PPP Forgiveness & Misuse of Funds

When Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES), one of the most unique business relief programs in this nation’s history was born —  the Paycheck Protection Program loan (PPP loan). At its core, the PPP loan is designed to provide low-interest, forgivable loans to small business affected by the COVID-19 pandemic to help those affected businesses bridge the gap back to normalcy.  The program is administered by the U.S. Small Business Administration (SBA).

As originally enacted, the PPP loan was to provide small businesses money they could use (primarily) for the retention of employees, which included not only the payment of wages but also the employer cost of benefits (e.g., medical, dental and vision insurance premiums, employer 401k match, etc.) over an 8 week period.   It also allowed PPP loan recipients to use up to 25% of the loan funds to pay mortgage interest, payment under a lease obligation, and to pay utility costs.  If used properly, the loan proceeds were 100% forgivable.  But as the COVID-19 pandemic drug on, business groups began to complain that the 8-week time frame, and percentage spending requirements were too onerous – particularly for businesses that were not allowed to reopen or only partially reopen during the 8-week, post loan period.  Therefore, on June 5th the President signed legislation into law which made changes to the PPP loan program.  The 8-week period was extended to 24 weeks and the 25% usage of funds for non-payroll purposes was enlarged to 40%.  But even with this increased flexibility, businesses should still be wary of how they spend the money and how they complete their loan forgiveness applications.  As with all things related to loans and the federal government, the devil is always in the details.


Loan Forgiveness

One of the benefits of the PPP loan is that it is 100% forgivable.  However, forgiveness  is not automatic.  For the PPP loan to be forgiven, the borrower must meet a few criteria:  (1) use the loan proceeds within the now extended 24-week loan period; (2) apply the funds toward approved uses; (3) and apply for forgiveness at the end of the loan period.

The PPP loan period begins on the origination date of the loan which is listed on the loan documents from the bank that provided the loan (not the SBA). The origination date for PPP loans is usually the date on which the loan funds are deposited into the company’s bank account.  The coverage period now ends the earlier of 24 weeks after the loan origination date or the end of the year, extended from the original 8-week period.

With this in mind, every loan recipient should go back through their PPP loan documents to calculate the loan period and make note of the end date in order to accurately assess when the forgiveness application can be submitted.  Companies should also reach out now to their PPP loan lender and ask for a copy of the forgiveness application to evaluate in advance what unique metrics or documentation that particular lender may require to support the forgiveness application. The forgiveness application must be completed and submitted to the bank that provided the PPP loan funds (not the SBA).  Since forgiveness is not automatic, it will be critical to complete the application correctly and to supply all requested information to the lender in a timely manner so as not to jeopardize forgiveness of the loan. Notwithstanding differences between lenders, the following is a list of documents that companies will likely need to provide in support of their loan forgiveness application:

  1. Payroll reports showing payments to employees;
  2. Payroll tax filings;
  3. Receipts for funds used to pay non-related payroll expenses;
  4. Copies of Lender amortization schedule for mortgage interest, current lease agreements for business rent payments and utility invoices; and
  5. Bank Statements.

The lender has sixty (60) days to make a decision to forgive the loan in full, partially forgive the loan, or not to forgive the loan at all.  If the loan is not forgiven in full or only partially forgiven, the company can appeal the decision.  The SBA has promised to provide more information on the appeal process later.

Before the June 5th changes to the PPP loan program, once a loan was forgiven an employer could no longer take advantage of the employer Social Security tax deferral.  With the June 5th changes this is no longer the case; employers can now take advantage of the employer Social Security tax deferral.


Misuse of PPP Loan Funds

When each company obtained their PPP loan they signed off on several certifications, one being that if the PPP loan funds were knowingly used for unauthorized use the federal government may hold the company legally liable for the loan proceeds.  Another certification required the company to attest that the all the supporting documents and forms were true and accurate.  False statements could be punishable under the law by fines and/or imprisonment.

