U.S. Immigration Law Reform: The Death of Offshore Outsourcing?

April 30, 2013 by · Leave a Comment 

For years, Indian IT and BPO companies have enjoyed a disproportionate share of U.S. non-immigrant visas for highly skilled foreign workers.  Reportedly, Indian nationals account for a significant share of all H1-B current visas, nearly 60% (Wall Street Journal, April 24, 2013).  However, this situation may change in the near future.

On April 16, 2013, Senator Chuck Schumer (D., N.Y), introduced a bill, S. 744, Border Security, Economic Opportunity, and Immigration Modernization Act, which proposes significant changes to current immigration laws.   Title IV of this draft targets nonimmigrant visa programs and impacts directly on any company “dependent” on foreign labor, generally defined as any company with 15% or more of its full-time employees classified as H1-B nonimmigran  workers.  If enacted, these reforms would drastically change the landscape, altering the economic incentives, imposing new limits on offshore outsourcers, promoting local American workers and creating new bureaucratic compliance rules affecting all employers with any H1-B worker.

The Future of Outsourcing

Global Restructuring of Global Services.   If enacted, the bill portends some potential major changes in the way companies and their foreign service providers do business.   We can anticipate the following possibilities:

  • Foreign Labor at a Higher Cost.  Companies could continue to use substantial foreign tech labor as consultants in the U.S., but only after paying substantially higher filing fees for visa applications.  For example, in the years 2015-2017, applicants that employ 50 or more employees in the United States with more than 50 percent and less than 75 percent of its employees classified as H-1B or L nonimmigrants will have to pay $10,000 per visa.
  • Acquisitions and Mergers.   To play with ratios, outsourcers will likely acquire U.S. business service providers with large workforces (for about 850,000 U.S. workers in the aggregate).  This might circumvent the new visa barriers but would likely dilute overall ROI by incorporating lower-profitability businesses.
  • More U.S. Employment; More Offshoring.  In principle, offshore outsourcers would hire more U.S. citizens and lawful permanent residents (LPR’s), assuming their skills fit the demand.  In practice, more tech jobs might move offshore, either by outsourcing or by “shared services” “centers of excellence.”
  • Centers of Excellence: More Offshoring.  The reform legislation could backfire, creating incentives for more foreign “centers of excellence” owned and operated by global enterprises as “shared service centers.”  To absorb volatility in demand, multinationals could augment the staff of their offshore COE’s with project support from foreign outsourcers.  Thus, reforms might cause unintended consequences that promote even more offshoring and even less local U.S. employment.

These reforms could offer new opportunities for business process transformation, global workforce planning, access to new markets and greater integration of global service delivery centers (across multiple countries) with customer service and account management in the U.S.

The Details of Immigration Reform affecting H1-B Visas

Increased H1- B Quotas.  America employers would have greater access to foreign workers directly because the numerical cap would rise from 65,000 to between 110,000 and 180,000 new H-1B visas per year, depending on a High Skilled Jobs Demand Index, but the new cap could not fluctuate by more than 10,000 from the prior year’s cap.  The exemption cap on foreign advance degree graduates of U.S. universities would increase from 20,000  to 25,000  if they fit within STEM categories: computer and information sciences and support services, engineering, mathematics and statistics, and physical sciences.  Employers would pay a new supplemental application fee of $500 for labor certification applications, to be used for STEM Education and Training and primarily for scholarships for low-income U.S. students enrolled in STEM studies and for K-12 STEM education.

Equal Conditions of H1-B Employment. The draft law would effectively create an “equal opportunity act” for H1-B foreigners.   It would require that U.S. employers treat foreign H-1B workers as equals in pay, benefits, incentive compensation and “at will” termination of employment by the worker.   It would be a violation of the new law for an H-1B employer to fail to offer to an H-1B nonimmigrant, during the term of authorized employment, “on the same basis, and in accordance with the same criteria, as the employer offers to similarly situated United States workers, benefits and eligibility for benefits.”   Specifically, the employer would violate immigration laws by discriminating against the H-1B workers in (i)  the opportunity to participate in health, life, disability, and other insurance plans; (ii) the opportunity to participate in retirement and savings plans; or (iii) cash bonuses and noncash compensation, such as stock options (whether or not based on performance).”   The employer would thus have to treat H-1B employees as full-time equivalents for purposes of coverage under ObamaCare (the Patient Protection and Affordable Care Act of 2010).

Reciprocity for the H1-B Worker’s Spouse.   The proposal would authorize a work permit for a H-1B worker’s spouse, but only under reciprocity.  If the H1-B’s foreign country permits similarly situated U.S. spouses of U.S. workers to have work permits, the U.S. would do the same.

Protections against Displacement.   Displacement of American workers would be mitigated by several key mechanisms:

Quotas.  The bill would limit a company’s percentage of H-1B employees to 75% in 2015, 65% in 2016 and 50% after 2015 (“intending immigrants” not counted in this number).

Wage Levels.  The wage levels would need to be competitive.   The H-1B worker’s wages for a dependent employer would need to be set at not less than Level 2 wages or the mean of all surveyed wages for the specific occupational classification (geographically located), as provided by the U.S. Secretary of Labor.   The employer would need to advertise on the searchable Internet website maintained by the U.S. Secretary of Labor, for at least 30 calendar days, a detailed description of each position for which a nonimmigrant is sought that includes a description of (i) the wage ranges and other terms and conditions of employment; (ii) the minimum education, training, experience, and other requirements for the position; and (iii) the process for applying for the position.

Timeframes Preventing Displacement.  A non-dependent H-1B U.S. employer would need to show that it did not displace and will not displace a United States worker employed by the employer within the period beginning 90 days before and ending 90 days after the date of filing of any visa petition supported by the application.  For H-1B dependent employers and employers that committed a “willful failure or misrepresentation” in the five years preceding the application, the period would be 180 days before and after the filing of the visa petition.

Staff Leasing.   “Staff augmentation” outplacement would be prohibited for H-1B dependent employers, who could not “place, outsource, lease, or otherwise contract for the services or placement of an H-1B nonimmigrant employee”.  For other employers, the prohibition would apply unless the employer pays a fee of $500.

Advertising.  Employers would be prohibited from advertising that the particular job opening is “only available” to an H-1B foreigner or an F-1 foreigner (optional practical training after education in the U.S.).

In addition, outplacement of L-1 visa workers would be prohibited, closing the channel for intracompany transfers of L-1s.

Conclusions

The draft reforms would change the face of the American economy for business services.  Specialized service companies with fewer than 50 U.S. full-time employees and hundreds of offshore workers in foreign service centers could gain competitive cost advantages by beating the costs of both ObamaCare and the new immigration restrictions.

When combined with changes in funding for startups under the JOBS Act of 2011, the proposed “Border Security, Economic Opportunity, and Immigration Modernization Act” will provide a boost to North American outsourcers such as Accenture, CGI, CSC, Hewlett-Packard, IBM and Xerox.  It will also require adjustments in business models for offshore-centric service providers.   As with any change, opportunities and threats will emerge as the details are worked out in the legislative process.