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On January 8, 2010, USCIS issued new guidance regarding employer-employee relationships in H-1B cases. With the increase in 3rd party off-site work, consulting firm practices, and agent-staffing company petition cases, determining a qualified employer-employee relationship under H-1B regulation has become a hot topic. Much confusion has arisen based on what constitutes an employer-employee relationship, particularly under the H-1B context. Through the memo, USCIS tries to clarify what kinds of standards and documents are used to determine whether an employee-employer relationship exists.

In H-1B cases, establishing an employee-employer relationship between the beneficiary and the petitioning employer is mandatory. The beneficiary must be a qualified employee of the H-1B petitioner.  

In evaluating petitions, USCIS uses key definitions provided by common law principles and Supreme Court decisions. Essentially, in order to qualify as an employer, the right to control when, where and how a beneficiary does his/her job is key; this is different than actual control. Establishing an employer-employee relationship is only dependent on the right to control and not on actual control.

However, in practice, USCIS heavily relies on evidence of actual control to determine the right of control.  USCIS considers multiple factors in the determination process, and none of the factors are decisive in themselves. Instead, USCIS uses the totality of the factors to determine the validity of an employee-employer relationship. Factors used include but are not limited to a) whether the petitioner uses tools/instruments provided by the employer, b) employee benefits, c) whether the employer dictates when and how the employee works, d) whether the employer has the ability to hire, pay, and fire the employee, f) whether the employer maintains supervision over the employee, g) the nature of supervision (whether it is onsite or offsite), and  h) whether the employer is the one who evaluates the employee, etc.  

Instead of summarizing the entire memorandum, we feel that it is most helpful to discuss the USCIS sample cases in which valid and invalid employer-employee relationships exist, along with examples of acceptable documentation

Examples of Valid employer-employee relationships

Traditional employment

Every day, the beneficiary goes to work in a building that his petitioner owns/leases. The beneficiary reports directly to and receives feedback regarding his/her work from the petitioner on a daily basis. Tasks and scheduling are determined by the petitioner. In addition, the petitioner provides the beneficiary with specific tools to complete the job. The beneficiary also receives medical benefits from his/her petitioner. The petitioner claims the beneficiary for tax purposes.

Short term employment off-site

The beneficiary, an accountant, frequently travels off-site to audit clients. The accounting firm itself has many clients. When off-site, the beneficiary still uses his/her company’s policies and procedures to conduct audits. When the beneficiary travels to perform audits, the petitioner covers hotel and food costs. When not off-site, the beneficiary has a main office location to report to as well as an assigned office space. The beneficiary also receives benefits from and is paid by his/her petitioner.

Long term employment off-site

The beneficiary works as an architect for a firm (the petitioner). The petitioner has signed a contract with a client to develop a structure out-of-state away from the petitioner’s main office. While the building is being erected, the beneficiary, along with other staff members from the architecture firm, will remain at the off-site location. In the contract between the client and the petitioner, the petitioner maintains control off all off-site employees. The beneficiary will still report to the petitioner for instructions and the petitioner still evaluates the beneficiary’s performance.

Placement at a third party worksite

The beneficiary works for a software company as a software engineer. The software company (petitioner) has signed a contract with another company to set up an in-house computer service to track merchandise. The services provided will be from the petitioner’s own proprietary software and knowledge. The petitioner has contracted with the client to send the beneficiary along with other software engineers to the client’s work site. While at the site, the beneficiary and other software engineers will create a computer system based on the petitioner’s software designs. Essentially, the beneficiary fulfills the employment needs laid out by the contract between the petitioner and client. Even though the beneficiary does all work at the client site, he/she reports to a manager that has been hired by the petitioner. The beneficiary also receives benefits and pay from his/her petitioner.

Examples of Invalid employer-employee relationships

Beneficiary is self-employed

The beneficiary owns a fashion merchandising company—the same company that is acting as the petitioner. The beneficiary is the sole employer, operator, and manager, and thus, cannot be fired. Nor can any other third party exert control over the beneficiary. The petitioner has also not provided sufficient evidence that the corporation as opposed to the beneficiary herself will exert control over the matter and means of her work.

