We’ve been strapped on with all the changes going on around the H1B visa norms since 2017. They’ve nothing but tightened under Trump’s administration, vigilant to secure maximum good quality jobs for American citizens. As we previously informed you that US has decided to allocate more H1B visas to candidates holding advanced technical degrees over the ones that don’t, an adverse financial impact on the Indian IT services companies has been noted.
A further squeeze is expected in this financial year on the operating margin of Indian IT companies.
The Impact of H1B Alterations
The Indian IT sector has always majorly relied on labour forces of H1B holders, as they conduct the same work at a cheaper rate, while the local talent comes with an additional cost of 25% to 30% hike in salaries. With the H1B visa approvals reducing dramatically by 21% in the last 5 years, Indian tech companies have been compelled to hire more locally, directly leading to an escalation in employee costs.
Indian IT firms have had an offsite-onsite employee mix ratio of 80:20. Employees with H-1B visas have been at the core of their strategy, as they cost 20% less than US-based ones. Employee expenses account for 60-65% of total operating cost for IT companies and due to these changes in visa norms, employee expense and the cost per employee for tier-I companies rose by 17% and 9% in FY19, respectively, compared to around 6% and 3%, respectively, a year before. For mid-tier players, the increase in employee expense was around 13% for the first nine months of FY19.
The cost per employee rose by 9% year-on-year, compared to lesser than 5% in the previous eight quarters. Again, this increase in cost per employee is attributed to the rising number of onsite local hires, making up more than twofold salaries of employees with digital skills, since the average wage hike was only 6% to 8% for the period.
The Effect on Major Indian IT Giants
Major Indian IT firms have more employees without an advanced master degree, reducing the approvals of H1B visas. There was a 27% approval of such visas for employees holding a master’s degree, as compared to 55% for non-H-1B dependent employers.
Infosys witnessed 2,122 visa denials in FY 18, followed by TCS where the rejections were 1,896. Out of the three Indian IT giants, Cognizant was leading with 32% denials, followed by Infosys and TCS at 26% and 18% respectively. As a result, cost structures for the Indian IT majors have been impacted majorly. The approvals declined by a sharp 50% from the 43,957 to 22,429 in consecutive fiscal years. Among the top companies, only Tata Consultancy Services has kept its staff attrition levels under control.
Firms can try to optimise onsite costs by turning towards the pyramid model, wherein they can hire college graduates in a higher proportion paying lesser salary, while the rest of the positions can be filled with a few domain experts at a higher cost.