The United States Citizenship and Immigration Service (USCIS) issued guidance for employers on the definition of an employer-employee relationship in the context of H-1B applications.  This guidance also establishes new evidentiary requirements for employers who file H-1B applications on behalf of foreign professional workers.  Employers should read this memo closely as it will likely change the way H-1B applications are prepared and adjudicated.

Employer-Employee Relationship

An employer who seeks to sponsor a temporary worker in an H-1B specialty occupation is required to establish a valid employer-employee relationship.  In considering whether or not there is a valid “employer-employee relationship” for purposes of H-1B petition adjudication, USCIS will look at whether the employer has a sufficient level of control over the employee. The employer must be able to establish that it has the right to control over when, where, and how the beneficiary performs the job.  The employer must also be able to establish that the right to control the beneficiary’s work will continue to exist throughout the duration of the beneficiary’s employment term with the petitioner.  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 the 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?

Documentation to Establish the Employer-Employee Relationship:  Initial H-1B Petition

The employer must clearly show that an employer-employee relationship will exist between the employer and employee, and establish that the employer has the right to control the employee’s work, including the ability to hire, fire and supervise the beneficiary. The petitioner must also be responsible for the overall direction of the beneficiary’s work.  Lastly, the employer should be able to establish that the above elements will continue to exist throughout the duration of the requested H-1B validity period. The employer 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 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.

Documentation to Establish the Employer-Employee Relationship:  H-1B Extension

An H-1B employer seeking to extend H-1B employment for a beneficiary must continue to establish that a valid employer-employee relationship exists. The employer can do so by providing evidence that the employer continues to have the right to control the work of the employer, as described above.

The employer 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,

• Copies of the beneficiary’s payroll summaries and/or Form W-2s, evidencing wages paid to the beneficiary during the period of previously approved EMB 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.

• Copy of dated performance review(s); and/or

• Copy of any employment history records.

“Duration of the Requested H-1B Validity Period”

The USCIS uses this phrase multiple times throughout the memo.  This is an indication that the USCIS will only approve an H-1B petition for the duration of what is stated in the underlying documents submitted with the case.  We have already seen USCIS issue approvals for less than the requested validity period.  This memo makes clear that this practice is likely to continue.

What Does This Mean for Consulting Companies?

The USCIS specifically addresses situations where there is third-party placement or, as they call it, companies that “job shop.”  The memo provides the following example:

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.

In this situation, USCIS says that the employer has no right to control the employee nor do they exercise control over the employee.  Therefore, an employer-employee relationship does not exist for H-1B purposes.

We believe that consulting companies will have to clearly document their supervisory control over their employees, including providing evidence of a set schedule of performance reviews. This means revising the employment agreement to make clear that the right to control and exercise control over the employee actually exists with the employer and not the end-client company.

Conclusion

This memo was released on January 8, 2010 and is effective immediately.  Based on USCIS adjudications over the past one year or so, most of this guidance is not surprising.  Employers have been forced to adapt to changes in USCIS adjudication policy in the past, and it looks like additional changes will be necessary.  Our office will be holding a seminar for our clients  within the next two weeks to address the issues presented in the USCIS memo. Additional information on the memo and our seminar will be available on our web site at www.bashyamspiro.com.

To read the memo, please click here.