What is a DOL H-1B Audit?

An H-1B Audit is conducted by the Wage and Hour Division of the US Department of Labor (DOL) or United States Citizenship and Immigration Services (USCIS) to determine if an H-1B employer is in compliance with the existing H-1B laws and regulations. The Labor or H-1B Audit could be the result of multiple causes including but not limited to Employee Complaint, US Embassy Referral, or Random Audit. As a part of this Audit, the DOL or USCIS would send a letter requesting the employer to produce the public access file along with the immigration and wage records.

Preparing the supporting documentation for the Labor Condition Application (LCA) is the core of the employer's responsibility. The employer must be careful to meet the DOL requirements for the content of that documentation and for its retention and availability. The DOL recognizes two types of supporting documentation: (1) documentation which must be made available in a public inspection file within one working day after the date of filing the LCA with the DOL, and (2) documentation which must be made available to DOL investigators “upon request.” It is important for employers to distinguish between the two types of documentation, and put into the public inspection file only the documentation required by regulation to be there.

Why does an H-1B Audit occur?

The Labor or H-1B Audit could be the result of multiple causes including but not limited to Employee Complaint, US Embassy Referral, or Random Audit. Approximately 80% of H-1B Audits arise due to employee complaint. Common employee complaints include benching and back wage issues, and the breach of one-year employment contracts. US Embassy and Consulate Referrals contribute to approximately 15% of audit initiatives. These referrals are often the result of suspicion of fraudulent degrees and work experience, fraudulent in-house IT projects, fraudulent letters from End Client Site and W-2s demonstrating wage paid is less than the H-1B required wage. Approximately 10% of H-1B Audits are the result of random selection.

Who performs the H-1B Audit?

An H-1B Audit may be initiated by the Department of Labor (DOL) or by the United States Citizenship and Immigration Services (USCIS). If the audit is initiated by the DOL, an Investigator from the Wage and Hour Division will be assigned to lead the audit. The Fraud Prevention Unit of USCIS may also audit an Employer suspected of violating H-1B program mandates, or other immigration matters.

What factors are taken into consideration during an H-1B Audit?

The US Department of Labor (DOL) Wage and Hour Division and/or USCIS Fraud Prevention Unit will evaluate all aspects of H-1B program compliance. Employers have been penalized for an array of violations including, but not limited to:

• Employer failed to pay benching wages to its H-1B employees;
• Employer failed to obtain amended LCA for the new job site;
• Employer failed to pay wages of the specific job site;
• Employer supplied incorrect or false information on the Labor Certification Application (LCA);
• Employer failed to comply with “nostrike/lockout” requirement by:Employer failed to provide employees or their collective bargaining representative, either by hard copy posting or electronically, notice of its intentions to hire H-1B worker(s), or has failed to provide H-1B worker(s) with a copy of the LCA;
  • Placing or contracting out H-1B worker(s) during the validity period of the LCA to any place of employment where there is a labor dispute;
  • failing to notify the DOL, within 3 working days of the occurrence, of such a labor dispute; or
  • using an SCA for H-1B worker(s) to work at a site before the DOL has determined that a labor dispute has ended.
• Employer failed to maintain and make available for public examination the SCA and necessary documents at the employer's principal place of business or worksite;
• Employer laid off US worker(s) and has replaced or seeks to replace US worker(s) with H-1B worker(s) within 90 days before or after filing H-1B visa petitions;
• Employer placed H-1B worker(s) at another employer's worksite where US workers have been laid off, and/or has failed to inquire of the second employer whether it has or intends to lay-off US worker(s) and replace them with H-1B worker(s);
• Employer failed to recruit US worker(s) for jobs for which H-1B worker(s) are sought; and/or
• Employer failed to hire a US worker who applied and was equally or better qualified for the job for which the H-1B worker was sought.

If an Employer is found in violation, what penalties may be imposed?

Labor Certification Application (LCA) and H-1B program violations can lead to the payment of back wages, civil money penalties with maximums ranging from $1,000 to $35,000 per violation, and debarment from participating in the H-1B program and other immigrant programs.

In determining the amount of civil money penalty to be assessed, the Administrator shall consider the type of violation committed and other relevant factors. The factors which may be considered include, but are not limited to:

• Previous history of violation, or violations by the employer;
• The number of workers affected by the violation or violations;
• The gravity of the violation or violations;
• Efforts made by the violator in good faith to comply with program provisions;
• The violator's explanation of the violation or violations;
• The violator's commitment to future compliance; and
• The extent to which the violator achieved a financial gain due to the violation, or the potential financial loss, potential injury of adverse effect with respect to the other parties.

What are the obligations of H-1B dependent employers?

The Immigration and Nationality Act (INA) sets forth certain prerequisites for employers wishing to employ H-1B nonimmigrant workers. To obtain H-1B status approval, the employer must first file a Labor Condition Application (LCA) with the Department of Labor. LCA requirements include the employer's attestation to pay the H-1B worker the higher of the prevailing or actual wage, offer benefits on the same basis as US workers, not employ an H-1B worker where a strike or lockout is occurring, etc. H-1B dependent employers face additional obligations addressing non-displacement and recruitment of US workers.

