February 1999

Workplace Labor Update - Immigration Law Alert: H-1B Program Changes – February 1999

8 min

On October 21, 1998, President Clinton signed the American Competitiveness and Workforce Improvement Act (ACWIA) into law. ACWIA is the culmination of months of Capitol Hill debate concerning the need for increased numbers of temporary foreign “H-1B specialty occupation workers” available to U.S. employers for hire. In addition to temporarily increasing the available number of H-1B professionals, ACWIA also contains several significant changes to the H-1B program, some of which affect H-1B employers in important ways. As described below, although ACWIA's increase in H-1B numbers is temporary, many of its new provisions are permanent.

On January 4, 1999, the U.S. Department of Labor (DOL) published proposed rules for comment concerning various immigration statutes, including specific provisions of ACWIA. In addition, the DOL re-published certain previous rules that were enjoined in 1996 by a federal district court on procedural grounds. The DOL expects to publish an Interim Final Rule concerning these issues after the conclusion of the comment period on February 4, 1999, and a Final Rule after reviewing comments received in response to the Interim Final Rule. These proposed rules, if adopted, will also impact H-1B employers.

Increase in H-1B Numbers

Pressure on the U.S. government to increase the available number of H-1B workers has increased steadily over the past several years. In particular, the high tech industry has been the largest user of the H-1B category due to an ever-increasing reliance on foreign specialized workers. For many years the availability of H-1B visas exceeded the demand by employers. For the first time in FY 1997, the fiscal year limit of 65,000 H-1B visas was reached two months prior to the close of the fiscal year. In early May 1998, the U.S. Immigration and Naturalization Service (INS) announced that the “H-1B cap” had already been reached for FY 1998, five months before the start of FY 1999, causing employers significant difficulty in recruiting and hiring foreign professional workers.

ACWIA raises the H-1B cap from 65,000 to 115,000 for FY 1999 and FY 2000. In FY 2001 the H-1B cap will be lowered to 107,500, after which it will revert to the old ceiling of 65,000 beginning in FY 2002.

Notwithstanding the substantial temporary increase in H-1B visa availability, employers are still fearful that the H-1B cap will be reached prior to the end of this fiscal year. The INS reportedly estimates that 40,000 H-1B petitions have already been processed for FY 1999, with most of these petitions representing the cases suspended by the INS when the cap was reached in May 1998. In addition, many employers are filing H-1B petitions as early as possible in the fiscal year in order to avoid the possibility of being denied a visa after the cap has been reached later in the year. Should the visa cap in a particular fiscal year not be reached, ACWIA does not contain a provision for the spillover of unused H-1B numbers from one fiscal year to the next.

New $500 H-1B Fee

ACWIA creates a new $500 H-1B filing fee for each H-1B petition filed for new employment and for the first extension petition filed by an employer on behalf of an employee. The Clinton Administration believes that this new fee will raise at least $75 million a year. Most of the funds have been allocated for government training programs in math, engineering and computer science to increase the availability of U.S. workers in these critical shortage fields.

It is critical to note that ACWIA requires that the $500 fee be paid solely by the employer. The H-1B beneficiary may not pay the new fee, either voluntarily or through reimbursement required by the employer. If the employer requires reimbursement of the fee from an H-1B employee or voluntarily accepts such payment, INS may impose a $1,000 fine. The $500 fee took effect on December 1, 1998 and will remain in place for applicable H-1B petitions received by the INS before October 1, 2001.
In its recently published proposed rules, the DOL has commented that all fees and costs associated with the petitioning for an H-1B worker, such as legal fees, should be paid only by the employer and should not be passed on to the H-1B worker.


ACWIA also addresses the offer of benefits by employers to H-1B workers by mandating that employers make the eligibility criteria for benefits the same for H-1B employees and U.S. employees. These benefits include insurance, retirement and savings plans, as well as cash bonuses and stock options. Each employer that sponsors an H-1B worker is affected by this new provision, no matter how few H-1B workers are employed. This provision took effect upon the statute's enactment, but unlike the $500 fee increase, the benefits provision does not expire on October 1, 2001.


