H-1B and L-1 Visa Fee Hike Could Lead to More Offshoring

UPDATED 8/17/2010 — It’s not often that H-1B visa critics and advocates are on the same page, but Senator Charles Schumer (D-N.Y.) has accomplished the seemingly impossible. Representatives on both sides of the H-1B visa debate agree that the increased visa fees established as part of a new border security appropriations act introduced by Schumer in the U.S. Senate are inequitable and likely to be ineffective in creating or maintaining American IT jobs.

Dr. Norm Matloff, a professor of computer science at the University of California, Davis and a leading voice in the call for temporary visa reform, says the increased fees are a setback and discriminate against Indian IT service providers. Vivek Wadhwa, a visiting scholar at the University of California, Berkeley, who is usually on the opposite side of the H-1B visa debate, agrees with Matloff. Wadhwa says the legislation is “misguided, misleading, and won’t achieve its purpose.”

The law, signed by U.S. President Barack Obama on Friday, stipulates that any company employing more than 50 workers in the U.S. must pay $2,000 more for an H-1B visa application and $2,250 more for an L-1 visa application if more than half of its U.S.-based workers are non-citizens. Those new fees come on top of a $320 filing fee, a $500 anti-fraud fee and a $1,500 American worker training fee.

India’s National Association of Software and Service Companies (NASSCOM) says it will lobby against the additional levy.

Critics of the measure say the law amounts to a visa tax on Indian outsourcers like Infosys, Tata Consultancy Services (TCS) and Wipro, while it ignores other heavy users of H-1Bs, like U.S. IT service providers IBM, Accenture and UST Global.

Matloff says the lopsided fees fail to address what ails the skilled worker visa program. “It will be ineffective [because] the mainstream American firms abuse H-1Bs for cheap labor just as much as the Indian services firms do,” he says.

U.S.-based outsourcers, many of whom have laid off thousands of American workers while hiring overseas, would not see any increase in H-1B visa fees because U.S. citizens make up the majority of their stateside workforces.

“The H-1B/L-1 visa tax will be more effective for developing income for the U.S. treasury than Schumer’s proposed call center tax, as it’s much easier to administer, but that’s where the positives end,” says Phil Fersht, founder of outsourcing analyst firm Horses for Sources. “In terms of creating more U.S. IT jobs, this is another step backward for the IT services industry.”

Increased visa fees could in fact encourage Indian IT service providers, who’ve been preparing for such protectionist legislation, to move more work offshore or to nearshore delivery centers they’ve opened in Canada and Latin America.

“New visa taxes will only help to accelerate the movement of more complex IT work offshore [and nearshore],” says Fersht. “By further discouraging bringing talent to the states, Schumer and company are driving the next wave of IT development out of the country.”

Schumer says his intention is to put international “body shops” out of business, but Wadhwa says this law misses the mark. “They are not targeting the true body shops [with these increased fees],” says Wadhwa. “These Indian providers are the crème de la crème of global companies doing very sophisticated work. They’re going after the good guys.”

The additional visa fees will be used to beef up security at the U.S.-Mexico border, which U.S. technology trade group TechAmerica says is a misappropriation of funds that could be better used to strengthen a “weakening pipeline of science, technology, engineering and math talent in the U.S.”

TechAmerica President and CEO Phil Bond said in a statement that the companies impacted by the increased H-1B visa fees “provide valuable and innovative expertise to many U.S. companies in critical sectors.” He added, “Fee increases risk undermining these important goals while America is struggling to recover economically.”

Elizabeth Espin Stern, a partner in the Washington, D.C. corporate immigration practice of law firm Baker & McKenzie, says her clients are bracing for further visa restrictions. “Our clients are concerned that this is the first wave of ongoing fee changes by the government that are unrelated to any rational system,” she says.

Wadhwa is displeased that the revenue earned from the additional H-1B and L-1 visa fees will be put toward border security. He says using the fees to fund technology courses or scholarships for U.S. IT workers “would do a lot more good than buying drones to kill people at the border.”

Editor’s Note: This story was updated on August 18, 2010 with a quote from attorney Elizabeth Espin Stern in the second to last paragraph.