- The Trump administration announced new rules this week for the coveted H-1B visa program, which authorizes high-skilled foreign workers to work in the US.
- The changes include higher wage requirements for H-1B employees.
- Tech companies of all sizes rely heavily on the H-1B program to recruit top talent globally yet those wage requirements pose distinct challenges for cash-strapped, early-stage startups, experts say.
- “The tragic thing here is that it means that it’s going to be more expensive for new, innovative startups to be formed,” said Sophie Alcorn, a founding partner at Alcorn Immigration Law.
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The Trump administration this week announced big changes to the coveted H1-B visa program, which allows high-skilled foreign workers to be employed in the US. Among the most significant of the changes are higher wage requirements for H-1B workers, which could even force some companies to pay foreign employees more than their American counterparts.
The higher-salaries rule could make it more difficult for startups to hire foreign talent as well as to lure them from large tech companies, said Sophie Alcorn, a founding partner at Alcorn Immigration Law who focuses on tech startup immigration.
“For large companies, it’s not really going to have that much effect because, even though higher wages will be required, it’s not going to change their hiring practices because they’re still in a race for global top engineering talent,” Alcorn told Business Insider. “The tragic thing here is that it means that it’s going to be more expensive for new, innovative startups to be formed.”
And that could also make it more difficult for early-stage companies to attract investors. Investors may not want a startup spending more of its limited cash on salaries instead of other needs, Alcorn says. And if young startups ignore foreign workers, they lose out on a valuable and important talent pool that has always supplied tech companies with skilled workers.
The new wage rule, which went into effect on Thursday via the Department of Labor, requires companies to pay entry-level H1-B workers in the 45th percentile of their profession’s salary, a significant hike from the previous requirement of the 17th percentile. And starting wages for the highest-skilled workers would rise to the 95th percentile, up from the 67th percentile.
“Companies, when they see the new numbers, are pretty shocked,” said Marco Satala, an attorney at Pearl Law Group who has filed more than 57,400 H-1B visa applications. Major tech companies, such as Apple and Facebook, rely heavily on H-1B visas to hire many of their workers.
The wage rule comes alongside changes that narrow the degree requirements for H-1B applicants and shorten the length of visas for certain contract workers. Under the new rules, an applicant must have a college degree in a specific field which corresponds to where he or she wants to work — as opposed to a more general degree.
Ken Cuccinelli, second-in-command at the DHS, estimated the new rules would cut the number of H-1B visas by a third. The government issues 85,000 H-1B visas each year, usually via a lottery system as the number of applicants almost always exceeds the slots available.
Bypassing public comment
The changes to the H-1B program were made as an “interim final rule,” a process that bypasses a public comment and review process that is standard for such rules.
Satala expects to see lawsuits challenging the rules in the coming months while companies test to see how permanent they will be.
These new rules may also cause a wrinkle for startup founders. While founders may qualify for other types of visas, some are living in the US under H-1B visas and must also follow all the new rules, including the higher salary requirements, says Alcorn.
Those kinds of difficulties could encourage H1-B holders who want to start companies to look elsewhere, such as Canada. Canada is gaining a reputation of being more welcoming to high-skilled immigrants, says Satala.
One famous example of a founder giving up on the US is Kunal Bahl, who left to found Snapdeal, one of India’s largest e-commerce companies, after US immigration officials rejected his H-1B visa application.
“The H1-B regulations create new opportunities for some of these national ecosystems outside of the US to become much stronger,” said Sumon Sadhu, an angel investor who has backed over 50 companies across the world, including Indian accounting startup ClearTax and Indonesian bookkeeping company BukuWarung.
“If these visas get rejected or if this talent doesn’t have a place to be, then there are other places, or they can go back home, and that’s an exciting, tangible trend,” Sadhu. “There’s only so long that people can wait.”
And that may have long term implications for the US tech industry because some of the most successful tech companies were founded by immigrants. In 2018, the National Foundation for American Policy reported that more than half of the US’s unicorn startups at the time — those valued at $1 billion-plus — were immigrant-founded.
The Trump administration defended its decision on the grounds of protecting American jobs during the coronavirus pandemic, although it first announced its intentions to overhaul the H-1B visa program back in 2017.
Even before this week’s announcements, the Trump administration has made it more difficult to get the visa, rejecting 15.1% of applications in 2019 compared with 6.1% in 2016, the Wall Street Journal’s Michelle Hackman reported earlier this week, citing US Citizenship and Immigration Services data.