The annual cap of 65,000 on H1Bs put numerous new graduates into jeopardy.

Those who are in an expiring OPT or who are currently in F1 status but no longer qualify for a second OPT, even with the 60-day grace period have a choice. They either need to leave the country to apply for an H1B visa at a US consulate abroad, or, they must have already changed their status to another nonimmigrant category. This will allow the alien to stay legally until October 1, 2006 to start the H1B employment.

According to USCIS regulations, petitions for new H-1B employment are exempt from the annual cap if the alien will be employed at an institution of higher education or a related or affiliated nonprofit entity, or at a nonprofit research organization or a governmental research organization.  Some private employers are also qualified for H1B cap exempt.

The following sections discuss the two types:  the qualified nonprofit research organization and the qualified private employer.

How to define a “nonprofit research organization”

According to 8 CFR §214.2(h)(19)(iii)(C), a nonprofit research organization is an organization that is primarily engaged in basic research and/or applied research. For the purposes of that definition, 8 CFR §214.2(h)(19)(iv) indicates that a "nonprofit" organization or entity is:

A. Defined as a tax exempt organization under the Internal Revenue Code of 1986, section 501(c)(3), (c)(4) or (c)(6), 26 U.S.C. 501(c)(3), (c)(4) or (c)(6), and

B. Has been approved as a tax exempt organization for research or educational purposes by the Internal Revenue Service.

Therefore, in order to be considered a "nonprofit research association", an organization defined at Section 501(c)(3) of the Internal Revenue Code of 1986 will be exempt if it has been approved as a tax exempt organization by the IRS and is engaged primarily in basic or applied research. An organization that may qualify but has not been approved by the IRS will not qualify, nor will an approved 501(c)(3) organization that is not engaged primarily in basic or applied research.

Qualified Private Employer

INA Section 214 (g) (5) (b) states, in pertinent part, that the H1B cap should not apply …”any nonimmigrant alien issued a visa or otherwise provided status under 101 (a) (15) (H) (I) (b) who is employed (or has received an offer of employment) at …a governmental research organization”.  In other area, the statute states that one must be employed “by” a particular institution in order to be cap exempt.

Therefore, it can be contemplated that H1B cap is exempted for institutions in which highly-skilled professionals that are contracted to work 100% at a government research facility, but are paid by a for-profit entity.  Congress used the words “employed at”, rather than “employed by” in the statute governing exception to the cap. Moreover, it is clear from the legislative history of this provision, that Congress wished to exempt individuals working at universities, non-profit organizations, and government research institutions from the H1B cap because of the contributions they make to the United States in that work. Thus, it is the nature of the work at these institutions that is relevant, not the source of compensation for employment, nor the entity that actually employs the H1B worker.  The same rationale applies to those working at governmental research organizations as well.

The distinction is key for many government research institutions that employ contractors paid directly by for-profit companies.  These contractors are otherwise indistinguishable from direct government employees.   USCIS essentially agree that where the H1B worker is performing the type of work that the exempt organization is in the business of doing, but happen to be a contactor, rather than a direct employee, the H1B worker should be exempt from the cap.

Conclusion

We appreciate that the USCIS was in agreement with the interpretation of being “employed at” an exempt organization, wherein the H1B worker would be cap exempt.  This interpretation opened a new path for foreign nationals working in private companies including consulting firms. In cases where private companies are contractors for governmental research facilities, non-profit organizations and universities, the H1B worker should be cap exempt. However, the alien professional must be contracted to work 100% at the above-mentioned facilities.

For aliens with F1 status looking for H1B sponsors when the H1B cap is an issue, you must consider the business of the employer.  This can be the determining factor as to whether you will qualify for the exemption or not!