IT consulting started becoming popular in 1970 but was staffed mostly by Locals. Foreign IT consultants came to USA for shorter periods on business visitor visas.
George H. W. Bush authorized the H-1B visa through the Immigration Act of 1990 on November 29, 1990 and opened the doors for foreign H-1B professionals.
1990-1995
The first generation of IT consulting owners were from 1990 to 1995. The IT consulting model using Corp to Corp contracts and H-1B visa was still getting established. It was the pre-boom stage. The H1-B fee was only $365.
1995 to 2001
The Y2K and Dot com ventures fueled the IT consulting boom. The H1B quota was increased from 115,000 to 195,000 by ACWIA (American Competitiveness and Workforce Improvement Act) in 1998.
From 2001-2008
The recession hit USA in from 2001 to 2003.The dot-com bubble burst also happened around the same time. Some IT consultancy owners quit the business in this period. However, this was a short recession compared to 2008 and the H-1B cap was increased. The visa regime was friendly, and the IT Consultancy market rebounded again.
In 2001 the H-1B cap was increased from 115,000 to 195,000. In 2005 the H-1B cap was decreased from 195,000 to 65,000 for regular quota and 20,000 for master’s Quota. STEM OPT was introduced in 2008. This lead to OPT students getting a significant share of H-1B visas.
This was the revival period of IT consulting. International OPT students were joining IT consultancies at a higher rate and consultants from India were coming to USA in large numbers. The H-1B petition fee also increased to $2325. The recession hit USA in 2008 in a sudden move. Many consulting owners again closed or sold their IT consultancies between 2008-2011.
2008 - 2016
Consultancy owners were recovering from the recession in 2008 when the infamous employer- employee relationship memo was released by USCIS in 2010. From 2013 USCIS started questioning about the ability of IT consultancy owners to fund in-house projects and started asking for invoices and payments from in-house project customers, lease space, seating plans for in-house projects very thoroughly. Site inspections for in-house projects started becoming commonplace.
Indian implementation partners also started grabbing a larger market share of end clients by 2012. The end client-implementation partner-prime vendor- consultancy started becoming popular. The Public Law 114-113 increased the fee by $4000 to the existing $ 2325.
2017 - present
The level 1 wage memo was issued on March 31st, 2017. Many IT consultancy owners have already submitted their new H-1B petitions for the 2017 annual quota by that time. 90% of those petitions were denied. Then USCIS started denying petitions of non-computer science graduates even when they have a valid educational plus work experience evaluation which states that they have an equivalent of a US bachelor’s degree in computer science. USCIS then started denying petitions stating that computer systems analysts do not need a computer science degree and are not a specialty occupation.
The premium fee was increased to $1225, the base fee was increased to $460. Attorneys also started increasing their H-1B fees to $2000 due to volume of information requested in the RFE. So, the petition cost ballooned to $9685 per employee (Base filing fee $460, AICWA Fee $1500, Fraud Fee - $500 Public Law - 114-113 - $4000, Premium processing fee - $1,225, Attorney Fees - $2000) for employers with 50 employers or more.
The Level 2 wages are in the range of $85,000 to $125,000 per year depending on the geographic region. Payroll taxes are additional 10 -12% depending on the state. Benefits like health insurance are another $6000 to $12,000. This is putting a lot of pressure on the employers to terminate H-1B employees with low billing rates like QA, BA, Data Warehousing and many tools.
Shrinking profit margins
With Level 2 wages, 80/20 percentage sharing, 6.5% Social security, 1.45% Medicare, 1% state unemployment insurance, 1% business liability insurance 0.25% payroll processing charges, 0.75% line of credit interest, office rent, HR manager salary, overseas marketing team costs, high chances of recession in 2020, it is no longer lucrative to run an IT consulting company with less than 35 employees.
Many IT company owners have ventured into vendor ships for their company but that did not prove lucrative because end clients are limiting their vendors every year depending on the performance and removing non-performing vendors from the list. Even if an IT consultancy company is an approved vendor for an end client there is no guarantee of a consultant getting an interview after submission of a resume due to vendor management systems (VMS) and lack of human interaction between vendors and managers.
Many IT consultancy owners are in their late forties or mid-fifties and should focus on capital preservation. They should start focusing on IRA retirement plans through which they can start getting fixed payments when they are 59 ½ years old and invest in commercial or residential real estate. Social security payments can be paid when a person is at least 62 years old.
Most business lines of credit and business credit card are secured by the consultancy owners personal guarantee and the owners are liable to pay with their personal funds or personal properties in the event of bankruptcy or default on business line of credit or business credit card.
Some entrepreneurs would like to spend their lifetime fighting for their businesses. Some would like to retire or start planning for an exit plan. If you are an IT consultancy owner and would like to retire or seek a working / managing partner or an investor, please send an email to info@consultancyforsale.com
Press release by: Indian Clicks, LLC