The H-1B program enables companies in the United States to hire foreign workers for work in specialty occupations on a temporary basis. A specialty occupation is defined as one requiring theoretical and practical application of a body of highly specialized knowledge and the attainment of a bachelor’s degree or higher (or its equivalent) in the field of specialty. The law originally capped the number of H-1B visas at 65,000 per year; the cap was raised twice pursuant to legislation, but in fiscal year 2004, the cap reverted to its original level of 65,000. Statutory changes also allowed for certain categories of individuals and companies to be exempt from or to receive special treatment under the cap. The American Competitiveness in the Twenty-First Century Act of 2000 exempted from the cap all individuals being hired by institutions of higher education and also nonprofit and government-research organizations. More recently, the H-1B Visa Reform Act of 2004 allowed for an additional 20,000 visas each year for foreign workers holding a master’s degree or higher from an American institution of higher education to be exempted from the numerical cap limitation. In 2004, consistent with free trade agreements, up to 6,800 of the 65,000 H-1B visas may be set aside for workers from Chile and Singapore. While the H-1B visa is not considered a permanent visa, H-1B workers can apply for extensions and pursue permanent residence in the United States. Initial petitions are those filed for a foreign national’s first-time employment as an H-1B worker and are valid for a period of up to 3 years. Generally, initial petitions are counted against the annual cap. Extensions—technically referred to as continuing employment petitions— may be filed to extend the initial petitions for up to an additional 3 years. Extensions do not count against the cap. While working under an H-1B visa, a worker may apply for legal permanent residence in the United States. After filing an application for permanent residence, H-1B workers are generally eligible to obtain additional 1-year visa extensions until their U.S. Permanent Resident Cards, commonly referred to as “green cards,” are issued. The Departments of Labor (Labor), Homeland Security (Homeland Security), and State (State) each play a role in administering the application process for an H-1B visa. Labor’s Employment and Training Administration (Employment and Training) receives and approves an initial application, known as the Labor Condition Application (LCA), from employers. The LCA, which Labor reviews as part of the application process, requires employers to make various attestations designed to protect the jobs of domestic workers and the rights and working conditions of temporary workers. Homeland Security’s U.S. Citizenship and Immigration Services (USCIS) reviews an additional employer application, known as the I-129 petition, and ultimately approves H-1B visa petitions. For prospective H-1B workers residing outside the United States, State interviews approved applicants and compares information obtained during the interview against each individual’s visa application and supporting documents, and ultimately issues the visa. For prospective H-1B workers already residing in the United States, USCIS updates the workers’ visa status without involvement from State. USCIS has primary responsibility for administering the H-1B cap. Generally, it accepts H-1B petitions in the order in which they are received. However, for those years in which USCIS anticipates that the number of I-129 petitions filed will exceed the cap, USCIS holds a “lottery” to determine which of the petitions will be accepted for review. For the lottery, USCIS uses a computer-generated random selection process to select the number of petitions necessary to reach the cap. With regard to enforcement, Labor, the Department of Justice (Justice), and Homeland Security each have specific responsibilities. Labor’s Wage and Hour Division (Wage and Hour) is responsible for enforcing program rules by investigating complaints made against employers by H-1B workers or their representatives and assessing penalties when employers are not in compliance with the requirements of the program. Justice is responsible for investigating complaints made by U.S. workers who allege that they have been displaced or otherwise harmed by the H-1B visa program. Finally, USCIS’s Directorate of Fraud Detection and National Security (FDNS) collaborates with its Immigration and Customs Enforcement Office to investigate fraud and abuse in the program. Over the past decade, demand for H-1B workers tended to exceed the cap, as measured by the number of initial petitions submitted by employers, one of several proxies used to measure demand since a precise measure does not exist. As shown in figure 1, from 2000 to 2009, initial petitions for new H-1B workers submitted by employers who are subject to the cap exceeded the cap in all but 3 fiscal years. However, the number of initial petitions subject to the cap is likely to be an underestimate of demand since, once the cap has been reached, employers subject to the cap may stop submitting petitions and Homeland Security stops accepting petitions. If initial petitions submitted by employers exempt from the cap are also included in this measure (also shown in figure 1), the demand for new H- 1B workers is even higher, since over 14 percent of all initial petitions across the decade were submitted by employers who are not subject to the cap. In addition to initial requests for H-1B workers, employers requested an average of 148,000 visa extensions per year, for an average of over 280,000 annual requests for H-1B workers. Over the decade, the majority (over 68 percent) of employers were approved to hire only one H-1B worker, while fewer than 1 percent of employers were approved to hire almost 30 percent of all H-1B workers. Among these latter employers are those that function as “staffing companies” that contract out H-1B workers to other companies. The prevalence of such companies participating in the H-1B visa program is difficult to determine. There are no disclosure requirements and Homeland Security does not track such information. However, using publicly available data, we learned that at least 10 of the top 85 H-1B-hiring employers in fiscal year 2009 participated in staffing arrangements, of which at least 6 have headquarters or operations located in India. Together, in fiscal year 2009, these 10 employers garnered nearly 11,456 approvals, or about 6 percent of all H-1B approvals. Further, 3 of these employers were among the top 5 H-1B-hiring companies, receiving 8,431 approvals among them. To better understand the impact of the H-1B program and cap on H-1B employers, GAO spoke with 34 companies across a range of industries about how the H-1B program affects their research and development (R&D) activities, their decisions about whether to locate work overseas, and their costs of doing business. Although several firms reported that their H-1B workers were essential to conducting R&D within the U.S., most companies we interviewed said that the H-1B cap had little effect on their R&D or decisions to locate work offshore. Instead, they cited other reasons to expand overseas including access to pools of skilled labor abroad, the pursuit of new markets, the cost of labor, access to a workforce in a variety of time zones, language and culture, and tax law. The exception to this came from executives at some information technology services companies, two of which rely heavily on the H-1B program. Some of these executives reported that they had either opened an offshore location to access labor from overseas or were considering doing so as result of the H-1B cap or changes in the administration of the H-1B program. Many employers we interviewed cited costs and burdens associated with the H-1B cap and program. The majority of the firms we spoke with had H- 1B petitions denied due to the cap in years when the cap was reached early in the filing season. In these years, the firms did not know which, if any, of their H-1B candidates would obtain a visa, and several firms said that this created uncertainty that interfered with both project planning and candidate recruitment. In these instances, most large firms we interviewed reported finding other (sometimes more costly) ways to hire their preferred job candidates. For example, several large firms we spoke with were able to hire their preferred candidates in an overseas office temporarily, later bringing the candidate into the United States, sometimes on a different type of visa. On the other hand, small firms were sometimes unable to afford these options, and were more likely to fill their positions with different candidates, which they said resulted in delays and sometimes economic losses, particularly for firms in rapidly changing technology fields. Interviewed employers also cited costs with the adjudication and lottery process and suggested a variety of reforms: The majority of the 34 firms we spoke with maintained that the review and adjudication process had become increasingly burdensome in recent years, citing large amounts of paperwork required as part of the adjudication process. Some experts we interviewed suggested that to minimize paperwork and costs, USCIS should create a risk-based adjudication process that would permit employers with a strong track- record of regulatory compliance in the H-1B program to access a streamlined process for petition approval. In addition, several industry representatives told us that because the lottery process does not allow employers to rank their top choices, firms do not necessarily receive approval for the most desired H-1B candidates. Some experts suggested revising the system to permit employers to rank their applications so that they are able to hire the best qualified worker for the job in highest need.