Beneficiary is an independent contractor

The beneficiary, a sales representative, sells ski equipment for the petitioner, a specialty ski equipment manufacturer. The beneficiary is compensated through commission for his work. In addition to selling ski equipment for the petitioner, the beneficiary also sells ski equipment for other companies as well; these companies are completely independent from the petitioner. For tax purposes, the beneficiary is not an official employee of the petitioner. The petitioner does not dictate to whom, when, where, or how the beneficiary is to sell its products or the products of other manufacturers. The petitioner does not give the beneficiary performance feedback nor does the beneficiary follow a set schedule laid out by the petitioner.

Placement at a third party site to fulfill job needs

The petitioner, a computer consulting company, supplies other third party companies with employees to fulfill certain staffing needs. In the contract between the petitioner and third party company, specific positions are not outlined, but filled as needed. The beneficiary works as a computer analyst for the petitioning company. The beneficiary works for the third party company at the third party’s office site. The beneficiary fills a position on the third party company’s payroll. After placement at the third party site, the beneficiary reports to a manager that works for the third-party company.  All tasks are given by the third party site and not by the petitioner. The petitioner does not have a say in the manner in which the beneficiary completes his duties. On top of that, the beneficiary does not use any of the petitioner’s proprietary information to complete job duties at the third party site. The third party site manager evaluates the beneficiary’s performance, not the petitioner.

Agents acting as petitioners

The petitioner, a modeling agency, books models for various jobs like runway shows and photo shoots. The beneficiary is a runway model who works for a fashion house. The beneficiary and the petitioner have a signed contract that allows the petitioner to promote and counsel the beneficiary for runway jobs. In their contract, the beneficiary agrees to give the petitioner a percentage of earnings for booked runway shows. For runway shows, the beneficiary can negotiate payment with the actual employer, the fashion house. However, the actual petitioner is an agent acting on behalf of the fashion house to book runway shows for the petitioner. As such, the fashion house is the body that exerts control over how, when, and where the model will work.

Documentation USCIS Considers for Determining Employer-Employee Relationship

In order to prove that an employer-employee relationship exists, these conditions must be met: 1) The employer must show the right to control the employee 2) The employer must show evidence of responsibility over the beneficiary’s direction of work, and 3) The employer must show that both 1 and 2 will exist throughout the beneficiary’s employment.

There are several different documents which can be submitted to prove that an employer-employee relationship exists. In cases where the nature of the employer-employee relationship is more straightforward, less documentation is needed to establish a valid employer-employee relationship. Conversely, in cases where the nature of employment is less straightforward (i.e. offsite, small business, consultation services), more documentation needs to be submitted.

Acceptable documents include but are not limited to copies of contracts between the petitioner and client, service agreements, work organizational charts demonstrating the petitioner’s supervisory chain, a description of the beneficiary’s position and what skills are required to perform the job, method of compensation, description of tools that will be provided to the beneficiary to complete the task at hand, nature of the task to be completed, extent of control over the manner of the beneficiary’s work, itinerary of services complete with specific dates, names and addresses of employers, names and addresses of where services will be carried out, employment agreement between the petitioner and beneficiary with information on terms and condition of employment, copy of offer letter from employer, etc. To see the full list of documents, refer to the appropriate section in the memorandum.

Unless documents are specifically requested, the petitioner may submit other evidence similar of nature, if said documents in the memorandum are not available. Any combination of documents will suffice. Petitioners should explain how each document proves an employer-employee relationship. All documents submitted will be judged in full.

Other tips

The addition of this memorandum has not changed the standards of H-1B adjudication, but has simply added clarification.

In theory, USCIS states that applications will be judged on the sole basis of the “right to control”. However, in reality, most of the documents they are asking for reflect “actual control” more so than “right of control”. 

Through our personal experience, we have found that there are typically three main factors that trigger inquiries: 1) 3rd party employment 2) offsite work facility 3) relatively smaller size and nature of business. For instance, if a beneficiary works at a field office for an established company like Chevron, this job setup will be less inclined to inquiries. However, if a beneficiary works for a small consulting company and needs to work off site, the nature of the business may be questioned.

We have also found that it is possible, though extremely difficult for beneficiaries to receive approval if they are self-employed. The matter falls on proving the viability of the business, business needs, and the professional level of the business.  Please note, owning a business does not exclude a business from hiring the owner under an H-1B.

For those engaged in self-employment, 3rd party companies, offsite facilities, or small businesses, we highly recommend consulting an experienced legal team that can help you prepare the appropriate documentation for your H-1B application.