The INA allows employment of alien workers in certain specialty occupations, generally those requiring a bachelor's degree or its equivalent. Alien workers such as engineers, teachers, computer programmers, medical doctors, and physical therapists may be employed under the H-1B visa classification, as may fashion models of distinguished merit and ability. H-1B visas are capped at 65,000 during a fiscal year, subject to certain exceptions.

Under the Labor Condition Application (LCA) filed with the Department of Labor, all H-1B employers must attest to:

• Pay the nonimmigrant workers at least the local prevailing wage or the employer's actual wage, whichever is higher; pay for non-productive time in certain circumstances; and offer benefits on the same basis as for US workers;
• Provide working conditions for H-1B workers that will not adversely affect the working conditions of workers similarly employed;
• Not employ an H-1B worker at a location where a strike or lockout in the occupational classification is occurring, and notify the Employment and Training Administration (ETA) of any future strike or lockout; and
• On or within 30 days before the date the LCA is filed with ETA, provide notice of the employer's intent to hire H-1B worker(s). The employer must provide this notice to the bargaining representative of workers in the occupation in which the H-1B worker will be employed. If there is no bargaining representative, the employer must post such notices in conspicuous locations at the intended place(s) of employment, or provide them electronically.

Additional rules apply to H-1B-dependent employers and willful violators of the H-1B rules. These rules sunset for H-1B employment under LCAs filed after September 30, 2003 but were restored effective March 8, 2005 by the H-1B Visa Reform Act of 2004.

An H-1B-dependent employer is, roughly, one whose H-1B workers comprise 15% or more of the employer's total workforce; different thresholds apply to smaller employers. H-1B-dependent employers who wish to hire only H-1B workers who are paid at least $60,000 per year or have a master's degree or higher in a specialty related to the employment can be exempted from these additional rules.

H-1B-dependent employers and “willful violator” employers must attest to the following three elements addressing non-displacement and recruitment of US workers:

• The employer will not displace any similarly employed US worker within 90 days before or after applying for H-1B status, or an extension of status for any H-1B worker;
• The employer will not place any H-1B worker employed pursuant to the LCA at the worksite of another employer unless the employer first makes a bona fide inquiry as to whether the other employer has displaced or intends to displace a similarly employed U.S. worker within 90 days before or after the placement of the H-1B worker; and
• The employer, before applying for H-1B status for any alien worker pursuant to an H-1B LCA, took good faith steps to recruit US workers for the job for which the alien worker is sought, at wages at least equal to those offered to the H-1B worker. Also, the employer will offer the job to any US worker who applies and is equally or better qualified than the H-1B worker. This attestation does not apply if the H-1B worker is a “priority worker” (defined as a person with extraordinary ability, or outstanding professors or researchers, or certain multi-national executives or managers) within the meaning of Section 203(b)(1)(A), (B), or (C) of the INA.

After the Department of Labor certifies the LCA, the employer will apply to the US Citizenship and Immigration Services (USCIS) for approval to employ an alien worker under H-1B status so that alien workers may be hired.

What is a Public Access File?

Compliance under the Labor Condition Application (LCA) requires that certain documents be made available upon request, by any interested party, within one working day. The Public Access File, also known as the Public Inspection File, must include the following elements:

• A copy of the completed LCA. If the LCA is submitted by facsimile transmission, the original signed version must be maintained by the employer but it need not be included in the public access file. Once the LCA is returned with the DOL certification, the employer may want to replace the copy already in the file with a copy of the certified version of the LCA.
• A statement of the wage rate to be paid to the H-1B worker or workers admitted under the LCA. The LCA may include the initial wage rate to be paid the H-1B worker, and is sufficient initial documentation of the wage rate in that case. If the LCA contains a wage range, however, in the case of a single H-1B non-immigrant or in cases involving multiple H-1B non-immigrants included on the same LCA, the employer should include a separate statement listing the specific wage rate to be paid to each H-1B non-immigrant admitted under the LCA. In addition, the wage rate information must be current for every H-1B non-immigrant admitted under an LCA.
• An “actual wage” pay system memorandum. The DOL rules require that the public inspection file contain a “full, clear explanation of the system” that the employer used to set the “actual wage” paid to workers in the occupation for which the LCA is filed. The explanation must be in the form of a “memorandum summarizing the system or a copy of the employer's pay system or scale.”

Actual wage is the wage paid by the employer to all individuals with similar experience and qualifications for the specific employment in question. In evaluating “similar experience and qualifications” many factors such as experience, qualifications and education, etc., may be taken into account.