Misuse of the PPP loan funds can cause the loan not to be forgiven and can result in the SBA requiring the immediate payback of the full loan amount.  If you knowingly misuse the PPP loan funds for unauthorized purposes you can be subject to charges for fraud.  A good “rule of thumb” is to use the funds for only those items that have been expressly authorized by the lender.  Some examples of misuse include:  (a) profit withdrawals by or paying personal expenses of shareholders, partners or members of a company; or (b) paying for business expenses that are not specifically identified as authorized under the PPP loan terms. Sound documentation will be critical to showing that the company used its PPP loan funds in an appropriate manner and were not misused.



The SBA already has the loan forgiveness application available on their website.  However, it has not yet been updated for the program changes that were issued on June 5th.  However, the basic format should not change.  All companies who received PPP loans should go ahead and obtain a copy of the forgiveness application so that they can become generally familiar with what will be required for forgiveness and to set up a plan to demonstrate to their lender that the PPP loan funds were used as they were intended.  The key to having your loan forgiven will be producing accurate documentation demonstrating that your company used the funds for its intended purpose.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

Unemployment Taxes – What You Need to Know

Throughout the life of a business, there are many different types of taxes that must be paid. If the business is paying employees for their services, unemployment taxes are one of those taxes. Unemployment taxes can easily be overlooked since they are not something ordinarily broken down as a line item on a paycheck stub. Yet unemployment taxes are every bit as important as any other, since it is a violation of state law if an employer fails to pay them. Failing to remit the appropriate unemployment taxes can result in penalties for the employer and delays in former employees receiving unemployment benefits if too little was paid into the unemployment fund by the employer.

How Unemployment Works

Unemployment taxes are designed to fund programs that provide a minimum amount of compensation to out-of-work individuals who are unemployed through no fault of their own. For example, a company may reach a point that they are downsizing and need to initiate layoffs. If an employee is fired for absenteeism, poor performance, or other infraction, they are usually eligible for unemployment benefits, unless they were fired for a really egregious act. Generally speaking, if an employee voluntarily resigns, they will not be eligible for unemployment benefits. Unemployment taxes are usually 100% paid by an employer and fund an unemployment insurance program administered by the state in which the employee works. If an employee finds themselves unemployed, he or she can apply for unemployment assistance through the appropriate state workforce agency to receive a portion of their previous income until they land their next job. There are two types of unemployment taxes that employers are responsible for collecting and remitting — Federal Unemployment tax (FUTA) and State Unemployment tax (SUTA).

Federal Unemployment Tax

FUTA tax is overseen by the United States Department of Labor and is paid by all businesses nationwide, if one of the following criteria are met:

  • The employer paid wages of $1,500 or more in a calendar quarter; or
  • There were one (1) or more employees for at least part of the day in any twenty (20) or more different weeks in the year.

The FUTA tax rate is a flat 6% for all businesses and is taxed on the first $7,000 in wages earned by an employee. Payments are remitted to the IRS on a quarterly basis if the liability has reached over $500 for that quarter. Form 940 is filed with the IRS at the end of each year to reconcile those payments. There are some types of organizations that may be exempt from paying this tax such as government or educational entities, as well as certain 501(c)3 charitable and religious entities if they qualify under certain IRS rules.

State Unemployment Tax

SUTA taxes are a little more involved, especially if you have employees that work in multiple states. For a majority of states, unemployment tax is paid only by the employer and no deductions are taken out of an employee’s paycheck. However, in the states of Alaska, New Jersey and Pennsylvania, a small portion is taken out of the employee’s paycheck and remitted along with the employer portion. It is important for the employer’s Human Resource and Payroll departments to be mindful of the states in which its company employees are working. For example, if an employer has a headquarters in Virginia and they hire an employee who lives in Pennsylvania and this person will continue to work full-time from their home, the employer must register for an Unemployment account to file and pay those taxes to Pennsylvania. To make matters more complicated, there is no uniform SUTA rate or wage limit to use across all the states. One state might start the employer at a rate of 2% for the first $8,000 in wages earned and another state might start at 2.5% for the first $13,000 in wages earned.