ACWIA prohibits a practice by employers referred to as “benching,” the common practice of employers temporarily laying off an H-1B employee without pay or paying an H-1B employee less than the attested full-time wage due to non-productive time. The new law prohibits an employer that petitions the INS on behalf of an H-1B worker for full-time employment from “benching” H-1B employees. For example, if there is a downturn in business or a period between projects during which the H-1B employee is not employed full-time, the employer is still required to pay full-time wages to the H-1B worker.

The law provides an exception to the new rule when the non-productive time for the H-1B worker results from non-work-related factors, such as a requested leave of absence.1 In order for an employer to pay an H-1B worker lower wages due to a change in work hours, an amended H-1B petition would have to be filed with the INS by the employer. This “no benching” provision applies to all H-1B employers and is not slated to expire. The new law continues to allow educational institutions to stop pay during standard and agreed-upon recess periods, or to pay a pro-rata amount, to an H-1B employee to take into account a normal recess period.

Penalty for Leaving Early

ACWIA prohibits employers from requiring their H-1B workers to pay a penalty for quitting employment prior to an agreed upon date. The new law, however, specifically permits liquidated damages, which are not considered to be a penalty. Other than permitting liquidated damages, however, ACWIA does not provide specific guidance on what will be considered a “penalty.” According to ACWIA, applicable state law determines whether a particular type of payment is considered to be a penalty. For example, whether reimbursements for expenses such as attorneys' fees or moving costs constitute “penalties” are resolved by applicable state employment law. The prohibition on penalties for early cessation of employment has been in effect since the enactment of ACWIA and will not expire.

H-1B Dependent Employers

Certain H-1B employers will be required to make two new attestations as part of the H-1B process. These new attestations are required to be made by “H-1B dependent” employers and by employers who have committed a prior willful violation of H-1B rules. How many H-1B employees an employer may have before it becomes "H-1B dependent" depends upon the size of the employer. An employer who employs more than 50 workers is "H-1B dependent" if 15% or more of its employees have H-1B visas. Employers with 25 to 50 employees are considered “H-1B dependent” if they have 12 or more H-1B employees. Employers with less than 25 employees are considered “H-1B dependent” if they employ seven or more H-1B workers.
For employers with related companies, a critical inquiry is whether the employer must combine and count all employees for the purpose of determining whether it meets the definition of “H-1B dependent.” According to ACWIA, Section 414 of the Internal Revenue Code governs whether a particular group of employers is so combined. The formulations provided in Code Section 414, however, are very complex. Therefore, an individual review of the organizational structure of each entity is needed to determine whether H-1B dependency testing is to be done on a separate or combined basis.

Under new ACWIA provisions, either an H-1B dependent employer or employer with prior violations is required to declare that it attempted to recruit in the U.S. for a particular position prior to petitioning on behalf of an H-1B worker to fill it. The employer must attest that it used industry-standard practices and that it offered the prevailing wage for the position during the recruitment. If U.S. workers are located for the particular position during the recruitment, the employer must attest that it first offered the particular position to the U.S. workers who were equally or more qualified than the prospective H-1B employee.

The second attestation requires the employer to affirm that it has not laid off and will not lay off a U.S. worker with similar qualifications as the prospective H-1B employee from the same type of position within 90 days before or after it files the H-1B petition with the INS. In addition, the employer is required to attest that it will not place an H-1B worker at another company, unless it first confirms with that company that no U.S. workers have been laid off from an “essentially equivalent” position to be filled by the prospective H-1B worker.
H-1B dependent employers or prior willful violators of H-1B rules will not be required to make these new attestations until after the INS and the DOL issue final regulations implementing this provision of the new law. ACWIA does, however, provide two clear exceptions when employers would not have to make the new attestations: (1) if they pay an H-1B worker an annual salary of $60,000 or above; or (2) if the prospective H-1B employee possesses at least a master's degree or its foreign equivalent.

Many of the provisions of ACWIA have an immediate and significant impact upon employers of H-1B workers. As a result, it is extremely important that employers understand each of the modifications to the H-1B program made by ACWUA and how these changes will effect the treatment of specific H-1B employees. For more details on how ACWIA will affect your organization, please do not hesitate to contact Venable's Corporate Immigration Group.