Cutting through the red tape

The growing trend to offshore individual business functions and the increasing need to acquire foreign talent to combat skills shortages is delivering new challenges to workforce management. Faced with rapidly developing expatriate workforces, HR is having to cope with an ever-evolving set of challenges, opportunities and regulations.

Significant shifts in legislation are adding more layers of complexity to the issue. Some of the most important changes in immigration legislation are currently taking shape in the US.

Regardless of whether you intend to move staff to or from the US, reform of US immigration policy and the increasing levels of US immigration-related bureacracy post-11 September 2001 will directly impact your planning and, quite possibly, profitability.

US visa amendments

To understand how US immigration law reform can have far-reaching implications well outside US borders, it is important to understand how and why this landscape is changing.

One of the most significant changes in business-related US immigration law has resulted from the Omnibus Appropriations Bill (H.R. 4818) passed by the US House of Representatives on 20 November 2004 and approved by both Houses and the President. The legislation included overall reform of the H-1B and L-1 visa categories.

History and reform of the H-1B visa

The H-1B special occupation worker visa was introduced in 1990 and allowed for a quota of up to 65,000 non-immigrant workers holding a bachelor’s degree or higher in their chosen field of work to enter the US for three years (renewable to six years in total). Because of its educational requirements, the visa was commonly viewed as most relevant to the high technology sector.

In 1997, because of rapidly increasing demand, the quota was reached sometime before the end of the fiscal year. Since this time, and in line with growing demand from relevant industries, the quota was increased first to 115,000 and then to 195,000.

In 2003, the temporary increase ended, thus restoring the quota to its original amount of 65,000. The consequence of the quota reduction was that in US government fiscal year 2004 (starting 1 October 2003), the full allocation of visas was met in February 2004, creating a gap of some eight months in the H-1B visa supply. This left a significant number of businesses in the difficult position of having to look for an alternative solution or to wait until the new 2005 fiscal year starting 1 October 2004 – ultimately both options were taken with significant effect.

With the backlog of applications and demand necessitating significant forward planning, the full year 2005 H-1B quota of 65,000 visas was reached on the very first day of the fiscal year.

The situation today

In recognition of the visa shortage, the bill passed last November provides an exemption from the quota for up to 20,000 advanced-degree graduates of US colleges and universities. The limited relief of the dramatically under-supplied quota was aggressively pursued by the business community and key business immigration coalitions, and falls far short of what is required.

The increased quota did not deliver the major relief that had been expected, and contributing further to the problem was the announcement of new fees, under the reform package. One such fee was for education and training that had originally been phased out on 30 September 2003 – however the reform increased the previous fee from $1,000 to $1,500.

The bill has also increased the ‘prevailing wage requirement’, the element that ensures newly-arrived immigrants get competitive salary rates, by 5%.

The result of this reform is that although limited relief of the quota has been achieved, demand still far outweighs availability, the overall salary cost to employers is increased by at least 5% and the cost per application is heavily increased.

The L-1 visa

In part, the H-1B quota shortage has a knock-on impact to alternative visa categories, in particular the L-1 visa. Given the pronounced shortage of H-1B opportunities, companies with internationally mobile workforces have been forced to look for alternative methods to enable their staff to work legally in the US.

In contrast to the H-1B visa, the L-1 has no quota restriction. The L-1 is an intra-company transferee visa, which allows executives, managers, and employees with specialised skills to transfer from the foreign company to a US office, subsidiary, or affiliated company to perform temporary services. Visas are granted for one to three years, extending to a maximum of seven years for executives or managers.

Another important difference in the visa categories is that the L-1 visa does not require US Department of Labor approval, and therefore salaries are not required to be competitive with the ‘prevailing rate’ required of H-1B visa applications.

The availability and flexibility of this visa category has made it ideal for companies offering outsourcing services. The visa enables offshore/outsource companies to offer cost effective solutions to US or multinational organisations, particularly in terms of the transition of service and the longer term management and upkeep of service levels.

In practice this means, for example, an Indian IT services vendor can send staff to the US to be trained and then return to India to either oversee transition or manage ongoing services, while remaining on an Indian equivalent salary.

The availability of this visa has enabled outsourcing companies to offer prospective purchasers the peace of mind that transition and management can be undertaken overseas by fully trained and qualified professionals, while remaining profitable.