Upon registering for a state’s Unemployment Tax, the employer will be given a standard new rate. Then, usually on a yearly basis, the employer rate will be adjusted. The rate can go up or down depending on a couple different factors, the main ones being the type of industry your company is part of, how long your company has been in business, and how many previous employees were paid benefits. If an employer has paid out several unemployment claims, the tax rate may go up to compensate for those extra payments to out-of-work former employees. If the employer does not pay out very many claims (or none at all), the tax rate should be reduced to reward the lower claim history. In addition to keeping claims lower, other key things to remember to help reduce the rate is to make sure to apply for the accounts as soon as an employee is hired in another state and be sure to file and pay the necessary taxes by the due date. An online account can be established with each state that allows reports to be filed and taxes paid without the need to send anything through the mail.

Getting help with Unemployment Taxes

Keeping track of all the different state unemployment tax rates and changes can be confusing and time consuming. Hiring an outside firm to help monitor, file, and remit these taxes on behalf of your company is one solution that will allow you to focus on the core needs of your business instead of unemployment taxes. As a Professional Employer Organization (“PEO”), C2 routinely assists clients with setting up and paying these taxes. By choosing to be a PEO client, the employer’s information will be placed under the unemployment rate of the PEO when reporting and filing unemployment taxes. All the client’s employees will be reported under the name and account number of the PEO – thereby removing a big administrative burden from the client’s shoulders.

In Summary

Unemployment taxes fund a necessary pool of resources for out-of-work employees. However, handling the administrative burden of accurately collecting and remitting the unemployment taxes to the appropriate state taxing authorities can be daunting, especially for small to mid-size employers who have employees working in different states. For each new employee hired, the employer will need to pay into the wage base for each person in the state where that employee works. Fortunately, PEO’s such as C2 provide expert assistance on collecting and remitting unemployment taxes. So there is no need to struggle with solutions to this problem. C2 can free up the time that an employers’ staff would normally spend, and allow them to focus on more productive tasks that will expand the business.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

Cybersecurity and Its Growing Importance

In today’s world, C2’s clients expect great HR service, but they also expect it to be delivered quickly and conveniently. That means C2 must remain on the forefront of technology to deliver its payroll, onboarding, benefits enrollment, and recruiting services across various websites and software platforms. With the growing expectation from clients for technological ease comes the increased importance of protecting information that is often shared across multiple servers and software platforms. Compounding the need for information security is the prevalence of hacking, malware, phishing scams, and other types of malicious attempts to steal information or compromise system functionality. Hence, “cybersecurity” has become its own industry. No longer is cybersecurity limited to government agencies, banks, and the largest employers. Every business with a website or company e-mail must be mindful of outside threats and take appropriate measures to protect its company, clients, and employee information from outside threats.

What is Cybersecurity?

Cybersecurity is the art of protecting computer systems, networks, proprietary information, and software from theft, corruption, or damage, as well as from the disruption or misdirection of the services they provide. Cybersecurity risks are increasing in today’s modern, technology-driven world. Generally poor configuration of cloud services paired with increasingly sophisticated cyber criminals means the risk that organizations might suffer a successful cyber-attack or data breach is on the rise.
Cyber threats can come through any employee within your organization. Entry level employees through C-suite executives should be trained to recognize the most common types of cyber-attacks such as malware and phishing, which often come through e-mails. Other cyber-attacks can directly target your company’s server or pick up sensitive company or employee information from individuals’ use of certain websites or credit cards.

In Europe, the GDPR (General Data Protection Regulation) is the data protection standard that governments and businesses must follow. The GDPR is generally considered the toughest privacy and security law in the world. Though it was drafted and passed by the European Union (EU), it imposes obligations on organizations anywhere, so long as they target or collect data related to people in the EU. The regulation went into effect in 2018, and levies harsh fines against those who violate its privacy and security standards, with penalties reaching into the tens of millions of euros.

