The H-1B nonimmigrant classification has been a critical tool for American businesses to attract highly skilled foreign workers in specialty occupations. While traditionally associated with large corporations in STEM fields, the program has also presented significant opportunities for foreign entrepreneurs seeking to establish and grow businesses in the United States.

On January 17, 2025, the Department of Homeland Security (DHS) introduced a final rule implementing modifications to the H-1B program. This article provides a high-level overview of the H-1B classification; examines the impact of some of these regulatory changes on startups, employers, and employees; and outlines strategic considerations for navigating the new final rule.

BACKGROUND AND EVOLUTION OF THE H-1B VISA 

The H-1B classification, established in 1990, initially capped visas at 65,000 per fiscal year, allowing U.S. employers to hire foreign nationals in specialty occupations requiring specialized knowledge and typically a bachelor’s degree.¹ Legislative changes, including the American Competitiveness and Workforce Improvement Act of 1998 (ACWIA)² and the American Competitiveness in the Twenty-First Century Act of 2000 (AC21),³ modified the program, and in 2004, the cap reverted to 65,000 with an additional 20,000 visas for U.S. master’s degree holders, creating a total cap of 85,000.⁴

These statutory provisions also provided for exemptions from the annual H-1B numerical limitations. The numerical limitation, commonly referred to as the “H-1B cap,” generally does not apply to H-1B petitions filed on behalf of certain noncitizens who have previously been counted against the cap.⁵ Thus, typically, a petition to extend an H-1B nonimmigrant’s period of stay, change the conditions of current employment, or request new H-1B employment for an H-1B worker already in the U.S. do not count against the H-1B fiscal year numerical cap. An approved petition for initial employment is also exempt from the cap if the U.S. petitioner is a public or nonprofit institution of higher education or nonprofit entity affiliated with or related to such an institution of higher education, or if the petitioner is a nonprofit research organization or governmental research organization, commonly referred to as “cap-exempt” organizations.⁶

These legislative and regulatory shifts reflect ongoing debates over the H-1B visa’s role in balancing the needs of U.S. businesses, foreign talent, and domestic workforce protections. U.S. employers have leveraged H-1B visas to attract foreign talent. Foreign entrepreneurs have also utilized the H-1B classification as a tool to support their growth in the U.S., increasing investment and innovation in the U.S.

THE H-1B VISA PROCESS 

Employers may file an H-1B petition for a noncitizen to perform services in a specialty occupation.⁷ If the employee has not been previously selected in the H-1B cap and will be working for a U.S. employer that is not “cap-exempt,” then the beneficiary must be selected in the H-1B annual lottery.

Upon selection, prior to employing an H-1B temporary worker, the U.S. employer must first obtain a certified Labor Condition Application (LCA) from the Department of Labor and then file a Petition for a Nonimmigrant Worker with U.S. Citizenship and Immigration Services.⁸ The LCA specifies the job, wages, length, and geographic location of employment. The employer must pay the noncitizen the greater of the actual wage paid by the employer to other workers with similar experience and qualifications for the specific employment in question or the prevailing wage for the occupation in the area of intended employment.⁹

The position must meet one of the following criteria to qualify as a specialty occupation:

1. a bachelor’s or higher degree or its equivalent is normally the minimum entry requirement for the position;
2. the degree requirement is common to the industry in parallel positions among similar organizations or, in the alternative, the position is so complex or unique that it can be performed only by an individual with a degree;
3. the employer normally requires a degree or its equivalent for the position; or
4. the nature of the specific duties is so specialized and complex that the knowledge required to perform the duties is usually associated with attainment of a bachelor’s or higher degree.¹⁰

In order to perform services in a specialty occupation, the noncitizen must meet one of the following criteria:

1. hold a U.S. bachelor’s or higher degree as required by the specialty occupation from an accredited college or university;
2. possess a foreign degree determined to be equivalent to a U.S. bachelor’s or higher degree as required by the specialty occupation from an accredited college or university;
3. have any required license or other official permission to practice the occupation in the state in which employment is sought, with limited exceptions; or
4. have education, specialized training, or progressively responsible experience (or a combination thereof) that is equivalent to completion of a U.S. bachelor’s degree or higher in the specialty occupation, and have recognition of expertise through progressively responsible positions directly related to the specialty occupation.¹¹

USCIS adjudicates eligibility for the H-1B classification sought. The responsibility for visa issuance rests with the U.S. Department of State, which determines whether the employee is eligible for issuance of a visa abroad after the H-1B petition has been approved by USCIS.¹² Generally, a noncitizen may be admitted to the U.S. in H-1B status for a maximum period of six years; however, each H-1B petition may only be approved for a maximum initial period of admission of three years.¹³ The H-1B petition may be used to sponsor a noncitizen for an initial period of H-1B employment or to extend or change the authorized stay of a noncitizen previously admitted to the U.S. in H-1B status or another nonimmigrant status. An employer may file the petition to sponsor a noncitizen who currently has H-1B nonimmigrant status working for another employer or amend a previously approved petition. Therefore, the total number of approved petitions in any given fiscal year may exceed the actual number of noncitizens who are provided nonimmigrant status in the H-1B classification.

