IT consulting companies are the heaviest utilizers of H-1B visas. The need for skilled professional workers, especially in hi-tech, produces a large demand for both short and long term assignments to American companies. This demand is often filled by companies that recruit talent and place them with clients at the client’s location.
This practice, while legal, has come under scrutiny and requires both the IT consulting company and end user to understand what is permissible and how to structure the relationship between the IT consulting company, the employee, and the client company.
The most enlightening guide to understand what is permitted is a USCIS Memorandum of January 8, 2010, by Donald Neufeld on the subject: Determining Employer-Employee Relationship for Adjudicating of H-1B Petitions, Including Third-Party Worksites.
The Neufeld Memo addresses “Third party placements/Job Shops” with the statement that there is no employer-employee relationship where the petitioner supplies outside companies with employees to fulfill its IT Consulting needs, and once placed , the employee reports to a manager of a third-party company: ii) all work assignments are determined by the third-company (iii)the petitioner does not control how the beneficiary will complete daily tasks and no proprietary information of the petitioner is used by the beneficiary to complete work assignments; (iv) the beneficiary progress reviews are completed by the client company, not the petitioner. This section is also contained in the Adjudicator’s Field Manual at 33(a)(15).
However, not all third-party placements defeat the employee relationship necessary for obtaining the H-1B visa. The key element is the right to control of the employee by the IT consulting company. If the IT consulting company retains control over its employee’s work, salary and advancement it may still obtain an H-1B visa, according to the Neufeld Memo.
Many employers, attorneys and even USCIS or a Consulate may request a letter from the end client. Sometimes these are difficult to obtain. If you can get a letter from the end user client, it is a good idea to provide it to them with specific language addressing the factors discussed in this article. However, some clients just will not provide them. This does not have to be fatal to the filing of an H-1B. The Neufeld memo along with Adjudicators Field Memo lists a number of specific pieces of evidence that can establish the requisite employer-employee relationship between the IT consulting company and the beneficiary, as follows:
The employer must establish that it has the right to control the employee’s work, including the ability to hire, fire, supervise and be responsible for the overall work and that it will do so for the duration of the H-1B visa. Documentation that may be provided includes:
- Itinerary of services and the locations where the work will be provided.
- Signed contract or summary of the terms of the oral agreement if not a written contract
- Employment offer letter that clearly describes the nature of the employment relationship and services to be performed.
- Relevant portions of client contract indicating demonstrating the IT consulting company will control the employer.
- Signed contracts, statements of work, work orders, service agreements and letters between petitioner and authorized officials of the end user client.
- Position description or documentation that describes the skills for the job, sources of the instruments and tools needed to perform the job, the product to be developed or service to be provided, the location of the work, the duration of the relationship, the extent of the petitioner’s discretion over the beneficiary’s work, the method of payment, employee benefits, tax treatment of beneficiary and whether work performed is part of regular company business.
One of the interesting items is the “relevant portions of client contracts,” this means that the sensitive or highly confidential parts of a contract can be left out or redacted in a submission to the government, as end clients may be very concerned about including this type of information.
A guide to assist the IT consulting company is to detail its right to control its employees in as much or all documentation that relates to the situation. The offer letter to the employee, the employment agreement with the employee or summary of the terms is no contract, in the employee handbook, if any, in the agreement with the end user client, provide regular performance reviews of the client and document them, create itineraries for off-site employees and note the right to control in correspondence and on work orders and statements of work. Adjudicators will look at the totality of the circumstances, but not all evidence is viewed equally, a document like a contract with the end clients signature on it, will hold more weight than an internal document.
USCIS officials rely on the Supreme Court case Nationwide v. Darden, 503 U.S. 318 (1992) when determining whether a beneficiary meets the status of an employee. The case lays out a number of factors for determining whether a worker is an employee, as required for the H-1B visa.
