Main image of article H-1B Reform Might Bring Unintended Consequences

The immigration reform bill under debate in the Senate would impose higher costs to obtain H-1B visas and raise the required wages of visa-holders – moves that could have an effect opposite of what the bill’s Gang of Eight authors intended. Employers and analysts say that rather than protect U.S. workers, the measure could lead to more work being sent offshore. In a webinar last week, Gartner analyst Frances Karamouzis said the changes would force offshore outsourcers to ramp up hiring of U.S. workers – or might increase the 70 percent of work they do overseas to as much as 80 or 90 percent. They also could force the U.S. to address its need for tech workers by aggressively promoting STEM education, she said. See our Special Report on H-1Bs Participants in the webinar, presented by HfS Research on Wednesday, referred to the 844-page proposed Senate bill as “the worst-case scenario” and urged the House to make revisions. Over the weekend, Sen. Marco Rubio, R-Fla., said the Senate measure is 95 percent done, but at last count at least 150 amendments had been proposed. Brian Sommer, CEO of consultancy TechVentive and a blogger at ZDNet – who didn’t participate in the webinar -- called the legislation “a huge molten mass of goo that has yet to solidify,” and urged tech folks to contact their lawmakers to make their voices heard.

Looming Worries

In a survey of companies’ responses to the legislation, HfS found that neither buyers, providers nor advisers on outsourcing strategy are too concerned at this point. However, Tim Norton, Director of Vendor Management at United Parcel Service, said during the webinar, “We expect this to keep coming back. Even if this doesn’t pass, it will keep coming back in some other form.” In addition to Norton, the webinar’s participants were Phil Fersht, founder and CEO of HfS Research; Steve Semerdijian, Partner at law firm Loeb & Loeb; Ed Caso, Managing Director and Senior Analyst of Wells Fargo Securities’ IT/BPO Services Equity Research Team; Stephanie Moore, President of IT staffing firm Ameritas Technologies; Jeff Lande, President of Lande Group, a government relations and strategic advisory firm; and Joe Hogan, Vice President for Global Advisory Services for India-based outsourcing company HCL Technologies. The Senate bill raises the cap on the number of H-1Bs to as many as 180,000 a year, and would automatically give green cards to master’s- and Ph.D.-level STEM graduates of U.S. schools. Sommer believes the visa cap and green card issues must be dealt with simultaneously to be effective. The bill reduces the number of H-1B and L-1 visa-holders companies can employ to no more than 50 percent of their workforce by 2016. Companies with 15 percent or fewer H-1Bs would escape the strictest hiring requirements, which could give domestic outsourcing firms an out. Also proposed: requirements to advertise jobs and make efforts to ensure that U.S. workers are not displaced by H-1Bs. Both would come with reporting provisions that the webinar participants called “an administrative nightmare.” In addition, the bill would prohibit H-1B-dependent employers -- those who employ a disproportionate number of guest workers -- from embedding contract workers inside a client’s operations, though they could still work from the outsourcer’s site.

Different Tech, Different Impacts

Lande noted a wide divide between the Senate and House on many aspects of the bill, and said he doesn’t expect either the displacement requirements or the embedding issue to survive. “Vendors and clients will make clear what that constitutes for U.S. companies,” he said. “There’s a strong likelihood those will not make it into the final package.” Respondents to the HfS survey listed application development and maintenance as the outsourcing area most likely to be affected by the legislation. Sommer said different aspects of IT would be affected differently. The cloud and automation, more than outsourcing, have been reducing the staff required to manage data centers, for instance – a trend he expects to continue. As for contract programming: “If it was sustainable before with the limits in place, it will continue to be sustainable going forward.” Among the findings of the HfS survey:

  • More than 50 percent of buyers, providers and advisors are fairly unaware of the proposed legislation’s potential impact.
  • Half of offshore providers are ill-prepared to cope and poorly informed.
  • A quarter of the offshore providers are very concerned.
  • Most parties are unsure of eventual strategies to cope with the reform bill, but indications point to more positions being moved offshore.
  • Offshore providers are clearly looking for more domestic presence regardless of whether the legislation passes.

In particular, the rule limiting H-1Bs to 50 percent of a U.S. company’s headcount would force both foreign and U.S. companies to ramp up domestic hiring from an already tight labor market, and thus put upward pressure on tech salaries, Caso noted. Work also could be shifted to global providers such as IBM or Accenture, or U.S.-based IT staffing providers, such as those that operate in less-expensive cities. The Indian media also has suggested its outsourcing companies might make U.S. acquisitions to dilute their percentage of H-1Bs. Ameritas Technologies’ Moore argued that firms will find hiring locals and training them – even for six, 12 or 24 weeks – will be less expensive than hiring H-1Bs at $90,000 a year. However, others on the panel countered that needed technology talent simply is not available, and training programs take time. In the meantime, they said, companies might have to rely on a variety of approaches to meet their labor demands. The Senate is expected to vote on its version of the bill by July 4, with the House expected to take it up after their August recess.