As a result of increased site visits and a general inclination to decrease the number of H-1B’s approved, The US Citizenship and Immigration Services (USCIS) has published a watershed memo on January 8th, 2010 (hereinafter “the Neufeld Memo”).

This memo will radically change the way many H-1B’s are adjudicated as well as put enormous pressure on employers to come up with additional evidence justifying any work performed by an H-1B holder outside of the petitioner’s premises. In addition, the memo adds new requirements to obtaining an H-1B extension. It is this author’s opinion that as a result of this memo, employers will see automatic requests for evidence in any case where the beneficiary may be performing offsite work and for any H-1B extension. It is our strong recommendation that employers add a section to their H-1B petitions which cover the issues in this memo.

USCIS is most concerned to determine if there is a valid employer-employee relationship.

The memo basically states that hiring a person to work in the United States is more than merely paying the wage or placing that person on the payroll. In considering whether or not there is a valid “employer-employee relationship” for purposes of H-1B petition adjudication, USCIS must determine if the employer has a sufficient level of control over the employee. Clearly, if the employee will be working in the petitioner’s office, doing specific tasks for the petitioner, this will not be a problem. However, it is our opinion with the publication of this memo that ALL employers address this issue upon initial submission of an H-1B petition.

The petitioner must be able to establish that it has the right to control  over when, where, and how the beneficiary performs the job and USCIS will consider the following to make such a determination (with no one factor being decisive):

  1. Does the petitioner supervise the beneficiary and is such supervision off-site or on-site?
  2. If the supervision is off-site, how does the petitioner maintain such supervision, i.e. weekly calls, reporting back to main office routinely, or site visits by the petitioner?
  3. Does the petitioner have the right to control the work of the beneficiary on a day-to-day basis if such control is required?
  4. Does the petitioner provide the tools or instrumentalities needed for the beneficiary to perform the duties of employment?
  5. Does the petitioner hire, pay, and have the ability to fire the beneficiary?
  6. Does the petitioner evaluate the work-product of the beneficiary, i.e. progress/performance reviews?
  7. Does the petitioner claim the beneficiary for tax purposes?
  8. Does the petitioner provide the beneficiary any type of employee benefits?
  9. Does the beneficiary use proprietary information of the petitioner in order to perform the duties of employment?
  10. Does the beneficiary produce an end-product that is directly linked to the petitioner’s line of business?
  11. Does the petitioner have the ability to control the manner and means in which the work product of the beneficiary is accomplished?

USCIS gives specific examples of employment situations which are acceptable below.  Please note that there may be variations of these scenarios and each employment situation does not have to exactly fit into them.

Traditional Employment

The beneficiary works at an office location owned/leased by the petitioner, the beneficiary reports directly to the petitioner on a daily basis, the petitioner sets the work schedule of the beneficiary, the beneficiary uses the petitioner’s tools/instrumentalities to perform the duties of employment, and the petitioner directly reviews the work-product of the beneficiary. The petitioner claims the beneficiary for tax purposes and provides medical benefits to the beneficiary. 

Temporary/Occasional Off-Site Employment

The petitioner is an accounting firm with numerous clients. The beneficiary is an accountant. The beneficiary is required to travel to different client sites for auditing purposes. In performing such audits, the beneficiary must use established firm practices. If the beneficiary travels to an off-site location outside the geographic location of the employer to perform an audit, the petitioner provides food and lodging costs to the beneficiary. The beneficiary reports to a centralized office when not performing audits for clients and has an assigned office space. The beneficiary is paid by the petitioner and receives employee benefits from the petitioner.

Long-Term/Permanent Off-Site Employment

The petitioner is an architectural firm and the beneficiary is an architect. The petitioner has a contract with a client to build a structure in a location out of state from the petitioner’s main offices. The petitioner will place its architects and other staff at the off-site location while the project is being completed. The contract between the petitioner and client states that the petitioner will manage its employees at the off-site location. The petitioner provides the instruments and tools used to complete the project, the beneficiary reports directly to the petitioner for assignments, and progress reviews of the beneficiary are completed by the petitioner. The underlying contract states that the petitioner has the right to ultimate control of the beneficiary’s work.

