Index Insider: H-1B – What We’re Watching

Hello. This is Alex Bakker, standing in for Stanton Jones, with what’s important in the IT and business services industry this week. 

Note: This is our second Insider edition this week. We published a special edition on Monday covering the immediate changes that the administration made to the H-1B program. That special edition can be viewed here.

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H-1B Fee

Friday, September 19, President Trump signed a proclamation that added a $100,000 fee to each new H-1B visa.

Clarifications and additional details were then released by the U.S. Citizenship and Immigration Services and Department of Homeland Security that gave a fuller picture of the total impact on current visa holders. These details included provisions for a fee waiver if the application supports national interest and stipulations that give higher-wage applicants more weight in the visa lottery process.

These provisions incentivize U.S. enterprises to use the H-1B visa for more highly skilled employees and disincentivize enterprises from hiring lower-cost resources outside the U.S.

The Implications

 The IT and business services market can expect five major impacts:

1. The $100,000 fee impacts the economic value of each foreign hire. The fee sets a cost-floor for the economics of an H-1B hire to make sense. The most interesting part of the fee is that, since it is a one-time fee, it essentially amortizes over the length of an employee’s employment. Because it appears that H-1B visa holders can transfer between employers without incurring the fee, businesses may need to compete to retain H-1B hires, thereby reducing any perceived advantage of visa labor over domestic talent.
2. The new proposed rule from the Department of Homeland Security for the Occupational Employment and Wage Statistics wage-weighted lottery process shifts the likelihood of application approvals to the highest wage earners. Under the proposed new system, the highest earners (Wage Category IV) are four times more likely to be selected for a visa than those in the lowest category (Wage Category I). These categories are relative to the role, so it does not bias the selection process toward higher paid fields, but it will shift the approved H-1B pool to more senior positions. This changes the financial decision for businesses in two ways: 1) it makes using the H-1B visa for highly skilled employees more reliable, and 2) it means the H-1B will become a less reliable source for roles with more speculative business outcomes. Essentially, the process is now weighted to favor more certain business cases.
3. The national interest exemption is a wild card. We do not yet have details about how many of these exemptions will be issued or what interests will qualify. Depending on the focus and volume of these exemptions – and depending on the guidance received ahead of the next lottery – this could materially change the mix of skills and talent available through the program. It is likely that national interest exemptions will favor higher-paid employees and waive the fee, providing a major competitive edge for recipient organizations.
4. Changes to the H-1B program arrive at the same time as AI is beginning to impact roles in software development and IT operations – both domains heavily reliant on current H-1B visa holders. This means organizations now face an easier economic case for replacing or augmenting existing roles with AI or avoiding future hires. To be clear, this is a matter of investment in AI pilots and not yet a guaranteed AI outcome, but the significant upfront cost of visas may shift the timing of AI automation and productivity investments sooner to attempt to avoid higher cost hiring.
5. Offshore or nearshore ratios may change. While the offshore option has always existed to address local talent shortages, organizations using H-1B visas have previously made the determination to pursue visa applications due to a preference for onshore talent. The new rules will encourage organizations to re-evaluate when to use offshore or nearshore talent and when to hire domestically.
   

For IT and Business Services

Fundamentally, the changes to the H-1B visa program do not take any employment or talent acquisition options off the table. Local hires, automation, visas, outsourcing or subcontracting are all still available. What does change is the per-role-per-case economics of hiring. Given that many of the above five impacts have overlapping effects, we can’t predict the exact outcomes for the market, but we do know enterprises and services providers will need to evaluate forward-looking staffing plans to ensure service delivery continuity and cost predictability.