Payroll Deductions for H-1B Workers

H-1B Question : Can an H-1B Employer legally recoup by way of payroll deductions or otherwise the costs (whether they were expended for attorney fees or filing fees) it will incur in sponsoring or extending the H-1B alien’s nonimmigrant H-1B petition?

The US Department of Labor (“USDOL”) regulations allow the H-1B employer to deduct certain expenses related to insurance, etc. Under Federal Regulations, all other deductions must meet each of the following criteria to be considered “authorized” under the USDOL rules: (1) the deduction must be reported as such on the employer’s payroll records; (2) the H-1B worker must have agreed to the deduction in writing and such agreement must have been entered into voluntarily (the mere acceptance of a job which carries a deduction as a condition of employment does not constitute a voluntary agreement); (3) the deduction must be for a matter that is principally for the benefit of the employee; (4) the deduction is not a recoupment of the employer’s business expense; (5) the amount deducted does not exceed the fair market value or the actual cost (whichever is lower) of the matter covered; and (6) the amount deducted does not exceed 25% of the employee’s disposable earning.

Housing and food allowances are examples of deductions that usually are principally for the benefit of the employee unless the employee is traveling on the employer’s business. The rules also permit deduction of the cost of transportation from and to the alien’s home country at the beginning and end of the assignment, unless the employer is liable for the cost of return transportation because it has terminated the H-1B worker. Translation and visa application fees associated with the case may also be lawfully deducted (such expenses are not considered the employer’s business expense). The value of “in-kind” benefits, such as the value of a car, apartment, parking space, may also be lawfully deducted, provided each criteria is satisfied.

Matters that are considered impermissible deduction for the employer’s “business expenses” include the following: (1) the cost of tools and equipment; (2) travel expenses to and from off-premises assignments; (3) living expenses when the employee is traveling on the employer’s business; and (4) attorney fees and other costs associated with the preparation and filing of the LCA and H-1B petition (not including translation and visa application fees). Matters that do not meet each of the five criteria listed above are considered unauthorized deductions.

In one of the first enforcement actions involving this provision, the DOL found that a company owed three of its H-1B employees compensation for the judgment amounts assessed against them for the $5,000 “investment fee” that the company sought to recoup when the employees resigned after less than one year of employment. USDOL v. Novinvest, LLC, 2002-LCA-24 (Jan. 21, 2003). The DOL argued that the $5,000 fee, purported to be a business expense used to “hire, train and process” the employees, was in fact an early termination penalty, which is not authorized. Analyzing state law, the Administrative Law Judge stated the company would have to satisfy two tests in order for the $5,000 “investment fee” to be an allowable deduction from the employees’ wages. First, the company would have to show that the employees agreed to the policy that included the fee, the fee was intended to benefit the employees, the fee was not used simply to recoup the company’s business expenses, the fee did not exceed the cost of the expenses covered, and the fee did not exceed federal limits set on the garnishment of wages. Second, the company would have to show that the fee represented liquidated damages according to state law.

Federal Regulations expressly prohibits an employer from deducting from an employee any of the costs associated with the preparation and filing of an H-1b visa for an employee. An alien may pay for some of the filing fees and all of the attorney fees prior to the commencement of the employee/employer relationship. This is because the employer is only prohibited from deducting such fees and expenses after the commencement of the employee/employer relationship. However, prior to the commencement of such employer/employee relationship, the employer could pay for all of the attorney fees, the I-129 filing fee and the fraud fee of $500. Even prior to the commencement of the employer/employee relationship, the employer must pay for the H-1b visa filing fee.

Contact The Law Firm of Shihab & Associates, Co., LPA today to schedule an H-1B visa consultation at (888) 915-5057.