On Jan 15th, 2021, US Department of Labor (DOL) published guidance that H1B LCAs have to be filed by end clients. It also modified the salaries, benefits requirements that have to be followed by end clients to be compliant. It was later withdrawn by DOL on Jan 20th, 2021 after Biden administration took office. This article covers all the details and updates.
Latest News – DOL Withdraws H1B LCA Guidance
Jan 20th, 2021: Today, US Department of Labor withdrew their Guidance regarding the interpretation of employer and client for filing of H1B LCAs. The requirement for end clients to file H1B LCA is no longer is effect. US DOL has also withdrawn their rule publication from federal register as well. Below is the official DOL press release they published. So, all the details that we cover in this article in later sections are no longer relevant and applicable anymore.
Background – DHS H1B Final Rule Employer Employee relationship
- Strengthen H1B Program DHS Rule : In October 2020, DHS published an interim final rule that was called as “Strengthening H1B Program …”, that had many changes like definition change of specialty occupation, requirements of contracts, requirements for employer-employee relationship, giving H1B for 1 year for third party placement, additional site visits, etc. That interim final rule was cancelled by courts in first week of December 2020.
- Third party worksite placement – Client need to file H1B Petition: In spite of the court ruling, DHS picked “Employer-employee relationship” related changes from the interim final rule and published a final rule with more changes on Jan 15th, 2021. As per this DHS final rule, they changed the definition of “US employer” and the interpretation of “employer-employee relationship” for H1B workers & end clients. The biggest change is that, if an H1B worker is working at end client in a third-party worksite placement situation, then the end client has to file a separate H1B petition with USCIS. This separate second H1B petition, is in addition to the first H1B petition filed by the H1B workers’ primary sponsor, who runs the payroll and places them at end client. Read complete details at DHS Final Rule – End client need to file H1B Petition
- US Dept of Labor (DOL) based on the DHS new rule on “Employer-Employee relationship” and requirements for end clients in third party placement situations, they are also changing the requirements for filing LCA for end clients, including the benefits, salary and other compliance requirements.
- End Client or Secondary employer vs. Primary Employer: To make sure everyone are on same page for rest of the article, here are some definitions.
- The H1B worker is typically employed by a primary employer, who sponsors the H1B. The LCA is filed by primary sponsors to place the employer at third party location, which is also called as client site.
- The end client is also called as secondary employer.
- For the sake of discussion, if you see end client or secondary employer, they are both the same.
- Primary employer is nothing but the employer who runs the payroll and the one who hired the H1B worker.
- Below is an illustration with labels of the terminology for easy understanding
Now, that you know the background, let’s dive into the details.
DOL – End Clients need to file LCA
As per INA, for an H1B petition to be filed with USCIS, the H1B sponsor has to file H1B LCA with US Dept of Labor and get it certified to meet the wage and working conditions requirements. DHS with its final rule published on Jan 15th, 2021, has changed their definition and interpretation of “Employer-employee relationship” and now based on ‘common-law master servant relationship’.
As per this change, when a H1B worker is employed at a third-party location, which is nothing but the end client, the end client also becomes the employer for H1B worker as per the common-law test. Based on this interpretation, DHS says that both the primary employer and the end client are required to file two separate H1B petitions.
As the end client has to file a separate H1B, US Dept of Labor says, as part of standard requirements to file H1B petition as per INA, they must file H1B LCA as well. See below screenshot from the actual guidance document.
Now that we know why end client has to file LCA, let’s look at their salary, benefits and other compliance requirements they need to meet.
End Client Obligations with Third party worksite H1B workers
In third party placement situations, the H1B workers working at a third-party worksite at client would have multiple LCAs and multiple H1B petitions concurrently. As H1B LCAs are filed by end clients, now they are also subject to the compliance requirements set by US Dept of Labor.
In third party placement situations, the primary employer, who runs the payroll, and the end client has to fulfill the wage or salary obligation as per the two LCAs filed by them. Same is the case with benefits as well. Let’s look at them with examples.
Wage or Salary Obligations for end Client & Primary Sponsor
For example, if let’s say as per the LCA filed by primary employer, the H1B minimum wage requirement was set to be $70,000 based on the location of the primary employer. Now, as per the second LCA, which is filed by end client, based on the client location, the LCA wage requirement was set to be $80,000, then the H1B worker has to be paid $80,000 to meet the wage obligation of both primary employer and end client. The H1B worker does not have to be paid sum of both wage requirements (which is $150,000), but rather need to paid at least the highest wage of the both to meet the wage requirements at both locations.
Vacation days obligations for end client & primary Sponsor
For example, if let’s say the vacation days benefit by the primary sponsor, who runs the payroll is 10 days of paid vacation, but the vacation days benefit at the end client is 15 days, then the H1B worker has to receive 15 days of paid vacation to meet the vacation benefit obligation. This is to make sure, the H1B worker’s benefits are similar to that of US workers.
Now, the end client can apply their own requirements that are similar to US workers at their company like employee has to work at a company for 6 months to get full paid vacation benefit or some other benefits, they can be applied to H1B worker as well to meet the benefits compliance. Also, all other working conditions has to be in-line with US workers at the client site like hours of working, shifts, training programs, etc..
Payroll Records to be maintained by End client.
For compliance, the end client(secondary employer) has to keep a record of the payroll records of H1B workers, who were placed as per third party placement, and for similar US workers in their company doing same occupation. The copy of these payroll records have to be obtained by the end client and kept for compliance purposes. They can be audited by DOL as needed.
The payroll thing is going to be very tricky, not sure how many employers would be willing to share their employee’s payroll records to the end client for compliance. It literally shows how much margins the companies are making per project based on the employee’s salaries paid to them.
Notifications, Strike, Lockouts: Also, other requirements for typical LCA compliance like Notification and posting the LCA in two conspicuous locations has to be done by end client as well. Similarly, the end client has to certify all other LCA requirements that there is no strike or lockout during the filing of LCA.
H1B Dependent Employers, Willful violators: Employers that are H1B dependent or willful violators have additional compliance requirements and that applies to end clients as well. It is a shared responsibility, and they are subject to rules like cannot layoff US workers within 90 days, if they hired a H1B workers by filing an LCA. Other requirements apply as well.
Effective Date of New LCA requirements for End clients
As this is a significant change, US Dept of Labor also say that they are giving 180 days from the publication date of this guidance for employers and end clients to prepare. The end clients requirement to file LCA for third party placements will be effective from July 14, 2021.
Impact of the new LCA requirement – 247,000 LCAs
As per US DOL, they say that about 39% of H1B LCAs filed in FY 2019 had third party worksite placements. As per the OFLC LCA Report for FY 2019, there were 635,792 LCAs that were filed. See below screenshot of the report of FY 2019 LCA report. If we take 39% of that, it will impact 247,959 LCAs. That is a significant number of new LCAs that end clients have to file now. It may be even higher for FY 2021 and beyond.
Many of the compliance requirements related to LCA are really tricky and additional overhead for end clients. Also, the IT Consulting companies big and small would be hit hard with this additional burden as end clients may not like this requirement and overhead. Also, they are not going to be comfortable sharing the payroll records of their employees with end clients for compliance….
What do you think of the new LCA requirements for end clients ? Share your thoughts in comments.