The United States has opted for a different approach to data protection. Instead of formulating one all-encompassing regulation such as the GDPR, it chose to implement sector specific data protection laws and regulations that work together with state-level legislation to safeguard American citizens’ data. These include:

  • The Health Insurance Portability and Accountability Act (HIPAA), a set of standards created to secure protected health information (PHI) by regulating healthcare providers.
  • NIST 800-171, a special publication released by the National Institute of Standards and Technology aimed at protecting Controlled Unclassified Information (CUI) in non-federal information systems and organizations.
  • The Gramm-Leach-Bliley Act (GLB Act or GLBA), also known as the Financial Modernization Act of 1999, that seeks to protect the personal information of consumers stored in financial institutions.
  • The Federal Information Security Management Act (FISMA), a federal law part of the larger E-Government Act of 2002, that made it a requirement for federal agencies to develop, document, and implement an information security and protection program.

While states such as California have a security breach notification law in place, not all states have one. Therein lies the problem with US data protection legislation. Given the number of laws in existence and their differences from state-to-state, some may be up to GDPR standards, while others may not. Even more reason why U.S. employers must take the initiative to implement sufficient cybersecurity measures on their own to ensure the integrity of their company, employee, and client information.

The Importance of Cybersecurity

With increased technological capabilities, so increases the importance of Cybersecurity. Fundamentally, our society is more technologically reliant than ever before and there is no sign that this trend will slow. Personal data that could result in identity theft can be stolen by hackers and posted to the public on social media accounts. Sensitive information like social security numbers, credit card information and bank account details are now stored in cloud storage services, which are susceptible to hackers unless proper cybersecurity measures are taken.

Cybersecurity is no longer a concern just for large companies. It should be a concern for every business, but particularly for small and mid-sized businesses. The reason is that smaller businesses tend to be less technologically sophisticated and utilize fewer cybersecurity measures than their larger brethren who have more resources at their disposal. But hackers and malware do not just target large companies, they target every organization. Thus, the size of your organization matters far less than the types of technology your employees and clients utilize. Not every cybersecurity measure need be undertaken by every organization. However, the organization’s cybersecurity measures should be dictated by the types of servers and software the company uses — not by how large they are.

Cybercrime is Increasing

Cybercrime is increasing because more and more of our society revolves around technology and because the technological advances being made often outpace the backside protections used to stave off cyber criminals. That is why a whole industry has sprung up surrounding identity theft and data protection. Services such as Equifax and Transunion no longer just provide credit scores, they sell identity theft protection services (as do a whole host of other companies) that monitor your personal or business information usage across multiple technology platforms for any suspicious activity.

Information theft is the most expensive and fastest growing segment of cybercrime. Largely driven by the increasing exposure of personal, identifying information to the web via cloud services, social media, and online purchasing. But it is not the only target. Social engineering remains the easiest form of cyber-attack with ransomware and phishing being the easiest form of entry. “Social engineering” is the term used for a broad range of malicious activities accomplished through human interactions. It uses psychological manipulation to trick users into making security mistakes or giving away sensitive information (e.g., clicking on a link in an email from a sender masquerading as your boss). Third-party and fourth-party vendors who process your data and have poor cybersecurity practices are another common target, making vendor risk management and third-party risk management all the more important. Older generations are also more at risk to be victims of cybercrime, since the majority are typically not as familiar with modern day technology as their younger counterparts.

What is the Potential Impact of Cybercrime?

