Why the industry should be concerned about H1B visa restrictions
By Mark Roberts
By almost all measures, these are good times to be to be in information technology staffing. According to TechServe Alliance’s recent benchmarking data, the median IT staffing ﬁrm grew 20 percent in 2011, while the top quartile grew an astounding 38 percent. Gross margins and bottom-line proﬁtability continue to improve across the board. What’s more, Staffing Industry Analysts estimates IT staffing now represents 20 percent of the overall staffing industry, with 2012 growth rate estimated to be 14 percent — one of the fastest-growing staffing verticals. Long-term, IT staffing remains at the intersection of two seemingly inexorable trends that show no sign of abating: the growth of both the contingent workforce and IT.
H-1B Restrictions and the Looming IT Talent Crisis
While much of the economy and the job market are still emerging from the lingering eﬀects of the Great Recession, the demand for IT talent is robust. Unemployment rates in many IT occupations are less than half the national unemployment rate. Along with strong demand and an insufficient domestic supply of IT talent in high- demand skill sets, the strain on the talent pool is further exacerbated by forces that seek to restrict the IT staffing industry’s access to foreign talent through the H-1B visa program.
USCIS and the Neufeld Memo. Beginning in the fall of 2009, IT staffing and consulting ﬁrms started noticing changes in the H-1B petitions approval process. Where H-1B petitions had previously been routinely approved, IT staffing ﬁrms (particularly where the ﬁrm’s workforce was composed of a large percentage of H-1B workers) were seeing delays, onerous requests for documentation (known as Requests for Evidence or RFEs) and even denials. U.S. Citizenship and Immigration Services (USCIS), the agency within the U.S. Department of Homeland Security responsible for approving H-1B petitions, had begun to speciﬁcally target IT staffing and consulting ﬁrms. Speciﬁcally, USCIS policy and practice included:
- Small IT staffing ﬁrms or consulting ﬁrms in operation for less than 10 years were being automatically referred to a special fraud unit.
- USCIS began demanding letters from clients and to speak to clients regarding the nature and duration of a consultant’s engagement. When issued, H-1B visas were being limited to the duration of the speciﬁc contract or purchase order even if there is a history of reassignment — signiﬁcantly increasing the administrative burden and cost to ﬁrms.
- USCIS took the position that IT staffing and consulting ﬁrms were not real employers (which, from their perspective, was the end client), but mere token employers — a view that strikes at the heart of the IT staffing ﬁrm business model.
While much of the immediate impact of USCIS’ initial policy actions was primarily felt by direct sponsors of H-1B visas, the long-term implications for the broader IT staffing industry were ominous.
Following these developments, in January 2010, USCIS issued a memorandum that became known as the Neufeld Memo, to provide “guidance” (in reality a directive) to its staﬀ in the ﬁeld on the requirements for establishing an employer- employee relationship in the context of H-1B petitions. An employer-employee relationship must exist for a company (petitioner) to successfully petition for an H-1B visa on behalf of an individual (beneﬁciary). USCIS applied an incorrect legal standard (incorrectly applying the “control test”) and concluded that the hypothetical “computer consulting ﬁrm” the memorandum described failed to meet this requirement. In other words, the Neufeld Memorandum held that a typical IT staffing or consulting ﬁrm would not be allowed to place an IT consultant on an H-1B visa at a third-party client site — the very essence of the IT staffing business model.
The consulates. Along with USCIS adjudicators, the U.S. Department of State through its consulates began questioning legitimacy of the staffing ﬁrm model. Once an H-1B petition is approved, the U.S. Consulates abroad must issue or stamp the visa. While the visa issuance process had previously been routine, the consulates began to refuse to issue the visa on the same grounds as the Neufeld Memo — frequently readjudicating USCIS’ prior approvals.
The ongoing legislative threat. In addition to the challenges at the agency level, Senators Richard Durbin, D-Ill., and Chuck Grassley, R-Iowa, have been continuing to seek legislative opportunities to impose additional restrictions that may even outright bar the IT staffing industry’s access to H-1Bs.
The chilling effect. Beyond the legislative and regulatory policies themselves, the cumulative eﬀect of these attacks has had a chilling eﬀect on the use of H-1Bs. To avoid the uncertainty created by these policies, many clients have sought alternatives to accessing H-1Bs through staffing ﬁrms.
TechServe Alliance’s response. TechServe Alliance has been engaged in a multi-front eﬀort to defend the industry from these attacks, from suing USCIS to our ongoing eﬀorts on Capitol Hill. We recently began to see some progress. Following our meeting with USCIS Director Alejandro Mayorkas, the agency issued new guidance in the form of FAQs officially acknowledging for the ﬁrst time the eligibility of IT staffing ﬁrms to ﬁle H-1B petitions. In light of this development, we are at work to change the application of policy at the U.S. Consulates. However, there is much more to be done.
From those companies that don’t directly sponsor H-1B bene- ﬁciaries or perhaps don’t even utilize H-1B workers at all, the question inevitably arises: Why should I care? The impli- cation being, it doesn’t aﬀect me. However, these policies have consequences for the broader industry. The legislative and regulatory restrictions were not aimed at petitioners of H-1Bs generally, but speciﬁcally seek to limit or bar the IT staffing company model from accessing the H-1B program. In Neufeld parlance, IT staffing ﬁrms were not “U.S. Employers.” Even if you do not place and have no intention of placing any H-1B beneﬁciaries, a challenge to the business model should be troubling to everyone within the industry.
On a practical level, both the actual restrictions and the associated chilling eﬀect have an adverse impact on the talent pool. In light of these legislative and regulatory threats, many IT staffing companies that specialize in H-1B workers curtailed their pursuit of new H-1B petitions. With demand continuing to ramp up and fewer H-1Bs available in the labor pool, the shortage of workers in high-demand skill sets will remain an ongoing industry challenge.
While it is easy to dismiss these legislative and regulatory attacks as limited to certain types of IT staffing ﬁrms, I think we would be short-sighted as an industry to ignore these events. In short: an attack on the business model should be of concern to all.
Mark Roberts is CEO of TechServe Alliance, the national trade association of IT staffing and solutions firms. He can be reached at email@example.com.