The recently restructured prevailing wage system for skilled foreign workers requires employers to pay those workers significantly higher wages.
Effective Oct. 8, the Department of Labor (DOL) regulation affects the prevailing wage calculations used in labor condition applications (LCAs) for employing H-1B visa workers and labor certifications for workers hired under employment-based permanent residence visas.
The DOL determined that the existing wage methodology has led to program abuses, including undermining the wages and job opportunities of U.S. workers.
“The rule will improve the accuracy of prevailing wages paid to foreign workers by bringing them in line with the wages paid to similarly employed U.S. workers,” said U.S. Secretary of Labor Eugene Scalia. “The prevailing wage rates in these programs play an integral role in protecting U.S. workers from unfair competition posed by the entry of lower-cost foreign labor into the U.S. labor market.”
These are the most significant changes to the H-1B visa program since it was created in its current form in 1990, said Sarah Pierce, a policy analyst at the Migration Policy Institute in Washington, D.C.
“While the problems the administration has identified and the interest in protecting U.S. workers are legitimate ones, its approach may cripple the H-1B program itself, which, regardless of its flaws, is the primary route through which employment-based immigrants enter the United States.”
Kevin Miner, a partner in the Atlanta office of law firm Fragomen, said, “It has long been the rule that employers of H-1B workers, as well as workers going through permanent residency [PERM] certification, must be paid at least the prevailing wage to ensure that employers do not underpay foreign national workers and threaten job stability for U.S. workers. But the DOL is dramatically increasing the required wages for H-1Bs and PERM by 40 to 70 percent, and in some cases even higher than that, pushing wages up for all types of jobs.”
Some experts believe that the new rule was designed to price H-1B visa holders and employment-based foreign workers out of the labor market by raising the required minimum wage to employ them. But the administration and some on both the political right and left argue that the wages paid to H-1B workers are too low.
Wage Scale Explained
The DOL uses the Occupational Employment Statistics survey to determine prevailing wages as the average wage paid to similarly employed workers in a specific occupation in the geographic area of intended employment.
There are currently four DOL wage levels based on the duties and requirements of the job:
- Level I for entry-level workers.
- Level II for qualified employees.
- Level III for experienced employees.
- Level IV for fully qualified employees with enough experience to plan, modify and approve standard procedures.
The minimum wages for each level, based on a calculation of the local median salary for the specific position, have been increased:
- Level I will move from the 17th percentile to the 45th percentile.
- Level II will move from the 34th percentile to the 62nd percentile.
- Level III will move from the 50th percentile to the 78th percentile.
- Level IV will move from the 67th percentile to the 95th percentile.
Miner gave the following examples of increased wages: A Level I computer programmer in Chicago previously fell under a $50,000 annual wage minimum. That person is now at a $90,000 wage minimum. A Level 4 programmer in Chicago who was previously at a $120,000 wage minimum is now at a floor of $222,000 per year.
“Wages are going up, and employers need to know this,” said Patricia Gannon, a partner in the New York City office of Greenspoon Marder. “For some of my clients, paying the higher wage is not a big deal. But others will balk. By increasing the required wages, the new rules will harm startup companies and smaller firms who may not be able to meet the increased wage requirements, as well as foreign students and other entry-level workers looking for employment.”
Pierce added that “a number of the 583,000 H-1B recipients working in the United States may not be able to renew their visas if their employers are not willing to give them a significant pay hike.”
Fragomen’s Miner noted that the rule does not invalidate any existing LCAs or PERM prevailing wage determinations filed or issued before Oct. 8. Prevailing wage determinations issued on or after Oct. 8, including pending requests, will be subject to the new rule.
“Employers are still allowed to use alternate private wage surveys rather than relying on the DOL survey to determine prevailing wages, but that tactic isn’t without risk,” he said. The DOL does not always accept private wage surveys.
Gannon recommended that employers conduct an audit of their workforce to find out who may be affected and look for ways to minimize any disruption. For example, companies could consider relocating a worker to an area where the cost of living is lower, if possible, she said.
Wages Too Low?
A May 2020 report from the Economic Policy Institute (EPI) found that 60 percent of H-1B positions certified by the DOL in fiscal year 2019 were assigned the two lowest prevailing wage levels, which were “significantly lower” than the local median salaries surveyed for occupations.
“Employers can reap significant savings by selecting the two lowest wage levels instead of the Level 3 median wage or Level 4 above-median wage,” said Daniel Costa, director of immigration law and policy research at EPI.
Costa illustrated the following example of software developers in the Washington, D.C., metropolitan area prior to the new rule being implemented: Employers hiring at Level 1 pay $75,000 versus the median wage for the job in the region—represented by Level 3 at $117,000. Those hiring at Level 2 pay $96,000.
The rule (along with another from the Department of Homeland Security that also affects H‑1Bs and was announced the same day) has already been challenged in three federal lawsuits for not properly following federal rulemaking procedure. One suit seeking a permanent injunction against the rule, brought by a group of technology companies, also charges that the DOL improperly relied on incorrect data and faulty reasoning to justify the changes made. “These unexpected changes in the prevailing wages by DOL were not only erroneously calculated but were also a significant departure from their own practice over the last several decades,” said the ITServe Alliance, representing IT services, staffing and consulting firms.
The group said the inability to “pay the artificially enhanced wages” will result in companies’ exploring other options, including outsourcing roles overseas.
“There are a lot of serious questions as to the evidence and logic used to support this regulation,” said Leon Rodriguez, former director of U.S. Citizenship and Immigration Services and currently a partner at Seyfarth Shaw in Washington, D.C. “What seems clear is that it will end up chasing needed talent away without any plan for preparing U.S. workers to fill the gap.”