SI Review: July 2012

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Everyone's Problem

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.

The Consequences

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 roberts@techservealliance.org.

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my2cents 26/07/2012 1:24 pm

It is ridiculous to say that there is no shortage of highly skilled workers in the tech industry. People and companies may lie but numbers don't. Just talk to an IT recruiter or an IT manager or simply an IT professional and you'll hear hem all say that the industry is always finding it difficult to fill in Programming/Research and other highly skilled IT jobs. If you're still not convinced or don't have a friend in IT to put some sense in you, just post your resume with the keyword 'Java' to Dice.com and let me know if you receive any less than 30 calls per day with job offers.


The InSource Group

IT Staffing 08/07/2012 9:32 pm

Our colleges and universities are not graduating enough U.S. citizens with strong science degrees, computer science or otherwise. As a result, firms are struggling to hire full-time or contract staff for IT and engineering positions. As an IT recruiter in Dallas, it's important to know their true professional goals. Help them achieve their growth goals and help them establish a career growth path.


PROUSA 06/07/2012 7:36 am

We have unemployment, outsourcing, wage stagnation, and even credible reports of US workers being forced to train their replacements, and yet there continue to be those who argue we NEED more foreign workers. US workers should have to compete not just against their fellow citizens, but the entire world! SHEEZE! Immigration has become something which is great for employers but terrible for everyone else. When you consider employment, education and health costs, language issues, use of govt services, population congestion­, terrorism, disease, etc. how can you feel otherwise?

It's a situation only an employer could love. We let in staggering numbers of foreigners in both high and low income profession­s under worker visas such as H-1B, L1, OPT, H-2B, etc. Of course these workers "coinciden­tally" come in very high percentage­s from the low wage countries such as India (forget higher wage Japan or Western Europe). Anyone think THAT'S an accident? Employers love it because the visa terms make it very difficult to switch employers. They have captive indentured workers for years to come.


John80224 03/07/2012 9:44 am

Ever notice it's always misguided complainers and big bad congress supposedly causing all the problems? Time to look in the mirror. The IT staffing industry is 80-90% yes-man salesmen who don't know their product working for businesses who don't know their own need. Nice-to-haves, fleeting need and downright inconsequential skills are made into deciding requirements so both the hiring manager and recruiter can be freed from doing core functions of their job. And rather than adjusting their expectations, they instead expect immigration law to change for them.

If the fees on this visa were more reasonable, e.g. $30K, I imagine you'd find a lot more companies suddenly engaging their local community in training programs and hiring more on core skills rather than the language du jour for expressing them.


P Henry 03/07/2012 9:11 am

Roberts,
How does it feel to be a traitor? You are part of the reason this country has been flooded with cheap, foreign slaves while the unemployment rate for Americans hovers around 10%. Personally, I'd rather take a pay cut than sell out my fellow countrymen but there have always been loathsome, greedy parasites like you in the world and there probably always will be. Don't worry, what goes around comes around.


Total 5 comments