12 Sep 2015 13:11 IST

Why the H-1B visa compliance matters for tech stocks

The US Citizenship and Immigration Service (USCIS) issues a maximum of 65,000 H-1B visas annually

As the US labour market watchdog gave a clean chit to Infosys and TCS for compliance with H-1B visa norms on Tuesday, the stocks of both companies moved higher.

In June, the US Labor Department had initiated a probe into the two companies to find out if they had violated labour laws. It followed allegations from two US senators that a power utility company — Southern California Edison — had replaced 500 of its employees with H-1B visa holders from Infosys and TCS.

It now turns out that Infosys and TCS did not flout visa norms. But reassurance of good practices at these companies is not the only reason for the cheer in the market. If the companies had been found guilty, it would have had financial implications; on revenue and on costs.

Key market
These companies derive a large chunk of their business from the US. Of the $98 billion of IT exports in 2014-15 from India, 62 per cent was from the US, says Nasscom. With a cap on the number of visas issued every year, these companies have to vie with each other to secure visas for their onsite employees.

The US Citizenship and Immigration Service (USCIS) issues a maximum of 65,000 H-1B visas annually. For fiscal year 2016, within five days of opening, the number of applications for H-1B visa hit the cap, with Indian IT companies taking most of it. Infosys, TCS and other big boys of the Indian IT sector derive about 60-65 per cent of their revenues from the US.

If found guilty of misusing work visas or found non-compliant with labour laws, companies face the risk of being black-listed in the US. There have been several instances in the past when Indian IT companies faced the wrath of the US watchdog on visa issues. In 2013, Infosys had to make a $34-million settlement for a civil suit following paperwork errors in visa applications. If there are repeated instances of violation of laws, the US regulator may bring new restrictions on use of skilled worker visas say experts.

This can result in difficulty in moving employees for onsite operations, says Dinesh Goel, partner at ISG.

Also, such a scenario, may even increase wage and visa costs. Already, after the Border Security Act came into force in 2010, visa fees for professionals who go to the US through H-1B or L-1 visas have almost doubled to $4500 (for companies which employ more than 50 persons in the US or have 50 per cent of their workforce on non-immigrant visa).

Penalties

The USCIS website says that there can be penalties and sanctions for non-compliance, especially if it is proved that an American worker was displaced because of violation of H-1B visa norms.

Fines may extend from $1,000 to $35,000 per violation depending on seriousness of the violation. Employers flouting the law may also to be debarred from government contracts, or, in some instance debarred from access to H-1B programme for at least a year. They may be even made to hire the individual discriminated against and face imprisonment for criminal violations.

The procedures to obtain H-1B visas are rather tough. The rules of the USCIS are framed in a way that it protects the US workers. Apart from high educational requirements, employers should also submit Labor Condition Application certifying to the US Labor Department that they have complied with rules on wages, working condition and also disclose the foreign worker’s rate of pay.

Recommended for you