The following scenarios are now NOT acceptable: 

Self-Employed Beneficiaries

The petitioner is a fashion merchandising company that is owned by the beneficiary. The

Beneficiary is a fashion analyst. The beneficiary is the sole operator, manager, and employee of the petitioning company. The beneficiary cannot be fired by the petitioning company. There is no outside entity which can exercise control over the beneficiary. The petitioner has not provided evidence that the corporation, and not the beneficiary herself, will be controlling her work.

The above example cited in the CIS memo is actually a synopsis of a case that our office handled, and has successfully processed in the past.

USCIS admits that a sole stockholder of a corporation can be employed by that corporation as the corporation is a separate legal entity from its owners and even its sole owner.  However, an H-1B beneficiary/employee who owns a majority of the sponsoring entity and who reports to no one but him or herself may not be able to establish that a valid employment relationship exists in that the beneficiary, who is also the petitioner, cannot establish the requisite “control”.

The memo states that the administrative appeals office (AAO) unit correctly determined that corporations are separate and distinct from their stockholders and that a corporation may petition for, and hire, their principal stockholders as H1B temporary employees. However, the AAO did not reach the question of how, or whether, petitioners must establish that such beneficiaries are bona fide “employees” of “United States employers” having an “employer-employee relationship.” While it is correct that a petitioner may employ and seek H-1B classification for a beneficiary who happens to have a significant ownership interest in a petitioner, this does not automatically mean that the beneficiary is a bona fide employee.

My interpretation of what CIS is saying is basically if a corporation’s sole shareholder and sole employee is the H-1B beneficiary, the case would be denied. If the H-1B beneficiary is one of several shareholders, not a majority shareholder of the corporation and is NOT the sole employee, CIS COULD approve the case. The bottom line is that henceforth, any person who has a small company where the H-1B beneficiary is one of the main officers or shareholders of the company will have a tough to impossible time getting an H-1B approved. This is clearly a new rule and persons who have an H-1B already and fit in this scenario may also have difficulty extending their H-1B visa going forward.

Independent Contractors

The beneficiary is a sales representative. The petitioner is a company that designs and manufactures skis. The beneficiary sells these skis for the petitioner and works on commission. The beneficiary also sells skis for other companies that design and manufacture skis that are independent of the petitioner. The petitioner does not claim the beneficiary as an employee for tax purposes. The petitioner does not control when, where, or how the beneficiary sells its or any other manufacturer’s products. The petitioner does not set the work schedule of the beneficiary and does not conduct performance reviews of the beneficiary.

In the past, CIS has stated that H-1B holders MUST be employees, which means that they MUST be paid on a W-2, not a 1099. This memo solidifies this long standing rule and provides a direct reason for denial of an H-1B where an H-1B holder is being treated as an Independent Contractor.

Third-Party Placement/ “Job-Shop”

The petitioner is a computer consulting company. The petitioner has contracts with numerous outside companies in which it supplies these companies with employees to fulfill specific staffing needs. The specific positions are not outlined in the contract between the petitioner and the third-party company but are staffed on an as-needed basis. The beneficiary is a computer analyst. The beneficiary has been assigned to work for the third-party company to fill a core position to maintain the third-party company’s payroll. Once placed at the client company, the beneficiary reports to a manager who works for the third-party company. The beneficiary does not report to the petitioner for work assignments, and all work assignments are determined by the third-party company. The petitioner does not control how the beneficiary will complete daily tasks, and no propriety information of the petitioner is used by the beneficiary to complete any work assignments. The beneficiary’s end-product, the payroll, is not in any way related to the petitioner’s line of business, which is computer consulting. The beneficiary’s progress reviews are completed by the client’ company, not the petitioner.

This scenario basically cuts out ANY personnel or consulting agency placement in the H-1b category. All placement firms who now use H-1b visas to place workers in third party companies whereby the H-1B petitioner’s role is basically relegated to payroll will NO LONGER be able to file H-1B visas. The only type of H-1B visas allowed by personnel agencies will be in-house positions. The one good thing that will come out of this memo is that many current H-1B visas are used by Indian Job Shops who place workers in these positions. As a result of the memo, these job shops will be out of business and that should leave more H-1B visas available for traditional employers.