Failing to deploy adequate cybersecurity protections can damage your business in a range of ways, including such as economic costs, reputational costs, and regulatory costs. From an economic perspective, organizations risk theft of intellectual property, corporate information, disruption to client relationships or business transactions, and the cost of repairing software or systems compromised by cyber-attacks. Reputational losses can include loss of client trust, loss of current and future customers to competitors and poor media coverage. While regulatory costs can include fines or sanctions from various state, federal, or overseas regulatory bodies resulting from your organization’s failure to prevent, report, or timely respond to a cyberattack that compromises personal identifying information.


At C2, we take robust measures to ensure that our company and client information remains secure. All companies, no matter their size, should do the same. Implementing appropriate technological security measures, along with training employees to recognize common cybersecurity attacks such as phishing and social engineering scams is simply a must, especially in today’s modern age where cybercrime has become so prevalent.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

State Individual Insurance Mandate Reporting

The Affordable Care Act’s reporting requirements are difficult enough to navigate. Now add to the mix additional requirements imposed by states with individual mandates regarding health insurance, and you have a recipe for complete confusion. Many employers have questions on which employees to include. For example, is reporting required for an employee who resided in the state for part of the year? Is reporting required only for employees who are residents as of December 31? C2 recently had the opportunity to help a client navigate through some of these challenges.

Background: The ACA individual Mandate and State Law

The ACA individual mandate (also known as the “individual shared responsibility provision”) requires most Americans to have qualifying health insurance (minimum essential coverage), either through their employer on secured on their own in the marketplace. The individual mandate is part of The Affordable Care Act (ACA) which became law in March 2010.  If individuals didn’t have proof of health insurance when they filed their taxes, the IRS assessed penalties. In December 2017 (effective January 1, 2019), the Tax Cut and Jobs Act of 2017 removed the penalty for individuals not having health insurance, but the requirement to have health insurance remains in place.

Although the ACA individual mandate is gone (in terms of the penalty), to keep their healthcare marketplaces stable, several states have enacted their own state version of the ACA individual mandate, requiring taxpayers to provide proof of health coverage to avoid financial penalties imposed under state law. Those jurisdictions (one of which is the District of Columbia) are requiring employers to file their 2019 1095-Cs with the respective state tax agency, in addition to filing them with the IRS.

Breakdown of State Penalties for Individuals and Employers

Fortunately, not many states have enacted their own ACA-type reporting laws.  However, the trend to do is likely to continue, particularly as federal enforcement and monitoring of compliance with the ACA grows weaker amid changed political priorities under the Trump administration.  To date though, here is a breakdown of jurisdictions that have enacted their own “individual mandate” style laws.


 The mandate requires state residents to maintain minimal essential coverage for themselves and dependents. Failure to maintain coverage could result in an annual penalty of 2.5% of household income or a per person charge, whichever is higher. The per person penalty is $695 per adult and $375.50 per child. The penalty is capped at the state average premium for a bronze level plan on the California Exchange for the applicable household size. The Individual Mandate goes into effect January 2020.

The law will require “applicable entities”, including insurance carriers and employers that sponsor health coverage to comply with reporting obligations. While the details of such additional reporting obligations have not yet been determined the reporting information is expected to be the same information reported to the IRS under IRC § 6055 and must be filed annually with the Franchise Tax Board by March 31, starting in 2021. Failure to comply may result in a penalty to the reporting entity of $50 per applicable individual.

Washington D.C.

Under District law, most DC resident must have minimal essential coverage for themselves and their dependents or face a penalty of $695 per uninsured adult, or 2.5% of household income, whichever is greater, with a cap on the penalty equaling the average cost of a bronze plan on the D.C. exchange. The District of Columbia’s Individual Mandate went into effect January 2020.

Employers also face reporting obligations under the city’s individual health coverage mandate. Applicable entities include plan sponsors with at least 50 employees and at least one DC resident, as well as health insurers providing MEC to DC residents during the coverage year. These entities must sign up and file information returns with the DC Office of Tax and Revenue (OTR). All information returns must be uploaded through MyTax.DC.gov.  For coverage year 2019, the filing deadline is June 30, 2020. For later repotting years, the filing deadline will be thirty (30) days after the federal deadline, which includes any extensions.


