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IT Stocks Spooked By New H1-B Visa Bill With $130K Wage Floor

H1-B-visa.jpg

A new bill has been introduced in US congress and that’s spooking IT stocks. It’s not yet passed – and will probably be diluted substantially – but the reaction has been sharp.
It sets the minimum wage for H1-B visa holders to USD 130,000 from existing USD 60,000 per year. The bill:  High Skilled Integrity And Fairness Act Of 2017 by Californian Congressman Zoe Lofgren (Democrat, California).
Read our previous post on H1-B visas titled “India Should Be Scared of US H1-B Changes: It Takes 69% of All Such Visas

Key Highlights:

  • Increase the minimum wage for H1-B workers to 35 percentile points above the median of most recent Computer and Mathematical Occupations annual wage. (See the median here) The wages will be with respect to area of employment. The current country median is $81,430.
  • (This is not the same as 35% above the median. It means around the 85th percentile salary in the occupations mentioned)
  • The new minimum annual wage will be roughly USD 130,000.
  • Dependent employees (companies with more than 15% workforce with H1-B status) should prove that they have not displaced any U.S worker.
  • Bonuses and compensations will be counted towards wages, at fair value (stock options for instance).
  • No Masters Degree exemption for dependent employers.
  • Removes penalty levied on H1B workers who cease employment and break the agreement with the employer.
  • 20% annual allocation of H1B visa to small and start up employers (with 50 or fewer employees). But such employers can’t place employees for more than 30-days at an off-site location.
  • If employees work more than 30 days in a different area, then employer needs to pay the prevailing wage of that particular area.

Apart from that, the bill tries to make Visa process much faster for students and temporary visa holders.

The Rule: Bid For The Highest

If this bill goes through, the H1-B visa allocation will take place on priority basis. Even if the employer is ready to pay USD 130,000, they aren’t sure of a visa. Because the allotment of H1B visa happens on a highest-bid-salary basis. The priority is as listed below.
First Priority:  Employers paying 200% of the average of the top 2/3 wages surveyed. Meaning, we take the top 2/3rd of all wages, get the average. Then the highest priority for a visa application will go to a company that pays 200% of that average.
Second Priority: Employers paying 150% of average of top 2/3 wages surveyed.
Third Priority: Employers paying 200% of mean of wages surveyed. (This is the average of all salaries, not just the top 2/3rd)
Fourth Priority: Employers paying 150% of mean of wages surveyed.
Fifth Priority: Employers paying 200% of mean of bottom 2/3 wages surveyed.
Sixth Priority: Employers paying 150% of bottom 2/3 wages surveyed.
This priority system means just one thing: pay more salary, and you jump forward in the queue.

The Defense Provided.

In defense of this bill, Lofgren issued a statement saying

“My legislation refocuses the H-1B programme to its original intent — to seek out and find the best and brightest from around the world, and to supplement the US workforce with talented, highly-paid, and highly-skilled workers who help create jobs here in America, not replace them. It offers a market-based solution that gives priority to those companies willing to pay the most. This ensures American employers have access to the talent they need, while removing incentives for companies to undercut American wages and outsource jobs”

The Impact: Heavy on Indian IT?

Indian IT firms (which form major chunk of H1B visas) need to pay a lot more. If average wages today are around $80K, this will likely double the wage they have to offer. A $130K is just the entry point, the actual wage needed may be much higher.
At some point it just becomes cheaper to hire local.
This is a big cultural change and will hurt their margins anyhow, because local candidates tend to cost more. However, there is a skill gap – if a candidate is just not available in the US for a skill, then they have to pay astronomical figures to get people from India. A few strategies like training freshers in India and having them do the job as an H1-B will no longer work – you simply will not pay a fresher $130K in the US.
The cultural change might change to : We hire freshers in the US, and train them up, even if it’s more expensive. A local fresher at $60K sent to India for a few months of training may work out much cheaper than getting Indian talent to move abroad. This changes margins and operating styles substantially.
If this bill is passed then their will more troubles for Indian IT industry- which is the largest recipient of H1-B visas. However, we expect the bill to be debated and the limits whittled down – but we think the overall concept of

  • increasing the lower limit for the wage (last changed in 1998)
  • giving the higher salary payers a chance to jump the queue

will remain. Such bills have been introduced and rejected earlier. This one is by a Democrat from a state that Trump lost, and will face political challenges of the Trump variety. So while it’s a little early to react, it would be wise for Indian IT to see the writing on the “wall”.
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