When a U.S. employer considers hiring a foreign-born worker using an H-1B visa, an inevitable part of the analysis will be how much to pay that person. It's not as simple as choosing an amount that fits your own company's pay scale. As part of the H-1B petition process, you will have to file a Labor Condition Application (LCA) with the Department of Labor (DOL) to certify that you will pay the sponsored H-1B employee the higher of the "actual wage" at your workplace or the "prevailing wage" in the industry.
But what do those mean? As explained below, it is often surprisingly difficult to determine your company's actual wage. The usual result is that the employer needs to look to the prevailing wage to determine the required salary for an H-1B employee.
The actual wage for a job at your company is, according to DOL regulations, the wage rate you pay other employees who have "similar experience and qualifications" and who are performing the same job as the H-1B worker. (See 20 CFR § 655.731.)
You first would need to determine whether you have other employees with the same qualifications performing the same job as the H-1B worker. If so, the wage paid to those workers is the "actual wage."
The "actual wage" definition can create practical difficulties, especially for small employers. While in theory it might be possible to have a number of employees with the same qualifications and performing the same job duties, in practice, most employers have job families that include a variety of individual job descriptions.
Within a given job family, for example, various team members will have different qualifications and perform different job duties. For example, an employer might have the job of "Software Engineer" with several employees under that same title. When looking at what each Software Engineer does, however, some might perform front-end application changes while others perform complicated back-end, systems-level architectural work that requires a higher degree (e.g. master's) or more experience.
As such, if no other employees are doing the same job as the H-1B worker, then the salary you offer to the H-1B worker is the actual wage.
Even after calculating the actual wage, you will need to compare it to the prevailing wage. If the prevailing wage is higher than the actual wage, you'll need to pay the H-1B worker the prevailing wage.
The "prevailing wage" is either the applicable wage under a collective bargaining agreement (such as for a public school teacher) or, if there is no union, the average wage paid to workers in a particular occupation in a specific geographic location.
For the latter situation, you can determine the prevailing wage in one of three ways:
The DOL's criteria that a private wage survey must satisfy are the following:
While many surveys meet most of these requirements, the one factor that is often missing is geographic specificity. Many surveys report data on a regional basis and do not break it down further than a particular state. A survey that does not have wage data for the city or metropolitan area where the H-1B employee will work would not be acceptable to the DOL.
If you follow option one above and obtain a prevailing wage determination from the U.S. Department of Labor, which usually takes about six weeks, you benefit from a "safe harbor." That means that if the DOL were ever to audit your petition for an H-1B employee, as long as you are paying that employee the amount stated in the PWD, you would have no exposure. This assumes, of course, that the H-1B employee's job responsibilities are consistent with the job you outlined in your prevailing wage request.
If you disagree with the DOL's prevailing wage determination, you can ask for a review within 30 days. Common reasons for review include an inappropriate job classification (as in, the DOL thinks the employee is a manager, rather than a rank-and-file worker) or wage level (perhaps DOL assigns a fully experienced wage level for a lower level employee or increases the wage level for a normal job requirement, such as a foreign language requirement for an interpreter).
If the DOL holds to its original wage determination, you can appeal the decision to the Board of Alien Labor Certification Appeals (BALCA). The first DOL review normally takes about six weeks, while a BALCA administrative appeal can take much longer.
If you do not request a review, or are unsuccessful with a request for review, and choose not to follow the DOL's prevailing wage, you would have a very difficult time explaining in an audit why you chose to disregard the DOL's wage determination. You still might have arguments to support your decision, but the DOL likely would be predisposed to assess back wages.
The primary benefit of performing your own prevailing wage analysis is speed. Rather than waiting weeks to receive a wage determination from the Department of Labor, you simply can review the DOL's wage data, make your determination, and proceed to file the Labor Condition Application.
Another benefit is control. The prevailing wage amount might be ambiguous. Where reasonable minds may differ over the occupational classification or wage level, conducting your own prevailing wage analysis lets you determine the appropriate wage level without relying on the DOL. To be sure, you still must follow the applicable guidelines for assigning a prevailing wage. But if you can predict that the DOL is likely to classify the job differently than you would or to assign an inappropriate wage level, it might be better not to ask for a formal wage determination.
Potential risks arise for employers that do not obtain formal Department of Labor wage determinations, however. In the event of an audit, the DOL will conduct its own analysis and potentially set aside your prevailing wage analysis. If the DOL finds that the wage should be higher than the level you assigned, you might need to pay the H-1B employee the difference between what you paid and what the DOL determines is the required rate.