Proposed changes in H-1B visa wages: What does it mean for IT services firms' salary cost?

Not much details are currently available on what exactly these proposed changes in wages could be.

But immigration experts have pointed out that it is aimed at encouraging companies to recruit locally instead of foreign nationals. Some have pointed out that the proposed rule could increase wages for highly skilled workers like H-1B visa holders. The rule only talks about changes in wage levels of foreign nationals and not locals.

Wages are determined by the Department of Labour in each region and for each occupation. For instance, wages for software engineers in California and Texas will be different.

Let us look at the prevailing wages for software engineers in California and Texas, which account for the largest H-1B employment, according to DOL.

There are four levels of wages for H-1B workers, with varying levels of experience. If Level 1 is for entry-level employees, Level 4 is for those with significant experience.

In California, the wage for Level 2 employees is $120,931 per year. In Texas, the prevailing wage for the same occupation is $80,766 a year. This is the minimum wage companies should pay their employees in the region.

Of course, Indian IT firms comply with the wage requirements. An HDFC report shows that the average H-1B wages increased sharply over the last two years for IT services companies. From a median salary of $78,120 in FY17, it had increased to $90,730 in FY19.

The report also reveals that, of the top four Indian IT service providers, HCL Tech gives the highest median H-1B salary at $92,900, followed by Infosys at $88,600. TCS offers the lowest median H-1B package in the US at $74,100. Wipro’s median H-1B package stands at $77,500.

It is not clear how much this increase in wages levels would be. But the recent relaxation announced by the Department of State does give some ideas.

In the relaxation announced last month, one of the criteria for allowing the entry of H-1B workers into the US is that their wages should be at least 15 percent more than the prevailing ones in their region.

Stuart Anderson, founder, National Foundation for American Policy, had then pointed out that this does not figure in the US immigration law or regulation.

Impact on IT firms

The move is important for two reasons. For one, it comes right after the Department of Homeland Security submitted the proposed changes to tighten H-1B regulations on September 4. Two, with elections round the corner, immigration experts have pointed out that the Trump administration could push its implementation to an earlier date.

In both the cases, OMB has 90 days to review the regulation.

These changes will have a huge impact on IT and tech firms which are the biggest beneficiaries of the visas. IT firms account for a significant share of 85,000 H-1B visas issued every year. Indians account for more than a lakh of close to 1.8 lakh visas issued/renewed/extended every year.

If this becomes a rule, IT firms and tech companies will have to increase the wages for employees, and, this, in turn, would mean increased cost.

Over the last few years, visa costs had increased due to a rise in denial rates, and shorter duration of approved visas, which resulted in IT firms reapplying for visas multiple times. Subcontractor costs increased, too.

For instance, the cost of subcontractors increased from Rs 1,166 crore in 2008-09, when Infosys’ revenue was Rs 20,264 crore to Rs 7,646 crore in 2018-19, when revenue was at Rs 73,107 crore. Subcontracting costs shot up 555 percent over the decade, outpacing the company’s 260 percent revenue growth.

So companies stepped up localisation, which is likely to grow further in the coming years as these firms look at long-term strategy. Infosys recently promised to recruit 12,000 more employees in the US over the next two years. The company currently has 13,000 locals as employees in the US. TCS has close to 20,000.