On June 27, 2013, the U.S. Senate’s “Gang of Eight” proposed bill S.744, which passed on the Senate floor with a overwhelming majority. The bill contains a lot of provisions which are of an overarching nature. I will focus exclusively on provisions of the bill which impact the IT services industry and as they deal with H1B.
This bill may go through another set of changes before it passes the House. In fact the House version may be considerably different than the Senate version. That being said, winds of change were long overdue and it would be shortsighted to ignore it and not align the business plan proactively.
This blog will focus on technical analysis of the actual bill (with all approved amendments).
Please also read testimony of Neeraj Gupta (a good friend and mentor) with Senate Judiciary Committee:
This bill covers the whole business of trading H1B consultants (placing, subcontracting, routing, sourcing, contracting for services) in one single word: outplacement. Here’s the actual text of the bill pertaining to outplacement.
(d) OUTPLACEMENT.—Section 212(n)(1)(F) (8
U.S.C. 1182(n)(1)(F)) is amended to read as follows:
‘‘(F)(i) An H-1B-dependent employer may
not place, outsource, lease, or otherwise con-
tract for the services or placement of an H–1B
‘‘(ii) An employer that is not an H-1B-de-
pendent employer and not described in para-
graph (3)(A)(i) may not place, outsource, lease,
or otherwise contract for the services or place-
ment of an H–1B nonimmigrant employee un-
less the employer pays a fee of $500.
So, for H1B dependent employers that includes most, if not all, India-based consulting companies, it’s impossible to do anything with H1B except use them for internal R&D work (which is not their business). Non H1B dependent employers can do so with a small fee of $500.00.
Let’s go a little deeper into the exact definition of a H1B dependent employer. Here’s the text:
(e) H–1B-DEPENDENT EMPLOYER DEFINED.—Sec-
tion 212(n)(3) (8 U.S.C. 1182(n)(3)) is amended to read
‘‘(3)(A) For purposes of complying with the require-
ments related to outplacement of an employee, the term
‘H–1B-dependent employer’ means an employer that—
‘‘(i) is not a nonprofit institution of higher edu-
cation, a nonprofit research organization, or an em-
ployer whose primary line of business is healthcare
and who is petitioning for a physician, a nurse, or
physical therapist or a substantially equivalent
healthcare occupation; and
‘‘(ii)(I) in the case of an employer that has 25
or fewer full-time equivalent employees who are employed in the United States, employs more than 7 H-1B nonimmigrants;
‘‘(II) in the case of an employer that has at
least 26 but not more than 50 full-time equivalent
employees who are employed in the United States,
employs more than 12 H-1B nonimmigrant; or
‘‘(III) in the case of an employer that has at
least 51 full-time equivalent employees who are em-
ployed in the United States, employs H-1B non-immigrants in a number that is equal to at least 15 percent of the number of such full-time equivalent employees.
There is one exception to this rule which was described as the”Facebook loophole” in the Senate hearing on April 22. This exception is for intended immigrants.
Let’s go into the definition as per the bill:
(f) INTENDING IMMIGRANTS DEFINED.—Section
101(a) (8 U.S.C. 1101(a)) is amended by adding at the
end the following:
‘‘(53)(A) The term ‘intending immigrant’
means, with respect to the number of aliens em-
ployed by an employer, an alien who intends to work
and reside permanently in the United States, as evi-
‘‘(i) for a covered employer, an approved
application for a labor certification or an appli-
cation that has been pending for longer than 1
‘‘(ii) a pending or approved immigrant sta-
tus petition filed for such alien.
‘‘(B) In this paragraph:
‘‘(i) The term ‘covered employer’ means an
employer of an alien that, during the 1-year pe-
riod ending on the date the employer files an
application for the labor certification for such
alien, has filed an immigrant status petition for
not less than 90 percent of the aliens for whom
the employer filed an application for a labor
certification during such period. Labor certifi-
cation applications that have been pending for
longer than 1 year may be treated for this cal-
culation as if the employer filed an immigrant
‘‘(ii) The term ‘labor certification’ means
an employment certification under section
‘‘(iii) The term ‘immigrant status petition’
means a petition filed under paragraph (1), (2),
or (3) of section 203(b).
‘‘(C) Notwithstanding any other provision of
law, for all—
‘‘(i) calculations under this Act of the
number of aliens admitted pursuant to subpara-
graph (H)(i)(b) or (L) of paragraph (15) an in-
tending immigrant shall be counted as an alien
lawfully admitted for permanent residence and
shall not be counted as an employee admitted
pursuant to such a subparagraph; and
‘‘(ii) determinations of the number of em-
ployees or United States workers employed by
an employer, all of the employees in any group
treated as a single employer under subsection
(b), (c), (m), or (o) of section 414 of the Inter-
nal Revenue Code of 1986 shall be counted.’’
What this means is that if labor is approved or pending for more than a year for H1B, it would not be counted toward the H1B dependent limit.
Before jumping into my analysis, there is one more part left in the bill which is relevant. It is the section for companies I call “Super H1B Dependent.” Here’s the text:
‘‘(I)(i) If the employer (other than an edu-
25 cational or research employer) employs 50 or more 692
employees in the United States, the sum of the num-
ber of such employees who are H–1B nonimmigrants
plus the number of such employees who are non-
immigrants described in section 101(a)(15)(L) may
‘‘(I) 75 percent of the total number of em-
ployees, for fiscal year 2015;
‘‘(II) 65 percent of the total number of
employees, for fiscal year 2016; and
‘‘(III) 50 percent of the total number of
employees, for each fiscal year after fiscal year
These companies are given until 2016 to bring their house in order, or else they’ll be banned from filing H1s completely.
