The $787 billion economic stimulus plan signed into law last month includes a provision that will make it more complicated for some companies to hire foreign workers on H-1B visas.

In the 2008 presidential race, each of the front-running candidates — including the eventually sworn-in president — were either “probably” or “strongly” for increasing H-1B visas, according to CNET.

Earlier this month, the $787 billion American Recovery and Reinvestment Act of 2009 signed into law by President Barack Obama included what the Wall Street Journal (subscription required) reported as a “little-noticed provision” that will make it more complicated for financial services companies and banks that receive federal bailout money to hire foreign workers on H-1B visas.

Currently the United States grants 65,000 H-1B visas annually to high-tech workers, with an additional 20,000 visas possible for foreign workers with U.S. advanced degrees. The visas are represented largely by India (the largest recipient), China, Korea and the Philippines, according to the National Science Board’s Science and Engineering Indicators 2008 report, released a year ago.

Supporters say the H-1B visa program is needed to help companies obtain the most qualified workers, particularly in math, computer science and engineering. Proponents say the program is designed with proper protections to attest that employers aren’t replacing U.S. employees and are paying prevailing wages to foreign workers. Yet opponents say the current visa program undermines U.S. workers by encouraging companies to hire temporary workers. Critics also say many of the protections built into the H-1B law not only fail to work as intended, but are also abusive, exploitive and fraudulent.

“Lawmakers are concerned that the program is being abused by some companies that exploit loopholes to cheat their foreign workers,” the Wall Street Journal recently noted (subscription required).

The newly signed stimulus law does not bar H-1B workers, but rather temporarily increases the number of procedural hurdles that banks and other bailout recipients must clear. It also enables the government to better scrutinize companies’ hiring practices regarding foreign workers.

The new H-1B restrictions require financial services firms that receive money under the Troubled Assets Relief Program (TARP) to comply with rules set for “H-1B-dependent” companies — those where more than 15 percent of the workers are on visas.

The rules set a number of requirements for organizations looking to hire H-1B holders, including the need to demonstrate that the employer has made “good faith” efforts to recruit U.S. workers actively for the position for which the employer is seeking H-1B talent.

Moreover, the employer must attest it has offered a minimum of “prevailing wages” during recruitment efforts, hasn’t displaced or replaced a U.S. worker within the 90 days before or after filing an H-1B petition, and has offered the job to a U.S. worker who applied and is equally or better qualified than the H-1B worker.

If the company declares it has followed the rules but is later audited by the U.S. government and found to have violated the requirements, the employer faces possible financial penalties and being banned from even participating in the H-1B visa program.

The provisions are expected to affect new hires, not existing H-1B visa holders in the U.S. looking to renew their visas.

“Business advocates argue that in 2007, less than 1 percent of the workers at major U.S. financial institutions were H-1B visa holders,” the Wall Street Journal noted.

An investigation by the Associated Press reported last month that a dozen banks now receiving more than $150 billion in bailouts requested visas for more than 21,800 foreign workers over the past six years to replace laid-off American employees. The same banks announced at least 100,000 job cuts in recent months.

In addition to the restrictions for banks, Sens. Charles Grassley (R – Iowa) and Richard Durbin (D – Ill.) are “planning further legislation to tighten up the H-1B visa program as well as other visa programs for temporary workers,” and “proponents of the H-1B program foresee more struggles ahead, particularly given the recession,” according to the Wall Street Journal.

While the H-1B program was originally set up to help U.S. companies hire workers with rare skills, outsourcing companies have become the most active participants in the program. In 2006, 10 of the top 20 recipients of the visas were Indian tech outsourcers.

Though the new provision doesn’t directly affect Indian outsourcers per se, the country’s biggest tech companies are preparing to hire Americans in response to the new law’s provisions, as well as continued anti-offshoring sentiment in the U.S.

Outsourcing giants Infosys Technologies Ltd. — which received 4,559 H1-B work visas in 2007 (the latest year data are available) — and Wipro Ltd. — granted 2,567 in 2007 — are laying the groundwork to increase the number of jobs they create stateside. The companies, the largest recipients of the visas in the world, plan to ramp up recruiting in the U.S. as they sharply slow hiring at home because of the downturn in the global economy.

Says another Wall Street Journal report:

Infosys says it made 15 percent fewer offers to Indian graduates this year, while Wipro said last week that it didn’t plan on hiring any more than the 8,000 Indian graduates it has made offers to so far this year. Last year, the outsourcer took in 13,600 new hires. The two, among others, have also postponed hiring many Indian students they made offers to last year. Wipro had 1,100 fewer employees in December than it did in September.

Year after year, demand for these visas dramatically exceeds supply. Last April, USCIS announced that the entire H-1B visa quota for fiscal 2009 had been reached, for both the 20,000 advanced and the 65,000 general quotas. For fiscal 2008, the entire quota was exhausted before the end of the first day on which applications were accepted.

Earlier

H-1B Visa Program Fraught with Fraud

Nothing New: High H-1B Visa Demand Expected

American Workers Not Wanted

H-1B Visas

Resources

In ’08 Presidential Race, Who’s the Most Tech-Friendly?
by Declan McCullagh
CNET, Feb. 5, 2008

Signed, Sealed, Delivered: ARRA
WhiteHouse.gov, Feb. 17, 2009

U.S. Stimulus Package Adds Hurdles for Foreign Hires
by John D. McKinnon
The Wall Street Journal, Feb. 22, 2009

Science and Engineering Indicators
National Science Board, January 2008

AP Investigation: Banks Look Overseas for Workers
by Frank Bass and Rita Beamish
The Associated Press, Feb. 2, 2009

List of H-1B Visa Employers for 2008
Computerworld / U.S. Citizenship and Immigration Services, Feb. 23, 2009

Indian Outsourcing Firms Lay the Groundwork to Hire More Americans
by Niraj Sheth
The Wall Street Journal, Feb. 23, 2009

USCIS Reaches FY 2009 H-1B Cap
USCIS, April 8, 2008

USCIS Reaches FY2008 H-1B Cap
USCIS, April 3, 2007