Immigration law packs wage hike punch

Written by Debojyoti Ghosh | Debojyoti Ghosh | P P Thimmaya | Bangalore | Updated: Jul 8 2013, 08:50am hrs
The Indian IT companies operating in the United States may end up paying wages, substantially higher than market conditions, to those employed under H-1B visas going by the provisions in the proposed Immigration Reform Bill. Such a move could potentially hit companies like TCS, Infosys, Wipro and HCL Technologies that have over 50% of employees working in the US on H-1B visas.

The Immigration Bill in the US Senate and House of Representative has provisions that mandate wage structure for H-1B visa employees, which under the current conditions is substantially higher than the prevailing standards.

The National Foundation for American Policy, a thinktank in the US, in a research said, Bills in Congress would require skilled foreign nationals to be paid substantially higher sometimes $20,000 to $40,000 more a year than the US professionals on similar positions. For instance, the Foundation said the mandated minimum wage for a software developer would be $128,294 per year for a Level 2 professional (some experience) which is an increase of $19,156 over the current department of labor (DOL) Level 2 wages or an 18% wage premium.

Similarly, based on the current market wage, a company would be required to pay at least $48,268 more, or a 60% increase for a software developer (systems software) in Silicon Valley if the Level 1-qualified H-1B visa holder received his or her degree outside the country. There are other examples where the Bill has mandated differing wage structure across different regions of the US for the H-1B visa holders.

The general perception has been that those working on H-1B visas are paid lower than the Americans, though Indian IT companies strongly disagree to this notion. They say wages are determined by market forces and there is no question of underpaying professionals.

Under the existing law in the US, when hiring an H-1B professional, employers must pay the higher of the prevailing wage or the actual wage paid to all other individuals with similar experience and qualifications for the specific employment in question. The regulations also say employers can demonstrate they are meeting the minimum wage requirements for H-1B professionals by utilising either private wage surveys or the US department of labors occupational employment statistics (OES) survey.

The likely steep increase in H-1B wages could seriously affect the profitability of the Indian IT companies, as nearly 50% of their costs goes into salaries. Any significant changes in this component could have a deep bearing as employees working in the US are generally given salary increase in the range of 3-5%.

Commenting on these developments, a senior executive with an Indian IT company said, We do not have any backup plan to deal with the increased cost and will have to bear the pain at least in the short term if these provisions come into effect.

Further, H-1B salary level also varies across companies. For example, the salary level in TCS and Cognizant is in the range of $64,000-68,000 per annum while it is $75,000-77,000 for others like Wipro, Infosys and HCL Technologies. Nomura, a brokerage house in its recent report said, Based on labour condition applications (LCA) filings by companies, TCS and Cognizant could be most affected by provisions related to H-1B salary increases.

However, this is not a case where Indian IT companies will have to bear the brunt as even the American technology firms will find it unviable to hire the required talent. The Foundation in its recent report said these provisions would discourage the hiring of skilled foreign nationals in the United States, harm startup companies needing key personnel, but unable to afford the higher wage rates, interfere with company salary structures and lead more employers to move work offshore to avoid the wage rules and the negative impact on their companies.

The salary increase is not the only provision which would have a bearing on the $76-billion Indian IT industry that has been crying hoarse over several other anti-competitive provisions in the Bill.