Entrepreneurs' H-1B Blues Just Got Worse

Last-minute regulations from the Clinton Administration further complicate the byzantine process of hiring foreign workers

When Hans Fenstermacher launched his translation company in 1994, locating qualified personnel was a bigger challenge than landing clients. Fenstermacher's 17-person company, Architext Inc., based in Boston, does $2 million in business a year, translating product literature and technical documentation for clients that include Xerox, Minolta, Kodak, and Motorola. "Because jargon is constantly shifting and changing, I need people fresh off the boat," he says. "They have to have current language skills plus technical knowhow."

At the time, his best bet was to import staff from overseas. Fenstermacher quickly became expert in the intricacies of the H-1B visa program, which allows U.S. companies to bring in qualified foreign workers for up to six years for jobs that require crucial skills or can't be readily filled over here. Soon, 80% of his translating staff was made up of H-1Bs -- but the expenses were piling up, too. Says Fenstermacher: "With legal fees, government fees, airfare, and resettling expenses, I was paying $6,000 per worker."

He could have tolerated the costs, but not the inconvenience caused by what he describes as months of bureaucratic wrangling. "I had to satisfy the government that the people I was hiring had the equivalent of a U.S. Bachelor's degree, even if it wasn't a credential that mattered to me," he says.

In 1998, Fenstermacher called it quits and switched to outsourcing most of his work to contractors abroad. The change has created difficulties in terms of quality control and communication, but he doesn't miss the red tape. "I've never regretted it for a minute," he says.


  Nor is he likely to change that opinion anytime soon. On Jan. 19 -- the last day of the Clinton Administration -- 150 pages of new H-1B regulations went into effect, threatening to make the process even more byzantine. Even the lawyers who'll be working with the regs are far from overjoyed, although they promise a business bonanza for the bar.

The regulations "micromanage employees to the point of absurdity," laments Daryl R. Buffenstein, general counsel to the Washington (D.C.)-based American Immigration Lawyers Assn. (AILA) and a partner in the Atlanta office of Paul, Hastings, Janofsky & Walker. "The government has made this program the most overregulated part of immigration law," agrees Carl A. Shusterman, a Los Angeles immigration lawyer who counsels small and midsize businesses. "You practically can't make a move now without a lawyer by your side."

Because the new regs squeaked in under the wire -- they were published Dec. 20 and became effective Jan. 19 -- they are exempt from the Bush Administration's wholesale freeze and executive-review process.

But while they may have the appearance of hand-from-the-grave legislation courtesy of a departing Democratic Administration, the regs actually have been in the works for two years and contain few surprises, according to immigration lawyer Elizabeth C. Stern, a partner at Shaw, Pittman, Potts & Trowbridge in Washington, D.C. They do, however, seem at odds with the message sent by Congress in October. That was when lawmakers swiftly raised the H-1B quota by approximately 40%, to 195,000 through 2003. The law, which went into effect in December, also doubled the filing fee per application to $1,110 in order to provide funds for high-tech training programs and, in a much applauded move, to make it easier for H-1Bs to switch jobs. That new mobility, which means workers do not have to endure abusive situations, also allows companies to benefit by freeing them to hire foreign workers already acculturated to the U.S.


  Ironically, if visas are now more plentiful -- last year's annual quota was filled by March -- the new regs may actually dampen the incentive to take advantage of them. One anticipated problem is a direct result of the new and tougher responsibilities that the regs impose on companies classified as "H-1B-dependent" -- an estimated 250 businesses nationwide, according to a source at the Labor Dept. Employers with 50 or more workers are subject to the new "H-1B-dependent" requirements if 15% of staffers have H-1B visas. For businesses with 1 to 25 workers, the magic number of H-1B workers is 8 or more, For those with 26 to 50 workers, it's 13 or more.

According to Buffenstein, those companies will be asked to provide much more in the way of record keeping and documentation -- which will likely mean an expanded risk of becoming the targets of enforcement actions. H-1B-dependent businesses will be required to demonstrate that they tried to recruit locally but failed, and that no layoffs occurred either 90 days before or after they filed for H-1B visas. Since H-1B workers making at least $60,000 a year or having a Master's degree or higher are exempted from coverage, Stern expects many companies will raise H-1B salaries to buy their way out of the problems associated with compliance.

The regs also add new, across-the-board burdens to companies using H-1B workers. Employers will be required to give these workers the same benefits as locally engaged staff, as well as guaranteeing "whistleblower protection." Another provision affects any H-1B employee sent to work in another city for a month or more. Additional paperwork must be filed after 30 days if the worker's job requires constant travel, or after 60 days' absence if the job requires only occasional travel -- measures intended to make sure workers get the prevailing wage in the geographic area where they are actually working. Should a worker stay at a remote site for 65 days without papers being filed, the employer risks enforcement action and will not be allowed to send other H-1B workers to that city, even for a single day.


  While that may stop employers from shuffling workers around the country at will, Buffenstein questions whether such a degree of regulatory precaution is necessary. "There are abuses, but if you look at the number of prosecutions and fines, it's a very small percentage of employers," he says. Although companies -- particularly those in the IT industry -- have been accused of exploiting the H-1B program to get cheap labor, veterans of the process say savings aren't all that great, and that six-month delays are common because of Immigration & Naturalization Service backlogs. "I had one client who needed someone immediately to fill contractual commitments and still couldn't get the worker's visa expedited," says Jo Anne Adlerstein, an immigration lawyer with Proskauer Rose in Newark, N.J.

Some companies, however, do find total hiring costs can be less than if they had worked with a U.S. recruiter. Shelley Spector, president of Spector and Associates, a small high-tech public-relations firm in New York and Short Hills, N.J., says she avoided the standard 30% headhunter's fee by hiring an H-1B exec from Britain for a position that had gone unfilled for a year.

Since the regulations are not final, most observers believe that complaints can be resolved in the rulemaking process, which invites comments for the next month before a final version is hammered out. All the same, the AILA's Buffenstein doesn't bar the possibility of a court challenge. And help is on the way: The Labor Dept. promises an extensive online education campaign with interactive assistance. With any luck, the package the Clinton Administration rushed to deliver may not be as intimidating as it now seems.

Stephanie B. Goldberg in Chicago

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