Further tweaks in H1-B process will hurt Indian IT companies, but to what extent?

Publish Date: October 22, 2018

Indian tech companies may find itself on the receiving end as the US government aggressively moves to protect American jobs.

Last week, the US Department of Homeland Security (DHS) announced plans to further tweak the H1-B visa program by August 2019. If the changes are enshrined, more visas would reportedly be given to those holding a US Master’s degree or higher.

The DHS’ plans to double down on the H1-B visa policy comes amid its President Donald Trump’s fiery insistence on protecting American jobs.

The H1-B process has greatly benefitted Indian tech companies in the past. It allowed them to send skilled software engineers from India to work in the US. This was of great help because these companies could pay lower salaries to Indian engineers when compared to the US labour market.

However, further amendments to the H1-B visa process may negatively impact Indian tech companies — both large and small — as they will have to hire US nationals at higher salaries.

Dent in earnings

Although the DUS is yet to outline the broad contours of the H1-B program, initial calculations suggest that Indian IT companies’ earnings will be set back by 250-330 basis points. One basis point is equal to 0.01%.

Assuming that US nationals will comprise 40-60% of the total workforce, the total wage cost may rise by 20-25%, which will eat into company’s earnings before income tax.

The effects of higher salaries have already been felt by Infosys. Having pledged to hire 10,000 US nationals by 2019, the Indian-based IT company saw its operating profit decline marginally as they had to shell out higher paychecks.

Related read:  Infosys Q2 numbers tripped by margins glitch

Infosys themselves admitted that the hiring of 5,800 American workers has impacted the company’s margins. “Increase in our sub-contractor cost, on-site localization and investment impacted the margins by 50 basis points,” it said while releasing its second quarter results last week.

What is the DUS looking to change?

The DUS on Wednesday (October 17) said it was looking to “revise the definition of specialty occupation, employment and employer-employee relationship” by August 2019. It had earlier planned to do so by April 2019.

For now though, a person can get an H1-B visa under specialty occupation if s/he has a minimum US Bachelor’s degree or have foreign education which is equivalent to a US under-graduate degree.

That may change though if some media reports are to be believed. Apparently, more preference would be given to people holding a US post-graduate degree or its foreign equivalent.

If confirmed, Indian tech companies will find it even tougher to send Indian engineers to the US because a large proportion of its skilled force are under-graduates.

Calls for protectionism

The H1-B visa regime has come under close scrutiny ever since Donald Trump became the US president in 2016.

Trump’s centerpiece project — “Buy American, Hire American” — has pushed the hitherto accessible US visa policies off the cliff as he seeks to stall “the theft of American prosperity” brought about foreign nationals on lower salaries.

The Trump administration first cracked the whip on H1-B visa process in April 2017 by signing the Buy American and Hire American order. Back then, the US administration disallowed spouses of H1-B holders from working in the US and stepped up its inspection drive in companies that hired large numbers of H1-B workers.

Constant vigilance

Even though three in four H1-B visa holders continue to be Indians, as per the US Citizenship and Immigration Services, Indian tech companies have themselves scaled back its H1-B application policy. For instance, Wipro claims to have sent just 400 visa applications so far, while many other companies reportedly have more than 50% US citizens on their roster.

This suggests that the IT sector has remained resilient in the face of staunch anti-immigration policies in the US. However, it will have to keep an eye out for any H1-B tweaks to remain fleet-footed and ensure its operating profits don’t take a massive hit.

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