On Friday, the Trump administration issued an executive order imposing a $100,000 fee on new H-1B visa applications. This directly impacts IT service providers’ practice of bringing offshore IT talent on H-1B visas to serve US companies. They are not the only one impacted through. It also challenges the similar talent model followed by tech giants like Amazon, Google, Meta, Microsoft. Even the US university system, relies heavily on employees with H1-B visas. For IT service providers however, it directly impacts their operating models and with a potential impact on margins.

Large Indian IT service providers have traditionally been big users of H1-B visas. However, over years they have reduced their H1-B visa workforce to well below 50% of their U.S.-based workforce. They do so with local hiring, nearshore centers, and automation as fallbacks. But even then, the largest IT service providers could face a $500M increase in annual fee if they chose to maintain their existing staffing practices with H1-B visas. Mid-tier and smaller IT service providers would face disproportionate pressure from the H-1B fee due to their higher visa dependency relative to revenue. Also, their people-centric business models leave them with little maneuverability (see the Figure). If the $100K H-1B fee is enforced, technology leaders must prepare for three immediate consequences:

  • IT service delivery costs will go up. If providers were to maintain current visa-dependent staffing models, the $100K fee would significantly inflate costs. However, most will respond by sharply curtailing new H-1B petitions, effectively removing a key talent channel. This reduction in foreign talent supply, combined with the Trump administration’s directive to the Department of Labor to raise prevailing wage thresholds, will drive up employee costs across the board. Buyers should expect a 2% to 3% increase in onsite billing rates in new contracts, as providers pass through higher labor costs and restructure delivery models.
  • Delivery models will shift toward offshore execution. We predict increased offshoring, with Indian professionals and major IT vendors likely to intensify hiring and client support from India and other offshore countries, negatively affecting US-based delivery but potentially boosting India’s tech employment and offshore business. Technology leaders must inventory their project portfolio to see those that can be effectively delivered entirely offshore such as mainframe modernization or cloud migration and those like product development that require a global delivery model with significant staff in the same or similar time zone.
  • Complex projects and innovation will suffer. Indian IT service providers will struggle to staff specialized roles that require niche talent onsite in the U.S., especially for projects with high collaboration intensity. This constraint will also affect U.S.-based tech firms, as reduced access to global expertise slows cross-border knowledge exchange. Over time, the rising cost and complexity of securing work visas may make the U.S. less attractive for international talent, impacting its role in global innovation networks.

Figure: Cost of H1B (2025 numbers) as a percentage of annual revenue

Over the next few months, we expect to see IT service providers:

  • Offer more remote shoring strategies. The new visa fee accelerates the shift away from the traditional offshore-onsite (global delivery) model to more remote oriented – nearshore, or fully offshore models, especially for routine and commodity work. Onsite presence will shift toward senior architects, program managers, client-facing leads, not entry level roles. For the next few years – providers will keep most of their existing onsite base (since renewals are exempt). But the onsite part of the pyramid won’t replenish at the same rate. Now instead of renewals + new annually, they’ll only add new petitions that they can’t do without.
  • Reinforce investments in AI-powered delivery to raise productivity. Providers are already investing heavily in AI delivery platforms. These platforms automate swaths of the software delivery life cycle led by AI-powered analysis, coding, and testing. Already they are using agents to shorten delivery times and lower overall costs by as much as 20% to 30%. This visa fee will create more urgency to scale up Engineer + Agent delivery pods to achieve the margin benefits and productivity throughput that enterprises need.
  • Continue the pivot to more value-aligned pricing strategies. On managed services side, they will shift to more outcome-based or productivity-based contracts. Providers will look for more control over their resourcing model in lieu of price concessions. It will allow them to manage project delivery without having to worry about costs of running it from onshore. Buyers will have to learn to manage project success through managing outcomes instead of through direct control over provider resources.

Even if we take a macro view, we come to the same conclusion. US will spend close to $700 bn in Tech consulting and outsourcing spend in 2026. If service providers file as many H1-Bs as they filed in 2025, we are looking at roughly $2bn cost impact. That is about 3% hit on their margins. It is significant.  Industry may partially absorb it but will likely move away from using H1-Bs. It will do so by forcing the global delivery models to shift further from onshore towards offshore and near-shore operations.