Compliance

New Bill Marks a Victory for 9/11 Victims but Stirs Up a Storm for IT Companies

Vandana Mohanchandran Written by Vandana Mohanchandran

US Congress has passed the James Zadroga 9/11 Health and Compensation Act, which will fund health coverage and compensation to those affected by the 9/11 terrorist attacks. This is a huge victory for first responders and their families, but the program is expected to cost $7 billion over the next 75 years. To help cover costs, the bill will double the visa fee for H-1B and L1 visas and put the extra money towards the program. Many analysts warn that increasing the visa fees will further deteriorate the US economy, since it will make it more cost effective to outsource these IT jobs rather than sending employees to the US through H-1B visas. This blog takes a closer look at the impacts of the visa fee hike on the IT market.

The United States presently allots 65,000 H-1B visas each year for IT firms, which are filled up by April of every year. The revisions in the bill requires all American IT companies to pay US$4,000 for H-1B and US$4,500 for L1 visa (from the previous US$2,000 for H-1B and US$2,250 for L1 visa) to send their foreign employees to work in the US. The hike is applicable predominantly for American companies having more than 50 employees and where 50% of the employees are foreigners. The new rule will be valid for 10 years, which will result in Indian IT spending close to US$400 M annually.

This fee increase will have a significant impact on Indian IT companies, who apply for thousands of visas each year. Though the overall impact of the fee hike on the sector will only be seen next year when the new batch of filings is made, analysts estimate margins will take a hit ranging from 15 to 20 basis points. While the current rupee depreciation will come as a respite to Indian suppliers in the short-term, it will not be a savior in the medium to long run.

Though IT services companies will take the hardest hit, this visa fee hike will also affect buy-side companies. Buyers of any IT-BPO services will need to make sure that their suppliers have the necessary permits in line with the visa norms and regulations specified by the US Government. Any new sourcing contracts or renewals should account for this new visa fee wherever appropriate, so that service providers do not pass on a major chunk of their costs to clients. Legal teams must take precautionary measures in order to avoid the impact of the higher visa costs.