Important Note: DOL Enforcement Policy. Experience with DOL enforcement efforts shows that the DOL expects detailed information, and that without ample justification of discrepancies between experience and education levels and wage rates, it will suspect the worst of the employer's intentions. Particularly if the H-1B worker's wage rate within the pool places him or her beneath any of the U.S. workers, a thorough explanation of the factors leading to that wage rate is imperative. An employer should remember that the more it does by way of analysis at the pre-filing stage, and documents that analysis for the LCA file, the less likely it will be that the DOL will find evidence of willfulness in a failure to meet the wage attestation

• A copy of prevailing wage documentation. The DOL rules require the public inspection file to contain a copy of the documentation used to establish the prevailing wage. The rules elaborate that “a general description of the source and methodology is all that is required to be made available for public examination.” In particular, the “underlying individual wage data” used to determine the prevailing wage rate need not be included in the public inspection file, but must be available to DOL investigators in an enforcement action.

What the employer includes in the public inspection file depends on the source for its prevailing wage determination. If the employer relies on a State Employment Security Agency (SESA) determination, a copy of the determination should be included. If the employer uses an “independent authoritative source” or a “legitimate source of information,” it may want to include copies of the title page of the survey and the extract from the survey containing the prevailing wage. The employer should prepare an explanatory memorandum to go with the survey to explain its choice of occupational classification within the survey. Choice of occupational classification becomes a major issue when the job titles of the employer and survey differ and it appears that the employer has classified the job at a lower pay level. Information concerning the methodology used should be included in the explanatory memorandum as well as a statement concerning the lack of workers in the area of intended employment necessitating the expansion of the area surveyed if applicable.

• Documentation regarding offer of benefits to H-1B workers. The public access file must include a summary of the benefits offered to US workers in the same occupation as the H-1B workers. A statement explaining how employees are differentiated for benefit purposes when not all employees are offered or receive the same benefits must also be included in the file. Finally, the file must include note memorializing any workers left on “home country” benefits, if applicable.
• A copy of the notification documents. The public inspection file must also include documentation that the employer has met the requirement that it provide notice of the LCA filing to the relevant bargaining representative, or to its own employees in cases in which there is no bargaining representative for the occupational classification at the place of employment.

In a case involving a bargaining representative, the file must include a copy of the dated notice given to the bargaining representative, which must include the information specified in 20 C.F.R. §655.734(b)(1)(i). The file must also include the name and address of the bargaining representative to whom the notice was provided.

In a case without a bargaining representative, the file must include a copy of the actual notice physically posted in two locations at each place of employment listed on the LCA or posted electronically, e.g., through the firm's intranet or e-mail system. The notice must include the information specified in 20 C.F.R. §655.734(b)(1)(ii). The file must also include the dates when each notice was posted, the locations where each notice was posted, and the physical place within the location where each notice was posted.

The employer's notice may be an exact copy of the LCA, or its may be a statement including the information listed in the regulatory sections cited above.

• Sworn statement regarding assumption of LCA obligations in corporate restructuring situations. When the employer undergoes a change in corporate structure and chooses to assume the LCA obligations of the previous employer, include the following in the public access file: (a) a sworn statement by a responsible official of the new employing entity that it accepts all obligations, liabilities and undertakings under the LCAs filed by the predecessor employing entity; (b) the employer identification number (EIN) of the new entity; (c) a list of each affected LCA and its date of certification; and (d) a description of the actual wage system of the new employing entity. The H-1B worker must remain in the same location and continue to perform the same job duties if he or she is to remain on the old LCA. Remember that the old LCAs cannot be used to support petitions or extensions filed by the new entity even when it agrees to assume the obligations under those filings. As a result, the entity will need to file a new LCA in order to file new petitions or extensions on behalf of H-1B workers.
• List of entities comprising “single employer” when employer uses definition of “single employer” to determine H-1B-dependency. When the employer utilized the definition of “single employer” to determine its H-1B-dependency status, the employer must prepare a list of any entities included as part of the single employer in making the determination. Under ACWIA, an employer may then use the definition of “single employer” in the Internal Revenue Code (IRC) to make a calculation of its H-1B-dependency taking into account the number of workers employed by related business entities in the United States. ACWIA provides that any group treated as a single employer under Internal Revenue Code § 414(b), (c), (m), or (o) is to be treated as a single employer for purposes of determining H-1B-dependency
• List of “exempt” H-1B employees when LCA will be used to support only “exempt” employees. When the employer is an H-1B-dependent employer or a willful violator, and indicates on the LCA(s) that only “exempt” H-1B nonimmigrants will be employed, a list of such “exempt” H-1B workers must be included in the public access file. If an LCA claiming exempt status for its employees is used to support a petition or extension of status for a non-exempt employee, the employer will be found to have violated the non-displacement and recruitment requirements.
• Summary of recruitment methods when employer is subject to recruitment attestation. If the employer is H-1B-dependent or a willful violator and the LCA will be used to support petitions for non-exempt employees, a summary of methods used to recruit US workers and the time frames of such recruitment must be prepared. Such information may consist of either a memorandum by the employer or copies of pertinent documents. This documentation must relate to the period prior to the filing of the LCA. In addition, each time the employer files a petition or extension supported by the LCA, the employer will need to update the file to include information regarding its recruitment prior to the filing of the petition or extension.