The job creation requirement often causes considerable stress for EB-5 investors due to the multitude of variables and factors that can impact a business’s performance. However, it is essential to note that the method of counting jobs differs between regional center and direct investment applications.
Regional centers use economic impact models
An EB-5 investor is required to generate a minimum of 10 new full-time positions for qualified workers, defined as U.S. citizens, U.S. permanent residents, and other authorized workers. Regional center projects utilize an economic impact model to not only account for employment created by the project directly, but also any employment generated indirectly in support of the project, or induced by employees who have spending capital.
Indirect and induced employment
For example, when a project utilizes materials for construction, it is recognized that those materials are created by an external company’s employees. Those jobs are considered partially attributable to the project because the project generates the demand for materials that then demands labor. These jobs are indirectly supported by the New Commercial Enterprise.
Meanwhile, when direct project employees use their funds to spend at local businesses, they are supporting economic development and job creation. These jobs are considered to be induced.
Economists calculate total jobs
An economist will typically use an economic impact model to calculate the total number of jobs that can be attributed to a regional center. The aggregate count should meet, if not exceed, the requisite number of jobs relative to the number of investors involved.
Direct versus regional center investments
For many investors, the hands-off nature of a regional center investment makes this investment preferable to a direct option.
On the other hand, in a direct investment, the business owner must create a New Commercial Enterprise with only operational positions being eligible for inclusion in the job creation total.
Notably, the jobs created by the investor, spouse, or children are not included in the job creation requirement. Countable jobs must be formal W-2 employments that are thirty-five-hour workweek positions, not freelance or contractor jobs.
There is the additional burden of having to keep meticulous employment records for future submission of the I-829 Petition by Investor to Remove Conditions on Permanent Resident Status.
Volatility and risk in direct investments
Direct investments may also entail greater volatility given that they are typically new businesses that experience the highs and lows of commerce in the U.S.
Furthermore, the creation of ten new full-time jobs can pose an additional financial burden, especially considering minimum wage varies from state to state. For example, in 2024, California’s minimum wage stands at $16 an hour while the federal minimum wage is $7.25 an hour.
However, investors experience complete autonomy and control in a direct investment. The potential return on investment may be substantially higher than regional center options, though that is dependent upon company performance.
Final thoughts
Regional center investments offer a hands-off approach that may mitigate some administrative burdens associated with job creation and have the advantage of counting indirect and induced jobs to the job creation total.
Direct investments offer complete control over an entity, which generates the potential for higher returns.
Both options present unique advantages and considerations, catering to the diverse preferences and risk appetites of EB-5 investors.
