September 27, 2019

H-1B Employer Payroll Obligations

The purpose of this client alert is to remind those employers of individuals selected and approved for an H-1B “cap case” in 2019 that there are certain obligations that may go into effect on October 1, 2019. If your employee’s H-1B petition requested a change of status and has been approved by USCIS, then he or she will transition to H-1B status on October 1st. Employers then must place that H-1B employee on payroll within 60 days. Once on payroll in H-1B status, the employing entity will have the obligation to begin paying the offered wage listed in the H-1B petition and must make all required payroll withholdings. Further, the employer must ensure that the Form I-9 record for that employee is updated to reflect the changed status and continued work authorization.

Employees who have had a petition approved for “consular notification” must make an appointment at a consulate abroad and apply for an H-1B visa to be placed in his or her passport. When the employee returns to the U.S. and presents that visa, he or she will be admitted to the U.S. in H-1B status, and then must be placed on payroll within 30 days. An I-9 record must be completed or updated within 3 business days of hire.

Here is the applicable regulation regarding payment of the “Required Wage” (the higher of the prevailing wage or actual wage) for H-1B employees:

20 CFR 655.731(c)

(c) Satisfaction of required wage obligation.

(1) The required wage must be paid to the employee, cash in hand, free and clear, when due, except that deductions made in accordance with paragraph (c)(9) of this section may reduce the cash wage below the level of the required wage. Benefits and eligibility for benefits provided as compensation for services must be offered in accordance with paragraph (c)(3) of this section.

(2) “Cash wages paid,” for purposes of satisfying the H-1B required wage, shall consist only of those payments that meet all the following criteria:

(i) Payments shown in the employer’s payroll records as earnings for the employee, and disbursed to the employee, cash in hand, free and clear, when due, except for deductions authorized by paragraph (c)(9) of this section;

(ii) Payments reported to the Internal Revenue Service (IRS) as the employee’s earnings, with appropriate withholding for the employee’s tax paid to the IRS (in accordance with the Internal Revenue Code of 1986, 26 U.S.C. 1, et seq.);

(iii) Payments of the tax reported and paid to the IRS as required by the Federal Insurance Contributions Act, 26 U.S.C. 3101, et seq. (FICA). The employer must be able to document that the payments have been so reported to the IRS and that both the employer’s and employee’s taxes have been paid except that when the H-1B nonimmigrant is a citizen of a foreign country with which the President of the United States has entered into an agreement as authorized by section 233 of the Social Security Act, 42 U.S.C. 433 (i.e., an agreement establishing a totalization arrangement between the social security system of the United States and that of the foreign country), the employer’s documentation shall show that all appropriate reports have been filed and taxes have been paid in the employee’s home country.

(iv) Payments reported, and so documented by the employer, as the employee’s earnings, with appropriate employer and employee taxes paid to all other appropriate Federal, State, and local governments in accordance with any other applicable law.

(v) Future bonuses and similar compensation (i.e., unpaid but to-be-paid) may be credited toward satisfaction of the required wage obligation if their payment is assured (i.e., they are not conditional or contingent on some event such as the employer’s annual profits). Once the bonuses or similar compensation are paid to the employee, they must meet the requirements of paragraphs (c)(2)(i) through (iv) of this section (i.e., recorded and reported as “earnings” with appropriate taxes and FICA contributions withheld and paid).

Typically, this means that an H-1B employee must be on payroll with all required withholdings and receive a W-2. For specific questions regarding required withholdings, we encourage you to consult with an accountant or tax attorney.

For guidance on completing or updating an H-1B employee’s Form I-9, please refer to the Department of Homeland Security’s Handbook for Employers or contact our office.

Finally, please be sure to notify our office if there are any changes to the H-1B employee’s terms of employment. This includes changes in job duties, job title, compensation, or work locations. Any material changes that deviate from the terms and conditions included in the approved H-1B petition may require an H-1B amendment to be filed, or an update to the Public Access File. In a climate of increased DHS enforcement, it is more important than ever to make sure that your company is in compliance.

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