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Dec 10 2004
President Signs Legislation Affecting H-1B, L-1, and Prevailing Wage Requirements 

On December 8, 2004, President Bush signed the Omnibus Appropriations Act for FY 2005, which contains several provisions affecting the H-1B and L visa categories. Some of the law’s provisions go into effect immediately, some in 90 days (on March 8, 2005), and some in 180 days (on June 6, 2005). The new requirements are grouped below by their effective dates.


Provisions Effective Immediately


Education and Training Fee:

The legislation imposes a $1,500 H-1B "Education and Training Fee" when a company initially sponsors an H-1B worker and when the company files the first extension request. Employers with 25 or fewer full time employees (including U.S. affiliates and subsidiaries) may pay a lower $750 fee. (Although these fees may seem high, other congressional proposals would have raised H-1B fees as high as $3,500 per petition!) The Education and Training Fee is required for H-1B petitions filed on or after December 9, 2004, in addition to the $185 filing fee and any premium processing fees. Second and subsequent extensions filed by the same employer for the same H-1B worker are exempt from the Education and Training Fee.


Note that certain employers are exempt from payment of the Education and Training Fee: institutions of higher education and their affiliated non-profit entities; non-profit research organizations; and governmental research organizations.


The $1,500 Education and Training Fee replaces the $1,000 Education and Training Fee, which sunset on October 1, 2003. The Department of Labor previously took the position that the $1,000 fee could not be paid by the employee, as it was an "employer expense," and it is likely to take the same position concerning the $1,500 fee.


Certain Medical Graduates Exempted from H-1B Cap:

Starting on December 9, 2004, the legislation extends the "Conrad 30" J-1 program covering certain medical graduates, and provides that J-1 medical graduates in the United States who receive a waiver of the two-year foreign residency requirement at the request of a federal or state agency are now exempt from the H-1B cap. Qualifying employers of these beneficiaries may submit H-1B petitions, notwithstanding the fact that the H-1B cap was already met for FY 2005.


H-1B Investigation Authority Broadened:

The legislation allows the Department of Labor to self-start H-1B investigations without receiving a formal complaint, based only on "reasonable cause to believe" that an employer has violated the H-1B rules. This provision significantly broadens the Department of Labor’s ability to investigate H-1B violations, and the additional resources flowing to the Department of Labor through the $500 Anti-Fraud Fee (discussed below) may result in increased enforcement activity by that agency. This provision is effective retroactively to October 1, 2003.


Provisions Effective 90 Days After Enactment (March 8, 2005)


Exemption from H-1B Cap for Foreign Graduates with Advanced Degrees From U.S. Universities:

Starting March 8, 2005, 20,000 H-1B visa numbers will be set aside each fiscal year for foreign graduates of U.S. universities who have obtained a Master’s or higher degree. (These numbers will be in addition to the current annual H-1B cap of 65,000, which has already been reached for FY 2005.) Petitions under this provision cannot be filed until March 8, 2005, and U.S. Citizenship and Immigration Services (USCIS) has indicated in liaison that petitions using the 20,000 numbers will be filed at the Vermont Service Center. USCIS will provide additional guidance on eligibility and processing of these petitions at a later time. Because USCIS appears to have no simple method for determining whether H-1B petitions already approved for FY 2005 were for workers with advanced degrees from U.S. universities, it appears unlikely that any of the 65,000 cap numbers applied to FY2005 will be considered as part of the 20,000 set-aside for workers with U.S. advanced degrees.


Given prior usage of 10,000 H-1Bs per month prior to the FY 2005 cap being reached, the additional 20,000 H-1B numbers are expected to last only about two or three months, once petitions begin to be accepted on March 8, 2005. Students who will be graduating in May or June 2005 with a Master’s degree or higher from a U.S. university and who will require a change of status to H-1B at that time may be wise to apply for the H-1B on March 8, 2005, or as quickly as possible thereafter, provided that they can show that they had completed all requirements for conferral of the degree as of the filing date of the H-1B petition.


Anti-Fraud Fee:

Starting on March 8, 2005, all initial and change of employer H-1B and L-1 petitions must include an additional $500 "Anti-Fraud Fee." This fee does not apply to extensions/amendments for an individual already working in H-1B status for that employer, or to applications by H-4 or L-2 dependents. The fee will also be required for L-1 blanket visa applicants, who will have to pay the $500 fee to the U.S. consular post where they apply for their visa. However, there is not yet any guidance as to the procedures for paying this fee at consular posts. (It is expected that the Anti-Fraud Fees collected at U.S. consular posts from L-1 blanket applicants will be used to increase diplomatic personnel to detect H-1B and L-1 fraud.)