As I wrote above, H-1B employers will have an extra burden proving the Employer-Employee relationship on initial H-1B petitions

The memo states that the petitioner can demonstrate an employer-employee relationship by providing a combination of the following or similar types of evidence:

  • A complete itinerary of services or engagements that specifies the dates of each service or engagement, the names and addresses of the actual employers, and the names and addresses of the establishment, venues, or locations where the services will be performed for the period of time requested;
  • Copy of signed Employment Agreement between the petitioner and beneficiary detailing the terms and conditions of employment;
  • Copy of an employment offer letter that clearly describes the nature of the employer-employee relationship and the services to be performed by the beneficiary.
  • Copy of relevant portions of valid contracts between the petitioner and a client (in which the petitioner has entered into a business agreement for which the petitioner’s employees will be utilized) that establishes that while the petitioner’s employees are placed at the third-party worksite, the petitioner will continue to have the right to control its employees;
  • Copies of signed contractual agreements, statements of work, work orders, service agreements, and letters between the petitioner and the authorized officials of the ultimate end-client companies where the work will actually be performed by the beneficiary, which provide information such as a detailed description of the duties the beneficiary will perform, the qualifications that are required to perform the job duties, salary or wages paid, hours worked, benefits, a brief description of who will supervise the beneficiary and their duties, and any other related evidence;
  • Copy of position description or any other documentation that describes the skills required to perform the job offered, the source of the instrumentalities and tools needed to perform the job, the product to be developed or the service to be provided, the location where the beneficiary will perform the duties, the duration of the relationship between the petitioner and beneficiary, whether the petitioner has the right to assign additional duties, the extent of petitioner’s discretion over when and how long the beneficiary will work, the method of payment, the petitioner’s role in paying and hiring assistants to be utilized by the beneficiary, whether the work to be performed is part of the regular business of the petitioner, the provision of employee benefits, and the tax treatment of the beneficiary in relation to the petitioner;
  • A description of the performance review process; and/or
  • Copy of petitioner’s organizational chart, demonstrating beneficiary’s supervisory chain.

It is our suggestion that employer’s filing initial H-1B petitions submit some or all of this information as part of their petition. If not, the employer should expect an extensive RFE requesting this information.

H-1B extensions

The new rule for H-1B extensions is that a beneficiary must continue to establish that a valid employer-employee relationship exists.

The petitioner can do so by providing evidence that the petitioner continues to have the right to control the work of the beneficiary, as described above.

The petitioner may also include a combination of the following or similar evidence to document that it maintained a valid employer-employee relationship with the beneficiary throughout the initial H-1B status approval period:

  • Copies of the beneficiary’s pay records (leave and earnings statements, and pay stubs, etc.) for the period of the previously approved H-1B status;
  • Copies of the beneficiary’s payroll summaries and/or Form W-2s, evidencing wages paid to the beneficiary during the period of previously approved H-1B status;
  • Copy of Time Sheets during the period of previously approved H-1B status;
  • Copy of prior years’ work schedules;
  • Documentary examples of work product created or produced by the beneficiary for the past H-1B validity period, (i.e., copies of: business plans, reports, presentations, evaluations, recommendations, critical reviews, promotional materials, designs, blueprints, newspaper articles, web-site text, news copy, photographs of prototypes, etc.). Note: The materials must clearly substantiate the author and date created;
  • Copy of dated performance review(s); and/or
  • Copy of any employment history records, including but not limited to, documentation showing date of hire, dates of job changes, i.e. promotions, demotions, transfers, layoffs, and pay changes with effective dates.

If USCIS determines, while adjudicating the extension petition, that the petitioner failed to maintain a valid employer-employee relationship with the beneficiary throughout the initial approval period, or violated any other terms of its prior H-1B petition, the extension petition may be denied unless there is a compelling reason to approve the new petition (e.g., the petitioner is able to demonstrate that it did not meet all the terms and conditions through no fault of his own.)

Up until now, H-1B extensions have been granted almost automatically as long as the petitioner stated that the beneficiary would be performing the same work as previously petitioned for. This rule will exponentially increase the number of RFE’s and denials in extension cases.

We feel that these new and harsh rules are coming as a result of the CIS site visits and numerous violations CIS is seeing as a result of the site visits. CIS will no longer permit employers to flaunt the rules and “business as usual” will no longer be an acceptable mode.  I have written extensively in the past year on ICE, CIS, and DOL compliance issues. I have warned employers in many articles about the government cracking down in many areas where they perceive abuse. Unfortunately, this is just one more piece of proof that my predictions were on target.

January 2010