For state residents, the penalty is up to 50% of the minimum monthly premium payment the person would have qualified for through the state’s Health Connector site. The penalty only applies to adults (18 and up).

Employers must furnish Form MA 1099-HC to employees by January 31st each year. Failure to distribute the form may result in a penalty of $50 per employee, up to a maximum of $50,000.  Also, Employers must file the applicable reports electronically using their MassTaxConnect (MTC) account.

New Jersey

Individuals who do not comply with the individual mandate are assessed penalties based on the higher penalty amount calculated from either 2.5% of gross household income or $695 per individual and $347.50 per child. There is a cap on the penalty equaling the average cost of a bronze plan. If it is a per-person charge, the maximum penalty is $2,085. If the penalty is based on income, the maximum penalty is the average yearly premium of a New Jersey bronze plan. The individual mandate went into effect January 2020.

In addition, employers will be required to report the previous year’s health coverage information for covered employees and their dependents residing in the state. Health coverage returns must contain information required for IRS Forms 1094-C and 1095-C by March 31st of each year through New Jersey’s e-file system for W-2 forms.

Rhode Island

Effective January 2020, individual penalties apply to residents based on 2.5% of their household income or $695 per adult, whichever is greater. The penalty is capped at the average cost of the state exchange’s bronze plan.

Employers may satisfy the new state reporting requirement by submitting their federal Forms 1095-B and 1095-C, which currently require information on which employees have been offered, or received, employer-provided health insurance. The filing deadline and procedure has yet to be determined.


Vermont’s state level mandate also goes into effect January 2020. No individual penalties have been established. Residents will be required to self-report when filing individual income tax returns.  The state will use the data to assist uninsured individuals with obtaining health insurance coverage.  Currently, the law does not impose any reporting requirements for employers.

Employer Takeaway

If you are currently using a payroll company or tax professional for assistance with the ACA-required reporting, it is important to contact them to ensure compliance with state-level reporting that may be required for some or all of your employees.  If your company handles its own reporting, be sure to determine a method of reporting and an electronic interface with each state well in advance of deadlines. Some jurisdictions, such as DC, require reporting entities to jump through several administrative hoops to be able to file the applicable reports (and paper filing is not permitted).  Additional states such as Hawaii, Washington, Connecticut, Minnesota, and Maryland are considering enacting their own individual coverage mandates.  So, employers should definitely stay abreast of this issue for those states in which they have employees.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

Integrity Testing in the Hiring Process

Employers often use tests and other selection procedures to screen applicants for hire and employees for promotion. There are different kinds, but the tests that are currently generating the most interest (and the most questions) are personality or integrity tests. Such tests assess the degree to which a person has certain traits or dispositions (e.g., dependability, cooperativeness, risk aversion) or aim to predict the likelihood that a person will engage in certain misconduct (e.g., theft, absenteeism, dishonesty).

However, employers must be cautious in using such tests. The tests must be job-related, consistent with business necessity, and applied consistently.  Even then, hiring tests can sometimes disproportionately disadvantage a minority class of applicants based on race, gender, sex, etc. and, in the process, violate federal and state anti-discrimination laws (called “disparate impact” discrimination).


Is There A Disparate Impact?


Under Title VII of the Civil Rights Act of 1964, integrity tests are permitted as long as they are not “designed, intended or used to discriminate because of race, color, religion, sex or national origin.” 42 U.S.C. § 2000e-2(h). Title VII also imposes restrictions on how to score such tests. For example, employers are not permitted to (1) adjust the scores of, (2) use different cutoff scores for, or (3) otherwise alter the results of employment-related tests on the basis of race, color, religion, sex, or national origin. Id. at § 2000e-2(l).

Even if a given test is truly “neutral” in its purpose and administration, Title VII also prohibits employers from using neutral tests or selection procedures that have the unintended effect of disproportionately excluding persons based on race, color, religion, sex, or national origin (i.e., “disparate impact”).

