IT cos gird up for new US immigration regime

The US Immigration Bill, which passed its third stage with a 67-27 Senate test vote is inching closer to being passed in its present form – spelling worry for Indian IT.

Som Mittal, president of Nasscom, said, “We are hoping the White House intervenes, and when both the Senate and House of Representatives assess the Bill they come out with a final Bill that is far less discriminatory and has fewer restrictions.”

As per a report released by Motilal Oswal on Thursday, “Almost every company is underway to align with the new normal for compliance. Higher costs seem given, due to visa fee penalties, more locals at onsite and higher salaries to those employed on H1B. Further, if the Bill is passed with the outplacement clause intact, it calls for a change in the business model for the industry.
Proportion of onsite locals at US range 20-50% at present for companies, which will have to be increased to 85%, in three years.”

In a note to investors, Sandip Agarwal, Omkar Hadkar and Deepansu Jain of Edelweiss said, “If the Bill is passed without the outplacement clause, the impact on margins for the top three IT players in FY15-17 would be 45-90 basis points; with the outplacement clause, the impact would be 85-375 bps.”

If the outplacement clause is applied immediately, it would totally disrupt the entire industry outsourcing model, they said.

Despite the Bill being 6-9 months away from being passed, Indian software firms are taking no chances and are taking measures as per its current provisions.
Some of these include hiring more locals at onsite, bringing more work at offshore, acquiring local companies, setting up proximity centres to service clients from nearby locations and applying for greencards for as many employees as eligible, so that they no longer fall in the H1B category.

Mittal said one big change is that campus hiring will now be split – wherein half the hiring will take place in September, while the other will take place closer to the business needs during May-June. “Going forward, there will be four types of hiring – campus, off-campus, lateral and domain, and language-based. This means there will be more permanent jobs in the US and more temporary jobs in India.”

While the impact of the Bill will be relatively lower for HCL Technologies and Infosys, which have over 50% onsite workforce, it will be higher for TCS and Cognizant, both of which have lower average cost of the workforce at onsite. 

Tech Mahindra, which has the least percentage of onsite employees, also has a cause for worry, the Motilal Oswal report said. However, if the rupee remains low,  the cost impact of the Bill may be absorbed by most Indian IT firms, it said.

The impact
The Bill’s impact will be lower for HCL Tech and Infosys, which have over 50% onsite workforce.

It will be higher for TCS and Cognizant, which  have lower average workforce cost at onsite.

Tech Mahindra, which has the least percentage of onsite employees, also has a cause for worry.