KEY PROVISIONS OF THE JANUARY 17, 2025, FINAL RULE

On January 17, 2025, the Department of Homeland Security (DHS) implemented a “final rule” aimed at modernizing the H-1B visa program, enhancing program integrity, and providing clearer pathways for foreign entrepreneurs and skilled workers.¹⁴ These changes were implemented to balance economic needs with fraud prevention, improve fairness in the H-1B lottery system and strengthen compliance measures for employers. The rule was developed following stakeholder feedback. Concerns such as abuse of the lottery system, increased visa denials, and uncertainty for entrepreneurs were key motivators behind these reforms.¹⁵

A. Changes to the H-1B Lottery and Registration Process

The final rule introduces significant changes to the H-1B lottery and registration process, with the goal of addressing fraud in the selection system. Under the previous system, H-1B beneficiaries could be entered into the lottery multiple times if different employers submitted separate registrations on their behalf, disproportionately benefiting individuals with multiple job offers. This practice skewed the selection process, reducing the chances for smaller businesses, startups, and first-time petitioners to secure skilled foreign talent.

The new rule implements a beneficiary-centered selection process. Instead of prioritizing employers, the system selects unique beneficiaries first, regardless of how many registrations were submitted on their behalf. USCIS will now count each beneficiary only once in the lottery, even if multiple employers submit registrations for them.¹⁶ If selected, only one employer’s petition will be approved for that beneficiary, preventing duplicate selections. This change is relevant for beneficiaries and smaller employers, which often compete with larger multinational companies for skilled talent but have historically been at a disadvantage due to bulk registrations by major consulting and staffing firms.

Additionally, USCIS has implemented stricter fraud detection measures, including mandatory attestations by both employers and beneficiaries, and has expanded its authority to deny or revoke registrations linked to fraudulent or coordinated multiple entries.

B. Increased Enforcement and Compliance Measures

The final rule introduces increased enforcement and compliance measures designed to increase oversight of the H-1B program and reduce fraud and misuse, particularly in industries where third-party placements and contractor-based employment models are prevalent.

The rule addresses increases in site visits conducted by USCIS under its Administrative Site Visit and Verification Program (ASVVP).¹⁷ USCIS officers will conduct more frequent and targeted site visits at H-1B employers’ locations, as well as third-party client sites. These visits will assess whether employers are complying with labor condition application (LCA) attestations, such as paying the prevailing wage and ensuring working conditions do not adversely impact U.S. workers.¹⁸ Employers who fail to meet these requirements may face petition denials, revocations, or even potential debarment from the H-1B program.

The rule also introduces stricter scrutiny of third-party placements to address concerns that some employers abuse the H-1B program by placing workers at client sites without properly overseeing their employment. Employers who place H-1B workers at third-party locations must demonstrate a legitimate employer-employee relationship throughout the visa period, including showing ongoing control over the employee’s work.¹⁹ Contracts, itineraries, and additional evidence may be required to verify compliance, which is particularly relevant for employers that rely on H-1B contractors for project-based work.

Another critical update is the codification of USCIS’s longstanding deference policy for H-1B extensions.²⁰ Previously, DHS had a discretionary policy of deferring to prior H-1B approvals for the same employer, position, and employee, but this was not explicitly stated in the regulations. By codifying this policy, there is greater clarity for employers and H-1B workers applying for extensions, streamlining the adjudication process.

These enforcement measures increase employer accountability while also providing clearer guidelines for businesses navigating the complex compliance landscape of the H-1B program. Employers should proactively review their compliance programs, maintain meticulous documentation, and prepare for increased USCIS scrutiny to avoid potential penalties and workforce disruptions.

C. Opportunities for Foreign Entrepreneurs

The final rule clarifies H-1B sponsorship for immigrant entrepreneurs, particularly startup founders. It builds on cap-exempt H-1Bs and confirms that entrepreneurs can qualify for sponsorship and hold concurrent H-1Bs. These changes confirm existing strategies to help entrepreneurs maintain valid work authorization while growing their businesses.