In disparate impact cases, courts examine whether the employer uses a particular employment practice that has a disproportionately negative effect on applicants based on their race, color, religion, sex, or national origin – even there was no ill intent by the employer. For example, if you require that all applicants pass a physical agility test, does the test disproportionately screen out women?  Determining whether a test or other selection procedure has a disparate impact on a particular group ordinarily requires a statistical analysis to determine.


Using a Test to Evaluate a Test


One method commonly used to determine if an integrity or personality test has a disparate impact on a certain group is to validate the test using the Uniform Guidelines on Employee Selection Procedures (UGESP) which the EEOC has adopted. (See 29 C.F.R. Part 1607.) UGESP outlines three different ways you can validate your hiring tests through a validation process:

  • Criterion-related validation: a statistical demonstration of a relationship between scores on a selection procedure and job performance of a sample pool of workers.
  • Content validation: a demonstration that the content of a selection procedure is representative of important aspects of performance on the job.
  • Construct validation: a demonstration that (a) a selection procedure measures a construct (something believed to be an underlying human trait or characteristic, such as honesty) and (b) the construct is important for successful job performance.

UGESP provides detailed guidance about each method of test validation.

If an employers integrity or personality test is shown to have a disparate impact based on a protected characteristic – such as sex in the above physical agility example – the employer must be able to show that the test is job-related and consistent with business necessity. Put another way, the company must show that the test it is necessary to the safe and efficient performance of the job. In deciding whether to adopt a hiring test, such as an integrity test, employers should make sure the test is associated with the skills needed to perform the job successfully. Validation under the UGESP guidelines sufficiently demonstrates the job-relatedness of the test.

However, even if employers can show that their test is job-related, it could still be discriminatory if a less discriminatory alternative would meet the company’s business need. As a result, employers should stay abreast of changes in job requirements and update testing specifications as new testing techniques are developed.


Takeaways in Implementing Integrity Tests


  • Ensure that the integrity tests and other selection procedures are properly validated for the positions and purposes for which they are used.
  • The test must be job-related and its results appropriate for your purpose. While a test vendor’s documentation supporting the validity of a test may be helpful, employers are ultimately responsible for ensuring that the tests are valid under UGESP.
  • If using the construct validation measure, define which personality trait is being measured and why it is important for successful job performance.
  • If a selection procedure screens out a protected group, determine whether there is an equally effective alternative selection procedure that has less adverse impact and, if so, adopt the alternative procedure.

Hiring tests, such as integrity or personality tests, can be effective tools to screen applications for hire and promotion – and their popularity is increasing because technological advances make administering the tests and evaluating the results easier and faster. However, employers must still be careful when adopting such tests, as it is each employer’s own obligation to prove that their selection criteria do not have a disparate impact on certain groups and, further, that the test(s) are job-related, consistent with business necessity, and the least discriminatory alternative(s) available.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.

The H1-B Visa Program & Lottery Process

As a Professional Employer Organization (“PEO”), C2 helps many corporate clients navigate the full recruiting life cycle. For many companies, that means providing them guidance about recruiting and hiring skilled workers from other countries, which requires the employees to obtain a Visa if they will be working in the United States. For highly educated and skilled employees, the most common type of visa is the H-1B.

The H-1B visa is a non-immigrant Visa category that allows U.S. companies to petition for highly educated foreign professionals to live and work in the United States in specialized fields such as IT, finance, accounting, architecture, engineering, mathematics, science, medicine and many others similar professional disciplines. Once foreign professionals attain an H-1B visa, they may hold the H-1B visa status for up to six (6) years. The H-1B visa is renewable every three years, if approved by the United States Citizenship and Immigration Services (USCIS).