Besides these, there are sections about good faith, recruiting, etc., which are not new; but this bill has added extra emphasis on it. It has also made it mandatory to provide your job listing on a free portal provided by DOL (I don’t think anyone minds that).
This bill, if passed in it’s current form or even slightly altered, will definitely have an everlasting impact on the IT services industry. The IT services industry, as we know it, will no longer exist.
The good part is that it would level the playing field for smaller as well as more compliant companies, i.e., for players like us.
Bringing the number of H1Bs below the H1B dependent limit is not as big an issue as it looks. I can tell from personal experience. As long as you are open to hiring anyone who has potential, training them and making them a part of the productive workforce, your company will be as diverse as the market allows. We have been doing exactly this for the last three years, and it has been very rewarding.
Suggestion for Consulting Companies
There is a silver lining in this law. And that is as long as you keep your number of H1s below 15%, you can outplace an unlimited number of H1s. Let’s use an example:
Say a company, Foo Inc., has 100 W2s and 14 of them on H1B. Now this company not being H1B dependent, can use services of 50, 100, 500 or any number of H1s as long as employers of these H1s have paid $500.00 + these vendor companies are also not H1B dependent.
One other silver lining is filing for Green Cards, which is covered above in the “intended immigration” section. It is very clear the government wants H1Bs to become part of the future talent pool in the U.S. I have been through the same journey and am proud to be part of that same talent pool. Since Green Card filing starts with LCA, as long as LCA is approved or been pending for more than a year, it’s not considered part of H1B dependent numbers.
I have purposely not included the section about fee increase. I consider that the cost of doing business.
A couple of more provisions which is not very high impact but is still good to discuss:
INVESTIGATION AND DISPOSITION OF COMPLAINTS AGAINST H–1B EMPLOYERS
Let’s start with the text:
SEC. 4221. GENERAL MODIFICATION OF PROCEDURES FOR
INVESTIGATION AND DISPOSITION.
Subparagraph (A) of section 212(n)(2) (8 U.S.C.
1182(n)(2)) is amended—
(1) by striking ‘‘(A) Subject’’ and inserting
(2) by striking ‘‘12 months’’ and inserting ‘‘24
(3) by striking the last sentence; and
(4) by adding at the end the following:
‘‘(ii)(I) Upon the receipt of such a com-
plaint, the Secretary may initiate an investiga-
tion to determine if such a failure or misrepre-
sentation has occurred. 713
‘‘(II) The Secretary may conduct voluntary
surveys of the degree to which employers com-
ply with the requirements of this subsection.
‘‘(III) The Secretary shall—
‘‘(aa) conduct annual compliance au-
dits of each employer with more than 100
employees who work in the United States
if more than 15 percent of such employees
are H–1B nonimmigrants; and
‘‘(bb) make available to the public an
executive summary or report describing the
general findings of the audits carried out
pursuant to this subclause.’’
In short, companies with less than 100 w2s will only be audited if there is a complaint. Companies with over 100 will be subject to an annual compliance audit. There are a few more provisions which essentially deal with treating H1B employees fairly, like:
- You can not penalize an H1B employee for ceasing employment before the date agreed; this penalty is different from liquidated damages, which are fair to ask based on state law
- Providing the same benefits as non H1B employees
- the opportunity to participate in health, life, disability and other insurance plans
- the opportunity to participate in retirement and savings plan
- cash bonus and non-cash compensation, such as stock options
I do not think this clause says anything new. Most of the companies treat all employees the same. Doing H1B for an employee is a lot of cost and hassle for each employer, and employees should pay respect to that before jumping ships mercilessly for a few dollars’ raise.
My final take before jumping to the L1 section is that with all the cost associated with H1B and increase in prevailing wages, H1B will slowly be only used for highly skilled labor. It would be impossible to make a profit on average skilled employees for average rates.
For the daring, here’s the bonus section:
L Visa Fraud and Abuse Protections
SEC. 4301. PROHIBITION ON OUTPLACEMENT OF L NON-IMMIGRANTS
Let’s start with the text:
The employer of an alien described in section
24 101(a)(15)(L) shall not place, outsource, lease, or other-728
wise contract for the services or placement of such alien
with another employer unless—
‘‘(i) such alien will not be controlled or super-
vised principally by the employer with whom such
alien would be placed;
‘‘(ii) the placement of such alien at the worksite
of the other employer is not essentially an arrange-
ment to provide labor for hire for the other em-
‘‘(iii) the other employer attests that the other
employer has not displaced and will not displace a
United States worker during the period beginning
90 days prior to and 90 days after the date the em-
ployer files the application.’’
This to me sounds like relief for India-based biggies. They have big teams working at client sites and most of their employees are controlled by their employees only.
They do have an imposed limit on the number of L based immigrants, though.
‘‘(I)(i) If the employer employs 50 or more employees
in the United States, the sum of the number of such em-
ployees who are H–1B nonimmigrants plus the number
of such employees who are L nonimmigrants may not ex-
‘‘(I) 75 percent of the total number of employ-
ees, for fiscal year 2015;
‘‘(II) 65 percent of the total number of employ-
ees, for fiscal year 2016; and
‘‘(III) 50 percent of the total number of em-
ployees, for each fiscal year after fiscal year 2016.
As you can recall from the previous section, this clause is the same as the one dealing with H1Bs (one I described as super dependents). To put it simply, this upper limit is for H or L employees.