H-1B shake-up: US plans tougher rules on cap exemptions, third party jobs

The Department of Homeland Security (DHS) has initiated the process to propose a new regulation that would revise the H-1B program

The US H-1B visa programme could be heading for another major shake-up, with the Department of Homeland Security (DHS) preparing rules that could tighten access to cap exemptions, put employers with past violations under greater scrutiny and bring tougher oversight to H-1B workers placed at third-party worksites.

 

The proposal, titled “Reforming the H-1B Nonimmigrant Visa Classification Program”, is now with the White House's Office of Management and Budget (OMB) for review. The government received the proposal on August 24.

 

Three areas could see the biggest changes

 

According to DHS's regulatory description, the proposed rule would focus on three broad areas.

   

1. Cap exemptions could become harder to claim

 

Certain organisations can currently hire H-1B workers without competing for one of the programme's annual 85,000 cap-subject slots.

 

These include qualifying institutions of higher education, nonprofit research organisations, governmental research organisations and certain affiliated entities.

 

DHS is proposing to revise eligibility for these exemptions.

 

The government has not yet said exactly which organisations or employment arrangements could lose eligibility. 

 

"Employers who rely on H-1B cap exemptions, particularly through affiliations with other cap-exempt entities, should review their affiliations to ensure they meet all current requirements and have appropriate documentation to evidence cap-exempt status," said immigration law firm Womble Bond Dickinson.

 

That could matter because losing cap-exempt status can fundamentally change an employer's hiring process: instead of being able to file an H-1B petition outside the annual numerical limit, the employer could have to compete for a place under the cap.

 

2. Third-party placements face more scrutiny

 

The second major area is third-party placement.

 

This refers broadly to arrangements in which an H-1B worker employed by one company performs services at another company's location—for example, a technology consultant working at a client's site.

 

The model has long attracted scrutiny from immigration authorities because the government wants to ensure that the petitioning employer maintains the required relationship with the worker and that the actual employment conditions match what was represented in the H-1B petition.

 

The forthcoming rule could introduce additional oversight and requirements around these arrangements.

 

That makes the proposal especially relevant to IT services and consulting companies that deploy employees to client locations.

 

The regulatory agenda said the changes are intended to strengthen the integrity of the H-1B programme and better protect US workers' wages and working conditions.

 

3. Employers with violations could face tougher treatment

 

DHS also wants to provide greater scrutiny of employers that have violated H-1B programme requirements.

 

The proposal does not yet spell out what that scrutiny would look like.

 

However, the concept fits into a wider push by the administration to increase H-1B compliance and enforcement.

 

For companies, that could mean that a past compliance problem becomes more consequential when filing future petitions.

 

The proposal itself is new, but immigration law firms have been tracking these changes since they appeared in the federal regulatory agenda.

 

Fragomen, which issued the latest alert, said the proposal could revise cap-exemption eligibility, increase scrutiny of employers with H-1B violations and increase oversight of third-party placements. It stressed that the actual details will not be known until DHS publishes the proposed rule.

 

And Womble Bond Dickinson has specifically warned employers that depend on cap exemptions to review their affiliations and supporting documentation before the new rules arrive.

 

Why this matters for Indian IT companies

 

The proposal lands at a particularly sensitive time for India's technology sector.

 

The US is already considering a separate $103,265 fee for H-1B cap-subject petitions, while the Department of Labor has proposed changes that would increase minimum wage requirements for H-1B and other employment-based immigration programmes.

 

On Tuesday, Financial Times reported that the Donald Trump administration has halted immigrant visa processing worldwide to allow US consular officers to undergo additional training. The move aims to strengthen checks on whether applicants could become dependent on US government assistance.

 

Taken together, the proposals could make the traditional H-1B model substantially more expensive and compliance-heavy.

 

For an Indian IT or consulting company, the question may no longer simply be:

 

“Can we get an H-1B for this employee?”

 

It could increasingly become:

 

“Can we justify the cost, structure the employment arrangement correctly and demonstrate that the worker is genuinely needed in the US?”

 

That could accelerate a trend already visible in the industry: greater use of local US hiring, nearshoring and offshore delivery models, alongside more selective use of H-1B workers.

 

This is NOT a new rule yet

 

Nothing in this proposal is currently in force.

 

The rule is still under OMB review. Once it clears review, DHS is expected to publish a Notice of Proposed Rulemaking (NPRM) in the Federal Register. The public would then have 30 or 60 days to submit comments before DHS considers whether to issue a final rule.

 

The government itself described the measure as a proposed rule, and the OMB database currently lists it as pending review and economically significant.

 

That means employers should not yet assume that an existing cap exemption will disappear or that third-party arrangements will automatically become non-compliant.