A. H-1B Visa Registration Process


In December 2019, the U.S. Citizenship and Immigration Services (“USCIS”) made a change to a H-1B visa registration process, including the number of visa’s available in fiscal year 2021 (beginning October 1, 2020). The purpose of this new process is to reduce the burden on U.S. employers and the agency from requiring employers to submit H-1B petitions and supporting documentation prior to knowing whether a H-1B visa number will be available. While USCIS has not placed any limit on the number of registrations a U.S. employer may file, the employer must attest that it intends to file an H-1B petition on the foreign national’s behalf and cannot submit more than one H-1B registration per foreign national.

If USCIS receives more H-1B registrations than there are H-1B visa numbers available, then USCIS will conduct a lottery. USCIS will select registrations for the 65,000 H-1B visa numbers first and then for the 20,000 master’s exemption visa numbers. USCIS will send notification to employers electronically if it selects a registration to move forward in the visa process. USCIS also will give the U.S. employer at least ninety (90) days to file its H-1B petition.

On April 1, 2020, USCIS announced, “Nearly 275,000 unique registrations were submitted during the initial registration period. Roughly 46% of all registrations were for prospective beneficiaries with U.S. advanced degrees.” The number of unique registrations – nearly 275,000 – is more than three times the H-1B annual limit of 85,000.


B. Unpacking the H-1B Visa Lottery Process


On January 31, 2019, the Department of Homeland Security (DHS) finalized a regulation for a new process to submit H-1B petitions and conduct the H-1B visa lottery (a computer-generated, random selection process). A lottery has been used for the past several years due to the large number of H-1B applications (over 200,000 last year) submitted beyond the 65,000-annual limit and the 20,000 advanced degree exemption from the limit for new H-1B petitions each year.

In the past, until FY 2020, employers had to submit an entire H-1B package within the first five (5) days following April 1st to be considered for the H-1B Lottery. The data of the physical packages was fed into the online system and then a lottery or random selection was done. The new regulation has changed that process. Employers will now send in completed applications only after a petitioner (i.e., the employer) registers electronically for a beneficiary (i.e., the potential H-1B employee) and after the agency has selected that beneficiary via the random, electronic H-1B lottery process.




C. H-1B Visas Amid the COVID-19 Immigration Restrictions


President Donald Trump signed the “Buy American, Hire American” executive order back in April 2017, and The Trump administration has been gradually updating policies to align them with the presidential executive order on buy American and hire American.

The executive order to temporarily stop immigration amid the COVID-19 crisis only applies to new applications for permanent residency (green cards) and does not affect the H-1B visa program. However, the president has asked his administration to review temporary worker programs “to assess whether additional measures should be taken to protect American workers.”

The DHS has also proposed another rule entitled “Strengthening the H-1B Nonimmigrant Visa Classification Program.” If enforced, it will mean that the definition of specialty occupation, a key factor on which H-1B visa decisions hinge, could be revised to further limit those foreign nationals that are eligible for H-1B visas so as to better protect the American workforce.
In the meantime, the pandemic has reportedly forced temporary but significant delays in the processing of this year’s H-1B visa applications, according to USCIS. The agency’s entry of data and notification process to applicants did not even begin until May 1st. And the agency has cautioned that applicants should expect concomitant delays in the lottery system, as well.


D. The Bottom Line for Employers


The H-1B Visa system has always been, at best, an imperfect system. However, it is extremely unlikely the H-1B visa program will ever be scrapped completely, absent an overhaul of federal immigration law. Currently, the H-1B Visa system is the only way for firms to attract the best talent outside of the U.S. that will allow them to work and live in this country. And a record number of H-1B applications (275,000) were filed with USCIS’s new electronic pre-registration system for the 2020-21 fiscal year. While the COVID-19 pandemic has caused delays in processing, there is no reason at this juncture to think that UCIS will halt H-1B visa’s altogether. Thus, employers who have already submitted applications or who may need skilled foreign nationals in the years to come should familiarize themselves with the H-1B application and lottery process.

C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.