Today a legislation impacting H1-B visa programme has been introduced in the US House of Representatives making it difficult for companies in the US to employ skilled foreign workers. Among other things, the bill more than doubled the minimum wage requirement of H1-B visa holders to US $130,000.
A joint research paper by Greyhound Research’s Sanchit Vir Gogia – Chief Analyst & CEO and Anshoo Nandwaani – VP & Principal Analyst, reveals this development [H1-B visa proposal] is a significant announcement by the newly appointed Trump administration.
While changes were expected under the new President, the suddenness and the order of the announcement has surely caught IT Services Providers across the globe by surprise, they said.
Some of the possible outcomes of this proposal would be according to the research paper are:
Ramifications for both sides, the IT Services Providers and the US economy: Skilled foreign workers who come to work in the United States on H1-B visas don’t just directly supplement the US IT industry with specialised skillsets, they also contribute indirectly to other industries in the US. Often H1-B workers bring their families along and thereby bring additional business for other industries like real estate, Banking, hospitality, to name a few. The effects of this announcement will impact the GDP and the overall business economy and growth of US. While 20 percent of H1-B visa quotas have been set aside for start-ups and small employers with 50 or fewer employees, there is no denying that this will be a dampener to the spirit of innovation and entrepreneurship.
Skills, not salary, should have been the basis of this reform: Using wage as it’s only pivot, the bill has more than doubled the minimum wage requirement of H1-B visa holders from $60,000 to $130,000. There is no mention of any skills-based criteria/requirement. In addition, the High-Skilled Integrity and Fairness Act of 2017 prioritises market-based quota of H1-B visas to companies willing to pay 200 percent of a fixed wage. In light of the STEM (Science, Technology, Engineering and Math) skills gap currently prevailing in the US, a thorough on-the-ground study of multiple factors, with skills being the primary factor, should have been the foundation of the Act.
Most US-based Fortune 500 organisations are deeply invested and dependent on IT services providers using H1-B visas to source skills: In midst of all this, it’s critical to remember that most US-based companies (including many Fortune 500s) are highly dependent on IT Services Providers. These companies actively outsource for both skills and cost advantages – important to note, it’s not just the latter that drives the decisions. Changes in the H1-B visa arrangement will add immense cost pressures on these organisations. Hence, neither they nor the Trump administration are in a position to make any drastic changes right away.
Minimum salary requirement of US $130,000 is not too far from the current average and hence not a prohibitive figure to match: The current average salary of a skilled foreign worker employed via H1-B visa is $100,000. The newly announced minimum salary requirement of $ 130,000 is not prohibitive and can be managed by way of creative salary restructuring and including Per Diems, benefits and other allowances as part of base package. As per Greyhound Research estimates, upon this restructuring, the average margin hit for an IT Services provider will be in the range of 5-10% Year-on-Year depending on the total base of employees currently on H1-B, the existing compensation and need for onsite in near-term. Critical to note, a hit beyond this number will force these firms to either renegotiate contracts with existing clients or else the street will act ruthless and these firms stand to lose potential ground on market capitalisation.
While onshore and nearshore contracts will see a surge, transition cannot be managed overnight and will give rise to the Coopetition economy: With the prevailing protectionist sentiment and newly imposed restrictions, the US business ecosystem will see a sharp rise in on-shoring and near-shoring arrangements. However, it is critical to remember that these cannot be built overnight and need-based handshake between IT Services providers and sub-contracting to local IT Services providers will be the routes most choose to take, giving rise to the Coopetition Economy.
To read the detailed research note on this topic by Greyhound Research, click here.