• Chesapeake Group

New H1-B visa rules and their impact


Overview

On June 22, 2020, amidst the COVID pandemic, the US administration temporarily suspended the issuance of new H1-B and L1 work visas till the start of 2021, in turn banning the entry of 200,000 foreign workers. The visa norms have often been criticized for allowing lower cost talent in the US at the expense of its local workforce.


Since then, fresh restrictions have been imposed on the H1-B non-immigrant visa program. The H-1B visas are used by companies to hire or transfer high-skilled immigrant workers in the US and is hence the most sought-after visa among Indian IT professionals.


Every year, the US administration issues 85,000 H-1B work permits in all. As of April 1, 2020, the US Citizenship and Immigration Services (USCIS) had received about 250,000 H-1B work visa applications. Indians had applied for as many as 184,000 or 67% of the total H-1B work visas.


Changes to the H1-B visa program

On October 6, 2020, the US administration made major changes to the H1-B visa program, making it harder for foreign workers to work in the US.


The new interim final rule (IFR) narrows the definition of specialty occupation to include fewer degrees, raises wages for H1-B workers and shortens the length of visas for contract workers. The IFR mandated that minimum wages to be paid to H-1B workers be higher by 40% on average.


The administration has also proposed a new rule that would end the lottery system, used when USCIS receives more petitions than the allowed annual limit. In the proposed rule, visas would be granted based on wage levels of the registrations received, starting with the highest salary level and working down.


Impact of changes

The issue of H1B visas for Indian workforce has always been controversial across the political spectrum in the US. Large US and Indian technology services have been criticized in the past for not hiring more local talent, which is why this change is not surprising.


These changes are a major blow to Indian technology services companies in two ways:


1. Companies must now hire specialists in their exact fields. For instance, an electrical engineer will not be able to apply for the job of a software engineer. This poses significant limitations to roles in niche emerging fields, such as artificial intelligence and bioinformatics, that require people from multiple disciplines.


2. Also, this impacts gross margins for both US and Indian Technology companies. More so because digital transformation consulting projects require significant onshore presence. At least 20% of the workforce for offshore IT services companies are based out of the US. It remains to be seen whether companies can either raise pricing to their end customers to sufficiently offset the additional costs, or offshore front-end projects.


CRISIL Ratings estimates the H1-B visa suspension to have an INR 1,200 crore or $160 million impact on Indian IT firms, assuming that employee requirements are met via local hiring and considering a 25% premium for local hiring over the H1-B visa route.


Indian IT industry lobby group NASSCOM has said that the changes announced to the H1-B program will harm the US economy by restricting access to talent and slowing down R&D into solutions.


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