On October 8, 2020, the U.S. Department of Labor (DOL) published its long-speculated interim final rule, “Strengthening Wage Protections for the Temporary and Permanent Employment of Certain Aliens in the United States.” The new rule will update how the existing “four-tiered wage structure based on the Occupational Employment Statistics (OES) wage survey” is calculated for purposes of determining prevailing wages. The rule goes into effect immediately on October 8, 2020, with no notice period. These changes will result in significant wage increases to the wage levels for all four levels of the OES survey, across all occupations. The wage adjustments will affect the processing of H-1B, H-1B1, and E-3 temporary work visas, as well as permanent labor certification program (PERM) applications. As of October 8, 2020, the OES wage survey had already been updated to reflect the increased wages for most metropolitan areas and occupations.

Background

Each employer seeking to hire foreign workers in H-1B, H-1B1, or E-3 visa status, or to sponsor a foreign worker for PERM labor certification, must commit to paying a foreign worker in one of these classifications the prevailing wage for the specific occupation, level, and metropolitan statistical area in which the worker will be employed. As part of the H-1B, H-1B1, and E-3 visa process, employers must obtain a certified labor condition application (LCA) from the DOL. The LCA must contain the employer’s attestation that it will pay the foreign national beneficiary the higher of either the actual wage level paid to all other similarly situated employees, “or the prevailing wage level for the occupational classification in the area of intended employment.” Likewise, an employer sponsoring a foreign worker for a PERM labor certification application (the first step in most employment-based green card processes), is required to obtain a prevailing wage determination for the job opportunity from the DOL’s Office of Foreign Labor Certification’s National Prevailing Wage Center.

The DOL explained that it “has long relied on OES data to establish prevailing wage levels” in both the LCA and PERM contexts. The OES program collects wage data nationwide and produces prevailing wage estimates annually for approximately 800 occupations. The OES survey’s four-tiered wage structure is intended to ensure that wages paid to foreign high-skilled workers meet a given industry standards and do not depress wages of comparable U.S. workers.

The OES survey’s current four-tiered wage structure is based on calculations that approximate the following percentiles of the entire OES wage distribution.

According to a statement from the DOL issued on October 6, 2020, the interim final rule—which results in significant adjustments to the current percentiles of distribution for each level—serves to “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.”

The DOL stated in the preamble to the interim final rule that its rationale for the wage leveling adjustments was rooted in the theory that because not all workers in a given occupational category will possess the baseline requirements necessary to qualify for sponsorship for an H-1B, H-1B1, or E-3 visa, the lower portion of the OES survey data “should be discounted” for prevailing wage calculation purposes. The DOL indicated that the new wage leveling “should instead identify where within the distribution workers are to be found who possess the same kinds of specialized education and experience possessed by aliens working in the H-1B, H-1B1, E-3, and EB-2 classifications.” The new rule follows President Donald Trump’s 2017 Executive Order 13788, titled, “Buy American and Hire American,” which instructed the DOL and other agencies to propose new rules and guidance for the U.S. immigration system that aim to strengthen protections for U.S. workers.

How does the interim final rule change wage level calculations?

The interim final rule amends the regulations that govern how prevailing wage levels are calculated for purposes of H-1B, H-1B1, E-3, and PERM programs. The calculation changes are based on the following criteria.

1. The Level 1 wage will be established by a calculation of the prevailing wage for entry-level workers who have “comparable levels of education, experience, and responsibility to the foreign workers in [the H-1B, H-1B1, E-3, and PERM] programs.” This is a change from the prior calculation, which took into account all wage data within the occupation, regardless of a worker’s education, experience, or level of responsibility. This results in an adjustment of the Level 1 wage to approximately the 45th percentile of the OES wage distribution.
2. The Level 4 wage will be established “by taking the arithmetic mean of the wages paid to the most highly paid workers in the OES distribution.” This results in an adjustment of the Level 4 wage to approximately the 95th percentile of the OES wage distribution.
3. The Level 2 and Level 3 “wage levels will continue to be calculated in accordance” with the current statutory formula for establishing intermediate wage levels. Due to the change in calculation for Level 1 and Level 4, this results in an adjustment of the Level 2 wage to approximately the 62nd percentile of the OES wage distribution, and an adjustment of the Level 3 wage to approximately the 78th percentile of the OES wage distribution.

The resulting change in distribution is illustrated in the table below.

What is the immediate impact on H-1B, H-1B1, E-3, and PERM cases in process?

The DOL published a list of frequently asked questions in connection with the interim final rule addressing how it will implement these changes to cases currently in progress.

For PERM applications:

• If an employer filed an ETA Form 9141 with the DOL for a prevailing wage determination prior to October 8, 2020, but the employer has not yet received the determination, the issued wage will be based on the new methodology set forth in the interim final rule.
• If the DOL issued a prevailing wage determination prior to October 8, 2020, the determination remains valid for the period identified and the wage identified (i.e., as calculated under the old methodology) and can be used for a subsequently filed PERM.

For H-1B, H-1B1, and E-3 petitions:

• If an employer submitted an LCA (ETA Form 9035/9035E) to the DOL prior to October 8, 2020, but it has not yet been certified, the LCA will be certified with the prevailing wage in place at the time it was submitted to the DOL (i.e., as calculated under the old methodology).
• If the DOL certified an employer’s LCA (ETA Form 9035/9035E) prior to October 8, 2020, but the employer has not yet used it in connection with an H-1B, H-1B1, or E-3 nonimmigrant petition, the LCA remains valid for the period identified and the wage identified (i.e., as calculated under the old methodology).

How do these changes impact employers?

The interim final rule effectively increases the “required wage” employers will need to pay to beneficiaries of future H-1B, H-1B1, E-3, and PERM filings, where the underlying LCA or prevailing wage determination is based on data from the OES wage survey.

The interim final rule does not prevent an employer from utilizing an alternative wage survey that meets the regulatory requirements for H-1B, H-1B1, E-3, or PERM cases. Acceptable alternative surveys must come from “an independent authoritative source” or “another legitimate source of wage information” as defined in existing regulations. Accordingly, employers may consider using alternative wage surveys, such as a private salary survey that meets the standards, in lieu of the new OES wages.

Why is the interim final rule effective immediately?

As noted above, the rule is effective immediately upon its publication in the Federal Register on October 8, 2020. Generally, the DOL would be subject to the standard notice and comment rulemaking procedures under the Administrative Procedure Act (APA), which requires a period of public commentary on a proposed rule before its finalization. The DOL justified its ability to bypass notice and comment rulemaking by arguing that (1) such procedures would defeat the purpose of the rule, which is to provide immediate protection of U.S. workers amid the coronavirus pandemic that has resulted in a “shock to the labor market”; and (2) such procedures would provide employers an opportunity to “secure wages at the current low levels” by filing large volumes of labor condition applications and prevailing wage requests before the comment period was complete.