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Severe B-1 Business Visitor Restrictions, Workplace Audits, and Other Impacts on Businesses Likely In Light of Recent Infosys Case
May 27, 2011
Consulting companies and offshore outsourcing companies beware - great scrutiny and restrictions are on the horizon in light of this week's civil and criminal investigations involving Infosys. This week, a former Infosys employee filed a suit in Alabama alleging that Infosys, an international IT consulting company, committed fraud by employing foreign nationals in B-1 business visitor status rather than properly obtaining H-1B work visas for them. In addition to this civil suit, a federal court in Texas has begun a grand jury investigation into Infosys' immigration practices. This has spurred the U.S. government to examine its B-1 business visitor program. As a result, there is likely to be more scrutiny and increased denials in B-1 business visitor cases, increased worksite enforcement efforts, and wage and hour, immigration, and tax audits.
B-1 and H-1B Visas Generally.
B-1 business visitor visas are generally issued for foreign nationals coming to the U.S. for a short period of time, usually up to 3 months, for business-related activities, such as attending seminars, board meetings, sales meetings, training sessions, etc. However, it is not a work visa, and, generally, B-1 visitors are not permitted to "work" in the U.S. and cannot be paid by a U.S. company (except a stipend and reimbursement for travel expenses). In contrast, an H-1B is a work visa, allowing foreign nationals to work and get paid in the U.S. Although the B-1 is restricted in its uses and duration, it is thousands of dollars cheaper and months faster to obtain than the H-1B, and has no prevailing wage requirement (where the employer must pay the H-1B worker at least the prevailing wage) or no-benching requirements (barring employers from putting employees in between assignments on unpaid leave) like the H-1B. Thus, many employers try to take advantage of the B-1 option when it is appropriate. Infosys, however, is accused of improperly taking advantage of the B-1 program, using it to employ regular workers in the U.S. for longer-term projects, alongside regular U.S. and H-1B employees, without paying correct prevailing wages and without withholding and paying payroll taxes.
DOS and DHS To Eliminate/Restrict B-1 Usage, Increasing Cost and Causing Employment Delays.
There are several implications and likely effects of the Infosys case to be wary of. First, the Department of State has issued a letter stating its intention to substantially restrict or eliminate the "B-1 in Lieu of H-1B" visa option. Currently, the Foreign Affairs Manual states that "in certain circumstances", foreign nationals employed by foreign companies can come to "work" in B-1 status as long as they remain on the foreign payroll and do not get paid any remuneration in the U.S. This has allowed some flexibility to international companies to bring employees to the U.S. to work on short-term projects, inexpensively and fast. However, the Department of State has now stated that it intends to severely limit or eliminate this B-1 option. This will make it much more costly for some companies to fill project assignments, and will delay start dates and lengthen the process of filling these U.S. project assignments. This increased cost and burden may, in turn, cause consulting and outsourcing companies to increase the rates they charge to the the end-user clients.
Greater Scrutiny and Denials for Legitimate B-1's.
In addition, those traveling for legitimate B-1 business visitor activities will face greater scrutiny, and will experience greater denial rates. The Department of State's Consular Offices worldwide, the Office of Fraud Prevention Programs, the Department of Homeland Security, and ICE are all increasing their vigilance when examining B-1 and H-1B visa applications, work authorization petitions, I-9 Employment Eligibility forms, etc. In India alone, the Department of State in its letter states that five large employers were suspended from the Business Executive Program at the Consulate due to fraud in visa applications and "[a]applications from individuals claiming to work for those employers now receive particularly close scrutiny." In addition, "[a]t one consulate, the net refusal rate [for B-1 visa applications] has increased by 25%." This leads to greater risk and uncertainty to both foreign nationals and businesses. It may also chill businesses and foreign nationals from trying the B-1 option since it may put that business "on the radar" for possible fraud.
Increase in I-9, Wage and Hour, and IRS Audits.
I-9 and Department of Labor (DOL) Wage and Hour audits may increase as well. Generally, all U.S. employees have to complete an I-9 form within 3 days of employment proving with acceptable documents their identity and work authorization. B-1 Workers in H-1B or regular employment positions may be in violation of the I-9 rules, leading to penalties. In addition, if the foreign worker was supposed to be in H-1B status, not in B-1 status, he may not be paid the correct wage, which is the higher of the actual or prevailing wage for the job, and, thus, may owe back wages and be assessed penalties. DOL Wage and Hour auditors looking at B-1 wages have the discretion to broaden their audits to other wage and hour areas, increasing the potential exposure and liability to businesses. In addition, B-1 workers who should properly be in H-1B status most likely have not had taxes withheld from their wages, leading to IRS audits, investigations, and penalties. This could impact whether international companies wish to take the risk of keeping workers on foreign payroll, and whether companies examine tax implications of doing so more carefully. Further, in this age of increased inter-agency and inter-governmental cooperation, employers should beware that one audit by one agency can lead to another audit by a different agency, and could keep you on the "radar" of each agency for repeat audits, and possible repeat or willful violator sanctions. With such increased fears, some companies may demand that consulting and outsourcing companies draft language into their contracts assuring them of immigration and tax compliance, and indemnifying them for any related liabilities.
In short, the Infosys case brought the B-1 visa category to light and will likely have many far-reaching effects. For more information about this topic, please contact Berin S. Romagnolo.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2011 Posternak Blankstein & Lund LLP. All rights reserved.