There is an explicit recognition of concurrent H-1B employment through cap-exempt entities, such as universities, nonprofit research institutions, and government-affiliated organizations. If an individual secures H-1B employment through a cap-exempt entity, they can simultaneously hold a separate cap-subject H-1B with a private employer—such as their own startup—without being subject to the annual H-1B lottery.²¹ This provision has been used by entrepreneurs, in collaboration with cap-exempt organizations, which have programs designed to support immigrant founders.

Additionally, the final rule provides further clarity on the employer-employee relationship requirement, a crucial issue for startup founders who hold majority ownership in their companies.²² Under previous USCIS policies, although possible, founders faced challenges proving that their own companies could act as legitimate petitioning employers with the necessary control over their employment. The final rule clarifies that founders can qualify for H-1B sponsorship if they can demonstrate a formalized structure, such as a board of directors or investor group with the authority to hire, supervise, and terminate the H-1B beneficiary, a contractual employment agreement outlining work duties, salary, and reporting structures, or operational independence, ensuring that the startup entity exercises distinct employer control.²³

By codifying this guidance, DHS has removed much of the uncertainty surrounding H-1B sponsorship for entrepreneurs, making it easier for high-skilled foreign nationals to launch businesses in the U.S., which is critical to American’s economic growth.

For foreign entrepreneurs, these updates provide a clear and more predictable pathway to securing work authorization while building and scaling their companies. Many Michigan-based cap-exempt organizations, including but not limited to Global Detroit, support immigrant founders and leverage these new provisions to help more international entrepreneurs establish roots in the state, driving job creation and economic development.

D. Employer Considerations and Compliance Requirements

While the updated regulations aim to reduce fraud, enhance program integrity, and create a fairer lottery system, they also place additional compliance obligations on employers, necessitating adjustments in recruitment, sponsorship, and workforce planning strategies.

Under the new lottery system, which prioritizes individual beneficiaries over employer-based registrations, companies should review their recruitment strategies to maximize their chances of securing high-skilled foreign talent. This change is particularly important for large firms that submit multiple H-1B registrations for different positions, as they can no longer gain an advantage by submitting numerous entries for the same worker through affiliated entities.

Additionally, the rule strengthens oversight on third-party placements and remote work arrangements, which could impact firms that rely on H-1B contractors for project-based work. Employers who place H-1B workers at third-party worksites will face heightened scrutiny regarding control, supervision, and work location compliance, requiring detailed itineraries and work agreements to avoid compliance violations.

The final rule also clarifies the viability of concurrent H-1B employment for startup founders, providing a clearer path for immigrant entrepreneurs to legally work for their own startups while maintaining valid H-1B status. Cap-exempt institutions will continue to enjoy year-round access to H-1B sponsorship without being subject to the annual cap. However, they must comply with updated DHS regulations designed to strengthen site visit protocols, verify employment conditions, and prevent misuse of cap-exempt privileges.

These compliance measures mean stricter record-keeping, more frequent audits, and potential site visits to ensure that H-1B employees are properly classified and employed under the terms of their petitions. Cap-exempt organizations must also be mindful of collaborations with private sector partners, ensuring that H-1B employees placed in joint projects remain compliant with cap-exemption rules.

PRACTICAL CONSIDERATIONS FOR EMPLOYERS AND EMPLOYEES

Employers should take proactive steps to align with the new H-1B regulations. This includes refining H-1B sponsorship strategies, as the beneficiary-based selection process requires careful submission of registrations. Companies with third-party placements, remote workers, or multiple affiliates should enhance compliance programs and conduct rigorous internal audits to meet the updated requirements. Startups and small businesses can also leverage cap-exempt opportunities by pursuing concurrent H-1B sponsorship through cap-exempt institutions, while considering eligibility for alternative visas like the O-1 for extraordinary ability workers or permanent pathways. Additionally, employers should ensure full compliance with LCA requirements, prevailing wage regulations, and recordkeeping. By staying informed and adapting to these changes, businesses can attract global talent and remain competitive in the evolving workforce.

CONCLUSION

The January 17, 2025, H-1B rule introduces significant changes for businesses and entrepreneurs, some of which are discussed in this article, particularly in areas of compliance and access to talent. By adapting to these changes, employers can maintain competitiveness while foreign entrepreneurs have clearer pathways to establish and grow their companies in the U.S.