L-1 reform

Reform of the L-1 visa has mainly been brought about to close a loophole that allows IT consultancies with overseas operations to import workers from abroad and then contract them out to US companies, which are not required by law to pay L-1 visa-holders prevailing US wages.
This practice has caused much debate in the US, particularly over specific instances where foreign teams were brought onshore at a significantly lower cost, to displace local workers.

To close this loophole the key amendment to the L-1 visa is as follows: “Limits L-1 Usage to Direct Service Provision. Prohibits L-1 visa holders (new applicants and extension applicants) from working at offsite locations if they will be controlled and supervised by unaffiliated companies or are merely providing labour to unaffiliated companies without providing a product or service requiring specialised knowledge specific to the sponsoring employer.”

In addition to this amendment, further restrictions necessitating that all new L-1 applicants have worked for their sponsoring employer for at least 12 months have been included in the reform.

Impact of security restrictions

Independent research undertaken by a group of nine trade associations this year on behalf of US industry has calculated that delays and complications in visa processing for foreign business travellers since July 2002 has cost US exporters more than $30.7bn. These delays have come as a consequence of additional red tape introduced as a part of the increased security restrictions since 9/11.

Most delays are related to two specific categories of visa applicants. The first is any male applicant aged 18-45 from one of 26 predominantly Arab or Muslim countries. Applicants from these countries must submit to an interview at a US consulate and background checks that take around 30-60 days to complete.

Although the second category has been in existence prior to 9/11, the level of scrutiny has significantly increased. This category relates to any individual from a State Department list of ‘technology alert’ countries – including India, China and Russia – who wish to make a brief business trip to the US to visit companies or organisations that work in sensitive technologies such as advanced telecoms, aerospace or biotechnology. Applicants in this category must also submit to background interviews.

The overall effect of these security restrictions is that processing initial work visas for individuals from countries on the State Department watch lists can take four to five months to complete, a significant gap from the worldwide visa processing target of three weeks that the State Department is attempting to achieve.

Restrictions over visa renewals are also potentially adding costs. As of 16 July, foreigners living in the US with expiring work visas must travel to a US consulate abroad to have their visas renewed. This process could previously be done by mail within the US, however due to the need to include biometrics within renewed applications, this is no longer possible.

These delays have serious impacts. Of the sample surveyed, 42% indicated that visa delays had made it impractical to bring foreign employees to the US, while 30% added that they had been unable to bring foreign business partners to the US.

Some respite is available for companies willing to pay an additional $1,000 processing fee for preliminary processing of employer petitions by the Department of Homeland Security – however when put into context, this can be highly restrictive. If you consider the situation of a large multinational telecoms company that may have just landed a large contract with the US – the cost implications of expediting the volume of applications required would be considerable.

Current landscape

The pressure of the skills shortage, coupled with the growing trend towards international recruitment and offshoring, delivers employers with significant complexities. Employers must keep up to date and fully informed of evolving worldwide legislation in respect of visas and work permits, as well as keeping abreast of general employment and home office guidelines relative to their growing expatriate workforce. To remain both competitive and compliant, there are also critical and complex tax and benefit issues to consider.

The legal landscape for businesses with expatriate workforces is evolving at an ever-increasing rate. The ability to successfully manage these newly evolving workforces is heavily reliant on forward planning.

Shaw Pittman’s US headquarters has been involved with leading trade groups and business representatives in developing best practices for companies to minimise the impact of these delays. Among these are:

  • Identify visa processing needs early, with automated reminders for renewals well ahead of deadlines
  • Liaise with relevant field offices of the State Department and Homeland Security, to identify cases for ‘special handling’ in advance
  • Co-ordinate international travel with the candidate, to capitalise on the visa waiting period to fulfil business needs – or personal holiday – abroad
  • Create a travel library of key documents for visa holders, to avoid problems at the ports of entry during international travel.

When the US immigration law reforms and State Department security restrictions are considered in tandem, the implications not only to the US but to businesses throughout the world are significant.

The potential pitfalls, delays and of course increase in cost cannot be underestimated. The business pressure to maintain and/or develop a globally mobile workforce are perhaps greater than ever, and demand continues to grow, however there has never been a more complex environment in which to operate such a workforce.

For HR teams and in-house lawyers the importance of planning and compliance should not be underestimated. Those companies which will successfully operate globally mobile workforces in the coming years will be those same organisations that recognise the importance of pre-emptive approaches to optimise visa processing.

Helen Jerry is head of employment law at Shaw Pittman UK

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