Why we use 457s in Australian IT projects

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Why we use 457s in Australian IT projects

Opinion: Skills gap? No, it comes down to the dollar.

Over the past seven days, the question of whether IT workers on 457 visas present a net gain or strain for the Australian economy has divided readers down the middle.

iTnews' commentary on the matter has been criticised as being written from the perspective of the C-Level exec or IT Manager, without taking into account the impact on the other 99 percent of workers in the industry. We welcome the feedback.

Ultimately, however, we are realists. Those responsible for hiring IT professionals prefer the option be available.

Across the board, we're being told that the skills shortage is a bit of a myth. There are plenty of skilled Australian citizens looking for work. The real issue is that those holding the purse strings aren't prepared to pay for them.

To illustrate, we asked a prominent executive from the banking and finance sector to explain why they choose to hire workers on a 457. Being a contentious issue, the author agreed to tell it how it is on the condition they are not named.

"The issue of employing workers in IT via 457 visas is not as straightforward and as simple as some apologists have made out in recent days.

It is true that in some IT roles there is a dearth of local senior talent. And the 457 visa offers an invaluable way to access those skilled resources that would otherwise be out of reach to Australian firms.

Yet it is equally true that 457 visas provide an admirable mechanism to reduce cost on large scale IT projects.

I have employed people on 457 visas in a variety of situations related to IT projects since 2000. At the smaller end of the scale, where it proved impossible to find a rare skill in the local market – for example Perl programmers – there was little choice but to sponsor an experienced specialist via the 457 visa program.

At the other end of the scale – mostly for large systems integration projects – I was able to reduce costs substantially by employing 457 visa workers via a third party company.

For example, in 2002 the average cost of a local senior developer was $1000 - $1200 per day; and for a 457 visa resource via a third party organisation the cost was $400 per day onshore in Sydney. And if the work was able to be done offshore in India the rate went down to $200 per day. Even accounting for quality issues with the code and some rework, there was a clear cost advantage.

Further, for large scale development projects the cost advantage of 457 workers was undeniable. For a large scale project involving hundreds of developers running for 12 months or more the savings related to use of lower cost foreign workers are enormous.

The rates for developers retained under 457 visas have increased in recent times, but the increase in rates has not kept up with Australian rates. And, the lower rates for the 457 visa holders may well have driven market rates down for Australian IT workers.

A number of Australian contractors have complained to me that they can only get project work at $500 per day rates instead of the $800 per day they could charge a few years ago. Of course this anecdotal feedback is within the context of the GFC and constrained IT budgets in Australia.

I have been involved in IT projects where most of the developer workforce has been contracted under 457 visas via third party companies. The third party companies – Tata, Infosys, and HCL, to name a few – have made their specialty undercutting local rates for IT workers. They offer blended teams of onshore and offshore resources so that projects can adopt ‘follow the sun’ development plans.

The third party companies provide an end-to-end management process for their resources. They enable local companies to manage the peaks and troughs in workload relating to IT projects.

In the past it was necessary to manage the process of getting the contractors on board for a project on an individual basis. The rates varied depending upon the resource selected. And at the end of the project I had to let the contractors go, even though we might be starting a project requiring similar resources in the near future. But with a third party company, they take all of this management overhead and handle it on behalf of their clients.

There are two key issues to which the third party companies and their 457 visa workers provide a solution:

  1. There are generally insufficient skilled Australian IT workers available to ramp up large scale IT projects.
  2. The cost of employing Australian resources, even if you can find them, is very high in relation to the rates available via third party companies.

One problem with this is that Australian IT workers are not getting access to the entry level jobs that once were the proving ground to enable them to progress to more senior roles.

I am conscious that Australia is a high cost employment market, and that workers need to make a living wage. However, while not joining in with Gina Rinehart’s desire for workers at $2 per day, it is very hard for business people to resist the ability to reduce business costs by substantial amounts.

It is this cost reduction side of workers on 457 visas that is being little discussed at the moment."

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