The Darden factors are designed to determine whether a worker is an employee or contractor. In the IT consulting situation, the H-1B petitioner, must not only be the employer, it must not be determined that the end-user client is the employer or that the beneficiary is a contractor. The Darden factors are as follows:
- The IT consulting company’s right to control when, where, and how the individual performs the job: The degree to which the company retains the right to direct and control how and when an individual performs his or her work is a strong indicator of whether an employment relationship exists, regardless of whether the contractor exercises that right. If the beneficiary retains substantial control over when, where, and how the individual performs work that is a strong indicator that the individual is an employee. However, if the IT consulting company has little control over the manner in which the work is performed, that may indicate that the individual is not an employee. As discussed above, this criteria can be addressed through specific drafting in the documents addressed above.
- The skill required for the job: Independent contractors typically have their own methods for doing the work and are hired because of their specialized knowledge and expertise, or because such expertise is not routinely used in the IT consulting company’s business. However, if the work performed by an individual does not require such specialized skills or is a regular part of the IT consulting company’s normal business, this is an indicator that the individual may have an employment relationship with the contractor. Since the H-1B by definition requires specialized knowledge, the regular part of the IT consulting company’s business is the key part of this factor. This criteria can be addressed through specific drafting in the documents addressed above by including oversight of the specific skills by a managerial person whether on or off-site.
- The source of the instrumentalities and tools: Generally, independent contractors procure and use their own equipment and materials needed to perform the work they are hired to do. If the IT consulting company furnishes the tools, materials, and equipment for the individual to work, this will tend to show the existence of an employment relationship between the individual and the petitioning company. If the IT consulting company is providing any equipment, list it in the relevant documents.
- The location of work: If the individual works at a location that is owned or controlled by the contractor, this may be an indicator that the individual is an employee, particularly if the individual’s work can be performed elsewhere. However, if the individual retains the discretion to perform the work at another location, this may indicate a non-employee status. In the IT consulting situation the work is typically an off-site location or locations, language can be drafted into the documents indicating the company’s right to control the location of the work
- The duration of the relationship between the parties: An extended, continuing relationship between the individual and the company without a pre-–defined duration may indicate the existence of an employment relationship. Independent contractors generally do not have such an extended relationship since they usually perform discrete tasks over a pre–determined period of time that is agreed upon by the parties.
In the H-1B visa situation a term is required. However, addressing the employee status can be stated specifically in the offer letter or contract.
- Whether the IT consulting company has the right to assign additional projects to the individual: Independent contractors typically agree to provide very specific services to a company and usually have the freedom to accept or decline additional jobs. If the IT consulting company has the right to assign additional work to an individual at its discretion, then this may indicate the existence of an employment relationship. This right can be included in the offer letter or contract.
- The extent of the individual’s discretion over when and how long to work: If the IT consulting company exercises control over the hours that the individual begins work and the duration of the workday, then this may indicate that an employment relationship exists. Independent contractors are usually constrained by timeframes for deliverables, but can exercise discretion over when they begin work and how long their workday is within those general constraints.
- The method of payment: Independent contractors are generally paid an amount that is agreed upon in advance for performing a particular job. If an individual is paid a regular salary or is paid by the hour, week, or month, that may indicate the existence of an employment relationship. IT consulting companies can lay out the payment of salary in the offer letter and contract.
- The worker’s role in hiring and paying assistants: Employees generally do not hire and pay for their own assistants. If the individual has discretion to hire and pay for his or her own assistants without the approval of the IT consulting company, that may indicate that the individual is an independent contractor.
- Whether the individual’s work is part of the regular business of the contractor: Employees typically perform jobs that are a regular or routine part of the employer’s business, while independent contractors generally perform specialized work that lies outside of an employer’s normal business.
- Whether the contractor is in business: Employees are usually not engaged in their own separate business (or the business of another entity) when performing work for the contractor. Independent contractors, however, are usually engaged in their own separate business when they perform work for the contractor.
- The provision of employee benefits to the individual: Employees typically receive benefits from their employers, such as health insurance, life insurance, leave, or workers’ compensation, while independent contractors do not normally receive such benefits from the contractor.
In summary, knowing how USCIS is analyzing H-1B visas is critical when developing the documents used in performing its business. Specifically drafting these factors into these documents can result in getting H-1B visas approved.