H1B Changes To Raise Indian IT’s Costs By 10-30%, Boost Offshoring

Indian IT companies may experience a 10-30% rise in employee costs due to the anticipated changes in the H1B Visa program. This shift could also result in more offshoring because of skill shortages and higher wages in the US, potentially benefiting the IT sector.

With Donald Trump taking office as US president, there has been growing uncertainty around visa policies, especially H1B visas. The proposals of the new administration also include raising wage thresholds and introducing additional fees. 

In a recent turn of events, Trump has issued an executive order declaring that children born in the United States will only be automatically granted US citizenship by birth if at least one parent is a citizen, lawful resident, or a member of the armed forces.

The Indian IT sector traditionally was dependent on H1B visas to reduce costs, maintain a US presence, and meet client project requirements. However, since Trump's first term as President, companies have reduced their dependence on H1B visas by hiring locally in the US. 

“Since 2017, when the H1B issue started, these companies reduced their dependence from 40-50% to about 20-40% on their US-based workforce, consisting of H1B visa holders,” said Gaurav Vasu, founder and chief executive officer of market intelligence firm UnearthInsight.

Even as the dependence remains low, HR analysts note that in the short-term, any changes to the H1B visa program may result in increased employee costs. “Any tightening of H-1B policies, such as increased wage thresholds and compliance requirements, will likely lead to a 10-30% rise in employee costs,” said Krishna Vij, vice president at TeamLease Digital. 

Employers may need to offer higher salaries to attract and retain local talent or bear additional legal and administrative costs to maintain compliance. Additionally, costs could escalate due to increased reliance on alternative workforce models, such as subcontracting or nearshore hiring, she added. 

“In the short term, the visa restrictions can cause delays in project execution, particularly for roles requiring on-site client collaboration, which may impact timelines and client satisfaction. New compliance measures, such as higher wages for visa holders or stricter eligibility criteria, will increase operational costs,” said Vasu. 

Further, the tech talent shortage caused by the policy can also impact the ability of IT firms to fulfil client demand, specifically for niche skills which command a premium in the US market as compared to landed resources, he added. 

In the third quarter, IT companies noted that their dependence on H1B visas is low. Infosys Ltd. said that within its US onsite population, H1 independent employees are now 60%. 

“Over the years, our dependence on H1B visas have reduced significantly. Our onsite mix has reduced significantly. We used to be in the 30% rate, but now we are at 24% rate. Within that, our nearshore has increased significantly," said Jayesh Sanghrajka, chief financial officer, Infosys.

Similarly, Wipro noted that its US workforce is composed of about 80% local employees, and the company has actively focused on hiring within the US. Additionally, it said that it has a strong inventory of H1-B visas, positioning the company well to move employees as needed. 

On the flip side, HR analysts note that stricter H1B policies are likely to worsen the US talent shortage in key areas like artificial intelligence, cybersecurity, and cloud computing. This will increase competition for local talent, driving up wages and making it more expensive for companies to hire and retain skilled professionals, especially for local or onsite roles. This will result in companies looking at more offshoring, which will be beneficial for the IT sector. 

UnearthInsight predicts long term positive impact of H1B policies for Indian outsourcing because costs are expected to go up in US locally for new-age skills. This could be especially true for mid-market customers who may not be able to afford an onsite heavy team as part of outsourcing contracts, as compared to larger clients who can still absorb a 75:25 mix with strict H1B and America first approach.

“In the US, stricter visa rules may result in talent shortages, increased competition for local hires, and a shift to nearshore destinations like Canada and Mexico. In contrast, India could benefit from higher job creation as global firms expand their GCC’s and increase offshore operations," Vij added.