As many of our clients know, filing an H-1B petition requires showing, in part, that the petitioner is the beneficiary’s true employer, and is the entity who has the sole right to control the employee-beneficiary’s employment.

Regulations define “United States employer” as the entity which “[h]as an employer-employee relationship with respect to employees under this part; as indicated by the fact that it may hire, pay, fire, supervise, or otherwise control the work” the beneficiary will perform.

Employer-employee relationships are usually straightforward in terms of H-1Bs, but petitioners working with PEOs may make this more complicated. Here are some helpful tips for ensuring successful H-1B petitions for clients who work with PEOs.

First: What is a PEO?

PEO stands for Professional Employer Organization – companies can contract with a PEO to outsource various HR and administrative tasks such as processing payroll, withholding and paying payroll taxes, maintaining workers’ compensation coverage, and administering employee benefits on the company’s behalf.  With the PEO’s help, the company has more time to focus on regular business operations, which is one of the reasons PEOs commonly contract with smaller or start-up companies.

The company and the PEO will sort out which tasks the PEO will handle and which will be reserved for the company alone, and will memorialize their sharing arrangement in a contract such as a client service agreement (CSA) or an administrative services outsourcing (ASO) agreement.

You can find more information about PEOs from the IRS here, and from payroll company ADP here.

How might a PEO affect an H-1B petition?

Depending on how a company and a PEO divide responsibilities, the parties’ arrangement may look more like that of co-employers rather than one common law employer (CLE) and a separate entity who helps out at arm’s length. It is important that the parties’ agreement clearly defines the CLE as the entity who retains full control and discretion over employment decisions, and is therefore the proper sponsor of an H-1B petition. If the parties’ relationship suggests that the company shares their control and discretion with the PEO, USCIS may look at an H-1B petition with skepticism as to who is the beneficiary’s true CLE.

Here is a common example of where this might become an issue – Company A contracts with a PEO to have the PEO process Company A employees’ payroll.  Company A then decides to file an H-1B extension petition for Employee X, an H-1B employee who has worked for Company A for a couple of years. As part of the H-1B petition, Company A submits Employee X’s last few paystubs to demonstrate the employer-employee relationship between the two. However, Employee X’s paystubs are issued by PEO – the paystubs show the PEO as the wage payor, not Company A. In reviewing the petition, USCIS sees that Employee X is being paid by some entity that is not Company A, and consequently issues an RFE (or even a denial) questioning who Employee X’s real employer is.

What can I do to prevent problems with H-1B petitions when a PEO is involved?

The employer-petitioner should clarify its relationship with a PEO, and present supporting evidence of that relationship, to avoid unnecessary scrutiny from USCIS. Supporting evidence can include:

  • A copy of the CSA between the petitioner and the PEO;
  • A letter from the PEO explaining their relationship with the petitioner; and
  • Copies of the petitioner’s latest federal tax returns, to show that the petitioner pays wages and has employment tax obligations.

Many companies find working with a PEO to be extremely beneficial to growth and efficiency. For companies who depend on H-1B employees, complications arising from working with a PEO can be easily avoided if the proper steps are taken.

If you are thinking about contracting with a PEO and you have questions about how this may affect petitioning for H-1B employees, contact us at ILBSG. Our dynamic team of immigration attorneys have the knowledge and experience to make sure you get the right advice.

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