Tuesday, 7 February 2017

US New H1-B Visa Bill and Its Consequences On Tech Firms

US House of Representatives has recently introduced a bill which calls for doubling the minimum salary of H1-B visa holders to $130,000. This move is intended at making difficult for firms in replacing U.S. workers with foreign workers including India. The bill was introduced on 1st February. If this bill put forth in the House of Representatives becomes a law it will give a jolt to India, the largest exporter of IT Skilled workers to the US. 

Called as the High-Skilled Integrity and Fairness Act of 2017 introduced by Zoe Lofgren, a California Congressman, emphasizes more on allocation of visas to companies which are willing to pay 200% extra of the present wages, that is derived by a survey-based calculation. This act removes the lowest pay category of workers and increases the salary level exemption of non displacement and recruitment attestation requirements of H-1B dependent employer to more than $130,000.

President Trump during his campaign, made one of the promise which was to increase administration of their H-1B and L-1 visa programs and his reform started with this legislation favoring the employment of good-paying jobs to American workers in US businesses.

The H-1B visa is a non-immigrant visa that allows foreign workers to work in US Companies in special occupations which requires technical skills in the specified sectors. The present H-1B minimum salary of USD 60,000 was established in 1989 and and has been unchanged since then. Under this program the companies hire specialized and skilled foreign resources upto 85000 maximum per year. Out of these 65,000 are foreign based and 20000 are foreigners studying in the US. In 2016 70% of H1-B US visas were issued to Indian, making India the largest recipient of H-1B visas in the world.

The biggest IT companies of India, Infosys, TCS, Wipro and others, who have been enjoying major cost advantages by sending Indian techies to the US, are going to be hit badly if the minimum wage cap for H-1B visas is raised to $130,000. In anticipation of this change, the stocks of top four I.T companies have gone down yesterday on the Bombay Stock Exchange. The stock prices of information technology companies fell by 9%.

The other funny side of the story is that the CEO'S of America's big I.T companies are Indians. Sundar Pichai being CEO Of Google and Satya Nadella is the CEO of Microsoft. Sundar Pichai publicly slammed Trump’s move last Friday, telling them that more than 100 of their company staff are affected by the regulation. Microsoft CEO Satya Nadella also criticized it and stressed the importance of bringing in and retaining talent.

This H1-B visa proposal is a significant announcement by the newly appointed Trump administration. Though changes were expected by the Trump administration, the swiftness and the authoritative command of presenting the proposal has surely surprised IT Services Providers across the globe.

The effects of Trump's H-1B visa bill:

The US President's H-1B Visa proposal could mean replacing the present system with one that emphasizes visas for jobs promising the highest salaries. Let us see some of the effects if this bill gets approved.

Effects on India:

As 70-75% of H-1B visas are held by Indians, followed by the Chinese, the effect felt due to this would be on India and Indian H-1B visa holders. According to a Computerworld analysis of US government data Nearly 86% of the H-1B visas issued for workers in computer occupations go to Indian workers. TCS and Infosys are already fighting lawsuits in US federal courts that allege that the giant Indian companies differentiate American workers when hiring and favor South Asians to Americans.

Increase Offshoring:

Raising the "minimum wage" for H1-B visa holders will immediately effect in increase of off-shoring. Existing law already has it that employers need an American candidate and prove that they have the H1-B visa obtained. This is a long, taxing and costly process. The companies who cannot afford to pay the wage hike for H1-B candidates in technology, will instead do alternative arrangement. This could include sending them to their country of origin or to another country and work virtually from there.

An Indian company in U.S generally has about 70% of their technical staff who hold H1-B visa or green cards. With the implementation of this bill, the employer are obligated to send the workers to work off shore and then let them work from India, or from London or Toronto. Eventually, an American may not end up getting the job. Also this could result in H1-B holder going and paying taxes in another country and spending their money there.

Effect on Staffing Agencies & Tech Firms:

In midst of all this, it’s important to remember that majority of US companies are greatly dependent on skilled IT and specialized H1-B visa holders. And the US companies actively
not only hire skill based employees but for cost advantages as well, which is important to not. So, the new change in the H1-B visa regulation will add a lot of cost based pressures on these companies. Hence, though the bill is proposed neither the companies nor the Trump administration may not be in a position to make any drastic changes immediately.

Also, the H1-B employees are majorly hired through contracting agencies. Though the employee may sometimes accept significantly lower wages than the normal wages, the client company is paying a premium for them to the contracting firm so that they can add a minimum of a 15% profit for payroll taxes and other benefits and then has to add further markup to cover the temp hire's visa expenses, and their cost of doing business, finally adding their profit mark up.

Consequences for IT Services Providers and US economy:

The specialized skilled workers who come to work in US on H1-B Visas not only add value to US IT industry, but they often contribute indirectly to other sectors and businesses. H1-B visa holders generally bring their families after they settle down, thereby increasing the population and bringing business to other sectors like banking, real estate, hospitals etc,.The new Visa regulation hence will effect the GDP and growth of America. With 20% of H1-B visas have reserved for start-ups and small business with 50 or less employees, the new visa regulation will have subduing effect on budding entrepreneurs.

Full-scale trade war

The diction given by new US administration about lost American jobs will also set off business issues resulting in a full-scale trade war amongst the global markets. The law will result in labour and capital quitting American shores. And the more the American new administration try to shield their jobs, the more it is going to affect the rest of the world.