The Government Announces Stricter H-1B Provisions for Outsourcing Firms

By David North on October 6, 2020

Press Release: New H-1B Rules to Protect American Workers

The new H-1B rules announced today are long-overdue moves to protect American workers. By making it harder for many employers to exploit the H-1B program to replace Americans, and by creating a more realistic yardstick for wages that must be paid to foreign workers, the administration has taken a big step toward implementing the president's Hire American pledges. This is an encouraging sign that may lead to further reforms to the H-1B visa and other programs that import foreign labor to the detriment of American workers.

More specifically, the administration is:

  • Reining in what it calls "shadow employers", what others term Indian outsourcing companies, the main middlemen in the H-1B business;
  • Cutting down the time period for initial visas for these employers from the current three years to one year, to give the government greater opportunities to monitor compliance; and
  • Changing how the prevailing wage for H-1B workers is calculated, which will force these H-1B employers, on average, to increase the wages paid to these workers.

It is also going to "bolster its enforcement authority" and will "upskill" the definition of "specialty occupation" used in the program, with the ultimate effect of these reforms depending on how they are defined and how thoroughly they will be implemented.

Importantly, these reforms are focused directly at the harmful staffing or outsourcing company model of employment that has commodified these visa workers, displaced qualified Americans, and compromised the integrity of the foreign worker programs.

All of these moves, sometimes in multiple ways, will increase the current costs of the program for this subset of employers and will decrease the likelihood that these employers and their clients will use the program, which will create jobs for American workers. If an employer has to file three applications to give a worker three years in this country instead of one, that triples the management costs – a good maneuver.

It may also cause the movement of some work currently done in the United States back to India. To the extent that this happens, it does not open new jobs to citizens and green card holders, but it does reduce the population of the United States, meaning a bit less stress on U.S. infrastructure and the environment – important factors but outside the vocabulary of the current White House.

As background, the H-1B program permits the employment of something like 600,000 or more foreign workers, usually in the tech industry, as nonimmigrant workers. The terms and conditions of the current program routinely undercut wages and working conditions where they are concentrated, to the delight of their employers. A majority of the H-1B workers are young males from the southern part of India, as we have reported earlier.

The announcement of the new regulations was made in a joint press briefing by the Deputy Secretary of Labor, Patrick Pizzella (about whom we have written in the past) and by Ken Cuccinelli, acting deputy secretary of the Department of Homeland Security. The text of the Department of Labor regulations is here. The DHS rules is here. A press release on the changes can be seen here.

In a news briefing by both of them, it was learned that the new rules will apply, apparently, only to the outsourcing firms, which, in turn, control of 36 percent of the H-1B visas. One of the ranking officials on the briefing said that most of the applications of these firms, those involved in out-placement of the workers, would be denied. If that is correct, it would be a huge development, effectively closing these firms' U.S. operations – and would certainly be subject to an immediate lawsuit, or a dozen.

Another element in the press briefing dealt with the details of the new prevailing wage rule for the outsourcers. As we have reported earlier, there are currently four levels for these wages, set at 17, 34, 50, and 67 percent of the prevailing wage scales, with most H-1Bs actually paid in the bottom slot.

The new four levels will be 45, 62, 75, and 95 percent of the prevailing wage ranges, meaning substantial wage increases for those H-1Bs working for the "body shops" (the outsourcing firms), assuming that the body shops will still be operating.