No employers are automatically exempt from paying the new $500 fee; that is, employers that are exempt from the H-1B Training and Education Fee (e.g., institutions of higher education and their affiliated nonprofit entities, nonprofit research organizations, and governmental research organizations) must still pay the Anti-Fraud Fee for initial H-1B and L-1 petitions that they file.


This provision contains no specific language requiring the employer (rather than the employee) to pay the $500 Anti-Fraud Fee. However, the Department of Labor might view the $500 Anti-Fraud Fee as an "employer expense" resulting in employer liability if the employee’s payment of the $500 fee drops the employee’s wages below the "required wage" (i.e. the higher of the prevailing wage and the actual wage). Revenues from the $500 Anti-Fraud Fee will be evenly divided among the Department of State, Department of Homeland Security, and Department of Labor.


Dependent Employer and Willful Violator Provisions:

Beginning March 8, 2005, the legislation re-imposes special non-displacement and recruitment attestations for H-1B dependent employers and for employers that have been determined to be willful violators of the H-1B program. The dependent employer attestations require that employers assert that they have not displaced U.S. workers during certain periods before and after filing the labor condition application (LCA) and have attempted to recruit U.S. workers for the position, unless the employer is filing the H-1B petition on behalf of an "exempt" employee (e.g. an employee with a Master’s degree or higher in the specialty, or an employee to be paid $60,000 or more annually). Dependent employers are generally defined as those whose workforces, in terms of full-time equivalent employees, are composed of at least 15% H-1B professionals. These attestation requirements do not apply to employers with seven or fewer H-1B workers.


Changes to Prevailing Wage Rules:

In the past, employers filing H-1B petitions or permanent labor certification applications for foreign employees could pay 95% of the prevailing wage for the job offered, based on the difficulty of determining prevailing wages with precision. Starting March 8, 2005, the 5% variance will be eliminated, and employers must pay 100% of either the prevailing or actual wage (whichever is higher) to H-1B and H-1B1 employees, and 100% of the prevailing wage to employees granted permanent residence based on an approved labor certification application. It is not yet clear whether this provision will impact only new H-1B/H-1B1 filings (including requests for extensions), or whether it will also require re-evaluation of wages for H-1B/H-1B1 professionals working pursuant to already-approved petitions. Also unclear is whether this provision will apply to labor certifications already filed before this provision’s effective date that have not yet been reviewed by the Department of Labor. (The elimination of the 5% prevailing wage variance is also widely expected to be part of the final PERM rules, which will revise the current RIR labor certification system.)


The legislation also mandates that the Department of Labor’s current two-tier system of prevailing wage determinations will be replaced by a four-tier system. The current system includes only a Level 1 wage for entry-level employees, and a Level 2 wage for all other employees. The DOL is now charged with creating and implementing a four-tier system commensurate with experience, education, and the level of supervision. In the interim, the legislation provides a mathematical formula that employers can use to determine the two new tiers.


Good Faith Exception for H-1B Violations:

The legislation excuses employers that act in good faith from minor technical or procedural violations of the H-1B compliance rules. The good faith clause shall not apply if the Department of Labor has explained the basis of the violation and the employer has been given at least 10 days to correct the violation and has not done so. Under this provision, an employer will not be penalized for failure to pay the prevailing wage if it can establish that the manner in which the prevailing wage was calculated is consistent with recognized industry standards and procedures.


Provisions Effective 180 Days After Enactment (June 6, 2005)


Six-Month Requirement for Blanket L Applicants Restored to One Year:

Starting on June 6, 2005, the legislation requires that all L-1 workers must have worked for at least one year outside of the United States for an employer with a qualifying relationship to the U.S. petitioner. Previously, participants in the "blanket L-1" program could apply for L-1 status after only six months of qualifying employment abroad. This change will apply only to new L-1 blanket applications filed on or after June 6, 2005, and should not affect individuals already admitted under a blanket petition before that date who may have only worked for the employer abroad for six months. Such individuals should remain eligible to extend their stay in the United States even after June 6, 2005.


Special Rules for Off-Site Placement of L-1B Workers:

Beginning June 6, 2005, the legislation requires that L-1B "specialized knowledge" workers may not work primarily at a worksite other than their L-1 petitioning employer if the work will be (a) supervised and controlled by a different employer; or (b) if the offsite arrangement is essentially to provide "labor for hire," rather than to provide services related to the specialized knowledge of the petitioning employer. This provision applies to initial, extended, or amended petitions filed for L-1 workers on or after June 6, 2005.


We will provide additional information regarding the interpretation and implementation of these provisions as it is released to us.


© McCown & Evans LLP 2004

News Updates

Dec 10 2004
President Signs Legislation Affecting H-1B, L-1, and Prevailing Wage Requirements

Nov 25 2004
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Nov 13 2004
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Oct 2 2004
H-1B Cap Reached

Sep 30 2004
Update on PERM

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