How Will Changes to the H1B Visa Program Affect Startup Companies?

The executive order by President Trump on the H1B visa program has prompted a wave of commentary and criticism from some sectors, especially those that have benefitted from the program’s existing format.  While Indian IT outsourcing companies and the Indian government have put on a brave face, it is no secret that Trump intends to end the dominance by large IT firms in accessing the US job market via H1B work visas.

This does bring up the question of how proposed changes, such as eliminating the annual lottery, will affect US startups, especially those in the tech sector.  This should also be of interest to skilled and experienced foreign workers who still plan to attempt a career in the US, and even seek green card residency.

Here are a few potential impacts for startups as the H1B visa program changes:

Eliminating the Lottery

If the annual lottery is eliminated in favor of a merit-based system, this can only be a positive for startup companies.  Until now, a startup had to compete with Indian firms submitting thousands of petitions, with the ability to absorb the cost that only one in three petitions are selected in the lottery.

If the lottery is eliminated, then petitions submitted by startups would be on a level playing field with any other sponsor, and would be evaluated based on merit, wage level and experience of the applicant for the H1B visa.  The chances of having a petition approved would increase dramatically over the current lottery system that is random and allows larger companies to ‘play the odds.’

Raising Wage Levels

If the H1B visa wage level is increased to $100,000 as proposed in some pending legislation, then that is another factor to drive outsourcing companies away from the H1B visa program.  Their business model has relied on paying workers an average of $65,000 per year, and a 30% increase could damage their bottom line significantly.

Startups need the best and most talented IT workers to create competitive products and services, and likely expect to pay at least $100,000 salary for the needed talent.  So, once again this change would work to their benefit, as long as they can demonstrate they have the capital to pay the worker’s salary and benefits.

A Smaller Pool of Available Talent

One potential downside for startups is that the overall pool of available talent in the US may shrink.  Many startups look for quick hires to move their projects forward, and often prefer either a US resident or current H1B employee at a major tech firm.  The fear is that the overall IT talent pool my shrink if H1B visas are harder to obtain, increasing competition and raising wage levels.

While this may be true, the silver lining is that going forward most future H1B visa holders will have a higher skill level and more experience than many of the entry level workers brought in by outsourcing companies.  Therefore, any potential applicants would likely qualify under the new, more stringent H1B criteria.  Also, some workers might be drawn to startups, given the potential to innovate and be compensated based on company growth and success.

Special Rules for Startups Seeking H1B Visas

There are certain financial criteria that startups have to meet to have an H1B visa petition approved, and the process is not automatic.  They have to show sufficient capitalization and financial ability to pay the worker the agreed salary, so that the H1B visa holder is not left unemployed in case the company hits a slow period of growth.

However, for those startups who can meet this requirement, any changes to the program should be of benefit in hiring the best foreign workers.

  • January 19th, 2018
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