15-1132(Software Engineer, Applications)

Table 3- ExtrapolatedH-1B Prevailing Wage Rates – SOC 15-1132(Software Engineer, Applications)

Fortunately, the House bill does not mandate that H-1B dependent employers pay at least Level 2 prevailing rates. However, the House bill would impose the LCA requirements upon employers who sponsor foreign workers for U.S. employment under the Treaty National (TN), Practical Trainee (F-1/OPT), and Specialized Knowledge International Transferee (L-1B) visa categories. In recent years, employers have turned to these categories due to the oversubscription, red tape and compliance costs associated with the H-1B category.

Job Posting , Non-Displacement, and Outsourcing Reforms

There are major differences between the House and Senate bills in the areas of job posting and recruitment, non-displacement of U.S. workers, and outsourcing.  If enacted, S. 744 would, for the first time, require all H-1B sponsors to post highly detailed descriptions of the positions offered to prospective H-1B workers on a DOL-designated web site for no less than 30 days prior to filing an LCA.  All sponsors also would have to attest to having engaged in good faith recruitment efforts using industry-wide standards and offering compensation equal to that offered to intended H-1B workers.  H-1B skilled worker dependent employers would further be required to attest that they first offered specific positions offered to foreign beneficiaries of labor condition applications to U.S. applicants who were equally or better qualified.  If enacted, such requirements could stimulate discrimination claims by U.S. workers against H-1B sponsoring employers. 

The Senate bill would also expand the pre-petition non-displacement attestation requirement to non-dependent H-1B employers who (1) intend to displace a specific U.S. worker with an H-1B worker; (2) displace a U.S. worker with an H-1B worker at a worksite owned, operated, or controlled by a Federal, State or local government entity; or (3) displace a U.S. public school teacher with an H-1B worker.  Unlike current law, there are no provisions to exempt employers from these provisions for H-1B workers who make at least $60,000 annually or possess a Master’s Degree or higher in their occupational speciality.

Lastly, the Senate bill would prohibit L-1 and H-1B-skill dependent employers (excluding non-profit institutions of higher education, non-profit research organizations, and employers primarily engaged in the healthcare business who are petitioning on behalf of a physician, nurse, physical therapist or substantially equivalent health care occupations) from outplacing, outsourcing, leasing, or otherwise contracting for the services or placement of any H-1B workers at a third party worksite.  Non-dependent L-1 and non-skill dependent H-1B employers would be allowed to use H-1B workers to perform outsourcing work, provided such employers pay a surcharge filing fee of $500 for each such H-1B worker.

Expansion of DOL Enforcement Authority

In the enforcement arena, H.R. 2131 grants DOL subpoena authority to investigate violations of the labor condition application requirements, as amended, but otherwise does not incorporate the sweeping changes to the LCA enforcement scheme contained in S. 744, which --

• Expands the time for DOL review of LCA filings from 7 to 14 days;
• Authorizes DOL to investigate and deny LCAs based on perceived fraud or misrepresentation.
• Extends the time for filing complaints alleging violations of the LCA regulations from 12 to 24 months;
• Requires employers (other than nonprofit institutions of higher education and nonprofit research organizations) to provide employees with the DOL toll-free telephone number and website for reporting LCA violations;
• Authorizes DOL to receive anonymous complaints of LCA violations;
• Authorizes DOL employees to file LCA complaints;
• Requires USCIS to turn over information to DOL relating to suspected LCA violations obtained in the petition process;
• Eliminates DOL’s need to find there is reasonable cause to believe that the employer has violated an LCA requirement prior to  launching an enforcement investigation;
• Permits DOL to forgo notifying a targeted employer in an LCA enforcement investigation, at its discretion – in the interest of justice;
• Eliminates the requirement that LCA enforcement investigations be completed within 30 days;  
• Requires annual LCA enforcement audits of employers with 100 or more employees;
• Authorizes DOL to conduct random LCA compliance surveys of employers who sponsor workers on H-1B visas;
• Doubles current limits on LCA civil money penalties;
• Authorizes pay for back wages and benefits to workers injured due to an employer violation of the recruitment or non-displacement requirements; and
• Authorizes lost wages and benefits to whistleblowers who report LCA violations.  

If the foregoing changes ultimately become law, they would likely result in a dramatic increase in the number of LCA enforcement investigations undertaken by the DOL Wage and Hour Division, substantially expand the monetary exposure for civil money penalties and class-based back wage relief, create new liability for lost wages and benefits incurred by whistleblowers and other employees injured as a result of employer failure to comply with the new recruitment and non-displacement requirements, and increase the number and categories of employers receiving LCA debarment orders.  Will your business be ready to meet the challenges that lie ahead for employers who rely on foreign temporary workers to provide services to their clients?