Can H-1B and J-1 visa holders legally receive referral bonuses or stock compensation?

Immigration Law

Liz

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So H-1B/J-1 can earn passive income. However, that income requires that they essentially do nothing or limited things. With the bonuses, they may be legal, since they are just telling friends about the platform. However, the payments can trigger a lot of extra scrutiny. Even if it's in gift cards, the payment would have to be disclosed and tax would also have to be paid.

IRS 1099-NEC Form

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I am helping a medical startup that's doing a matching service for physicians to match with hospitals for work. The owner wants to provide referral bonuses of $2,000 to people who have H-1B and J-1 visas, so they’re international medical graduates. It seems like this is an issue—I don't think we can pay them with a 1099. He also thinks that gift cards are a workaround, and I don't think that's true.

Lexi, Chatbot

I understand that navigating the complexities of compensation for international medical graduates can be challenging. Can you clarify whether the startup is currently registered as a business entity and compliant with relevant employment laws?

Yes.

Lexi, Chatbot

Are you looking for guidance specifically on the legality of referral bonuses for H-1B and J-1 visa holders?

Yes.

Lexi, Chatbot

Is there anything else the Lawyer should know before I connect you? Rest assured they'll be able to help with your referral bonuses.

Don't know yet.

Liz

Hi there! My name is Liz and I’ve been an attorney for more than a decade, and I am here to assist with your legal concerns. Just so you are aware, this platform provides legal information only. No attorney-client relationship is formed from our conversation. So I can best help, the payment would just be for referring other candidates?

Hi! Yes, it would be, and they may be sending in multiple referrals so they could be getting $2K bonuses multiple times.

Liz

What exactly do they have to do for the referral?

Tell their friend to sign up for the platform. If the friend matches and gets a job with the hospital and we get that contract with the hospital, then they'd get the referral bonus.

Liz

Got it, thanks for explaining that! Do the H-1B/J-1s work for the platform?

No, they wouldn't.

Liz

That can indeed be very complicated.

Liz

Just your absolute gut feeling—is this something to try to just shut down right now? Or if I'm really buttoned up with documentation, controls, etc., could it be okay? The owner seems to think this would be a large revenue driver, but I'm very concerned about compliance, especially when this seems like something that could risk people's immigration/visa status.

Liz

It's definitely in a gray area. With all of the new immigration controls, it could quickly become a slippery slope of issues, including the risk to status.

Would there be a bullet point list of applicable laws for this I could write down?
Would there be any workarounds you can think of? A promise to pay once they have green card status? A charitable donation in their name? Stock?

Liz

I mean, they can be paid. The issue mostly though is that they can't perform it as work. If they are doing multiple referrals and being paid several times a month, that can trigger USCIS to question where it is coming from.

So how could we concretely define and control it not being work?
Or if we limited each person to one payment only, could that help?

Liz

For applicable laws, it's a bit complicated. The H-1B law: https://www.uscis.gov/working-in-the-united-states/h-1b-specialty-occupations

You could also limit the payments, which can help.

Is there something I could look into regarding the definitions of it being work or not?
Is this something where I could try to find specific public legal cases to support any theories?

Liz

Legal cases are created by appeals, but you could look at case law.

The owner is convinced there's absolutely no problem with these visa statuses. He even said he confirmed it with a different attorney. Do you know why he might think that?

Liz

He might be sticking on the fact it's "passive" income. Which is allowed, but it depends on how active they are in the process.

What would be an example of allowable passive income?

Liz

The most common passive income is stock investment. However, you can't do regular trades, such as trading multiple times a week, without it crossing into work.

Could we make them sign something saying their visa status is their responsibility?

Liz

You could let them know they are responsible for their own status, which is actually true even if you don't state it.

Could we just purchase stock for them instead?

Liz

You could also purchase stock for them.

So stock is actually a solid option? What documentation would I need?

Liz

It can be a solid option, yes. Having it in writing is also helpful. You don't need an I-9 verification as they are not working, but you would submit 1099s.

Would there be limitations on what stocks we pick? Will we still have to pay taxes?

Liz

You can choose any stocks, but it's best to select stable ones to avoid potential losses. As for taxes, yes, they would still need to pay taxes on any gains from the stocks, just like any other income. The gains aren't realized though, until they sell.

Do we have to pay taxes at all? Could they just sell immediately?

Liz

As the company, you wouldn't pay taxes on the stock transfer itself, but the recipient would be responsible for any taxes on gains when they sell the stock. Yes, theoretically, they could sell the stock immediately and take the cash, but they'd need to consider any potential tax implications.

At that point the liability is removed from us?

Liz

Correct.

So just records of stock transfer and 1099s? No limit needed?

Liz

That's right, you would just need records of the stock transfer and to issue 1099s for tax purposes. As for limits, there aren't specific legal limits, but it's wise to keep it reasonable to avoid scrutiny.

Would limiting to 5 help? Where would scrutiny come from?

Liz

The scrutiny comes from USCIS when they apply for other visas or extensions. Limiting the transactions can also help.

Let me explain the business model… originally it was 10% of physician pay via timesheets, but now switching to flat daily fees. Is that compliant?

Liz

Since you're acting as a middleman and not directly involved in medical services or billing Medicare/Medicaid, the risk of violating anti-kickback statutes is lower. However, it's still important to ensure that your fee structure is transparent and doesn't incentivize referrals in a way that could be seen as fee-splitting or kickbacks. Switching to a flat fee model can help mitigate some of these concerns.

We’re working with attorneys but trying to reduce costs. Would sending them a draft + outline help?

Liz

That can be helpful. With drafting, the more detail of what you want you can give, the easier it is for the attorney.

What do you mean?

Liz

I've seen people who will just say, "draft me a facility agreement," which is very broad instruction. So giving them something like the original agreement and an outline of changes so all they have to do is just put in the fancy legal wording—that is like a godsend to lawyers.

Got it! That’s the plan.

Liz

It also can cut down on the expense because there's not all the back and forth.

You rock!

Liz

Sure thing!

Liz

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