Australia / Analyst Insights
Changes to the 457 visa program will constrain profits

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by Eliza Ruthven
Jul 04 2017

In April 2017, the Federal Government announced plans to axe the existing 457 visa program, which is intended to help employers fill skills gaps. Instead, they plan to replace it with the Temporary Skill Shortage visa. Previous revisions of the temporary visa policy have allowed employers to pay visa holders significantly less than the national median salary, which has sometimes encouraged employers to hire visa holders over Australian candidates. In 2016, the Australian Population Research Institute identified a significant increase in the number of Indian nationals working for IT firms and being paid $59,000 or less, which is much lower than the expected rate for experienced IT professionals in Australia.

The new Temporary Skill Shortage visa is designed to free up jobs for skilled Australian workers and university graduates, who feel they are being unfairly denied opportunities by employers looking to save on wage costs. Computer system design services, and employment placement and recruitment services are two industries that these reforms will most likely affect. Major players in these industries, such as IBM Australia/New Zealand and Hays Specialist Recruitment Services, which heavily rely on 457 visa labour, will likely need to modify their hiring strategies as a result of these changes.

The computer system design services industry is expected to grow by 2.8% in 2016-17, largely due to greater online connectivity for emerging businesses, and rising demand for routine consultancy work, and IT infrastructure development and maintenance. Companies such as IBM A/NZ Holdings Pty Limited, which specialise in end-to-end IT services, will likely feel the sting of the immigration reform as they will have to pay visa holders the standard Australian market salary rate to meet the new Temporary Skilled Migration Income Threshold. The majority of IBM’s expenses already come from wage costs as it primarily provides labour and consultancy-based services, requiring highly-educated and skilled workers. IBM A/NZ Holdings Pty Limited generated $3.5 billion in total revenue over the year through December 2016, a 9.0% fall from the previous year. The company has underperformed the wider industry over the past five years due to escalating competition from lower cost international firms and increasing wage costs. The abolition of the 457 visa will therefore represent a challenge for the company, as it will no longer be able to bolster its margins by employing cheaper visa holders.

Immigration reform will also affect the performance of employment placement and recruitment services firms. Employment trends and the size of the total labour force influence these firms. Similarly to computer system design service firms, the primary expense for recruiters is wages as the work undertaken is consultative in nature, requiring highly-skilled individuals. Hays Specialist Recruitment (Australia) Pty Limited has seen a steady rise in its employee numbers over the past five years, from 13,011 in 2012 to 15,977 in 2016. This has coincided with largely steady increases in total revenue. However, the need to bolster their workforce has negatively affected profit margins for the company. Changes to the 457 visa will likely affect its hiring processes. These changes are expected to affect companies across the employment placement and recruitment services industry over the next five years as companies will have to adhere to the new Temporary Skill Shortage visa remuneration guidelines.

Related companies:

IBM A/NZ Holdings Pty Limited

Hays Specialist Recruitment (Australia) Pty Limited