The $100K H-1B Fee: Bad for Body Shops, Big Opportunity for MSPs
Summary:
The Trump administration’s recently announced H-1B visa reforms target a genuine but nuanced problem with a heavy instrument. Time will tell whether higher wages and more opportunities for American-born IT workers will justify the paradoxical likelihood of increased offshoring that the new fees may create. And while analysts can debate the long-term impact of more expensive H-1Bs on American innovation, the most obvious direct losers will be the large global IT outsourcing firms, which create opportunity for US-centric IT service providers, especially midmarket MSPs.
Background:
For decades, the H-1B visa has been a pillar of America's high-skilled labor market. Established under the Immigration Act of 1990, the H-1B program allows US employers to hire foreign professionals in "specialty occupations,” particularly in STEM fields like software engineering, data science, cybersecurity, electrical engineering, and biomedical research. The government awards 85,000 H-1B visas per year, with 65,000 in the general pool and 20,000 reserved for US advanced degree holders, but demand routinely exceeds supply severalfold.
The program has always straddled a fine line between economic necessity and political scrutiny. Proponents credit H-1Bs with fueling innovation and helping the US maintain global competitive advantage. Critics argue the program has depressed wages and disadvantaged American workers, especially in industries that rely heavily on global staffing, like IT services, where a steady reliance on H-1Bs has enabled primarily Indian IT offshoring firms like TCS, Infosys, HCL, and Wipro to seize market-share from more US-centric providers by leveraging geographic labor arbitrage to drive prices ever-lower for more commoditized services.
What Changed and Why It Matters:
That long running debate came into public focus on September 19, 2025, when President Trump issued a sweeping proclamation titled “Restriction on Entry of Certain Nonimmigrant Workers.” Under the order, companies filing new H-1B petitions for workers outside the US must now pay a $100,000 supplemental fee per application. Prior filing costs averaged between $2,000 and $5,000, meaning the new fee represents a 20-50x increase, unprecedented in the program’s history. Additional rules are expected to raise wages for H-1B roles and steer approvals towards the most highly skilled, hard-to-find, and well-paid candidates. The reform is aimed at curbing perceived abuse and protecting domestic jobs, explicitly citing global IT services firms as frequent manipulators of the system.
The Debate: Corrective Measure or Competitive Risk?
While the H-1B fee hike may deter misuse, it also touches legitimate, high-skill employment that underpins core parts of the tech sector. In practice, it represents a blunt policy instrument applied to a complex challenge, one where both system integrity and economic growth hang in the balance. And its rollout has already created uncertainty, prompting many employers to pause or slow new sponsorships, audit their visa exposure, and reconsider staffing models.
One critical goal of the H-1B fee is to protect jobs and stimulate employment for US citizens, but some worry it could have the opposite effect. When it becomes prohibitively expensive to bring talent to the US, companies may shift projects wholly offshore, moving work to Bangalore, Guadalajara, or Kraków instead of Tulsa, St. Louis, or San Antonio. The same engineers still perform the work, but from abroad, taking with them the associated tax revenue, training opportunities, and domestic economic benefits.
Critics also see the move as a threat to American innovation and competitiveness. They point to persistent shortages in STEM fields, including an estimated 1.4 million unfilled technology roles and more than 500,000 in cybersecurity, and warn that the policy could restrict access to essential talent. By making US-based employment less viable, the new fees might push innovation and investment to Canada or the EU rather than boosting US job creation.
Meanwhile, supporters of the new fee argue that the H-1B system has been used, in some cases, to replace US workers with cheaper foreign labor, thereby depressing wages for skilled American-born workers and perhaps even deterring professionals entering the workforce from pursuing careers in IT services altogether. They view the substantial surcharge as a corrective step to encourage higher wages and prioritize domestic hiring.
Why IT Services Firms Are Center Stage
While the fee touches multiple technical sectors, no industry will be more acutely impacted than IT services, a $500 billion ecosystem of consulting firms, global offshoring firms, systems integrators, and MSPs. Large IT providers operating in the US depend on specialized technical talent to staff client projects quickly and at scale. Despite the shock, many IT firms are already adapting: auditing visa exposure, developing nearshore delivery capacity, and expanding investments in automation to reduce reliance on foreign labor mobility. Some are partnering with universities and workforce programs to train domestic talent, though these efforts will take years to bear fruit. In the nearer term, large IT services providers will likely reserve the fee for critical, hard-to-fill technical roles, while expanding offshore or nearshore operations in regions such as India, Latin America, and Eastern Europe.
The aforementioned global IT offshoring “body shops” and the more US-centric, higher-end providers like DXC and IBM rely on global delivery networks. But the new policy will hit the offshoring firms hardest, to the relative benefit of their US-centric competitors. In 2024, offshoring firms like TCS and Infosys accounted for more than half of all H-1Bs secured despite employing less than 10 percent of US IT workers. The 20x-50x increase in filing costs could reshape operating models, with varied impact by size and scope, particularly between large multinationals and mid-market providers. For a firm like TCS, which sponsors more than 5,000 petitions annually, the reform could theoretically generate over $500 million in direct additional annual expenses, significantly compressing profit margins and undercutting their primary competitive advantage: geographic labor arbitrage. Most of the largest body shops have already offshored 90 percent or more of their labor forces, so they cannot push much more of their workforce to India or other low-cost locations; they need to maintain local presence to retain their US enterprise customers, and they’ve already whittled that US footprint to a bare minimum in the pursuit of cost-savings (which are, typically, partially passed on to their customers). H-1B reform’s negative impact on Indian offshoring giants showed up immediately in the market, as the Nifty IT Index of Indian IT services providers dropped by nearly 10% in the week following the announcement and a number of providers, like TCS and Cognizant, announced pauses on their sponsorship program.
US-centric competitors like DXC and IBM also saw less significant stock drops in the wake of the announcement. The large US IT systems integrators will not be immune to margin pressure, but should ultimately benefit as their low-cost competitors forfeit their primary arbitrage advantage.
Paradoxically, some of the public behemoths may end up, on the margins, cutting their US workforces by sponsoring a few less H-1Bs and keeping more employees offshore, thereby accelerating the offshoring trend that has characterized the past decade in IT. And of course, all the leaders are investing aggressively in AI and automation to reduce their reliance on both onshore and offshore talent.
Impact on Mid-Market IT Services Firms
The body blow to the body shop model is a boon for all US-centric IT service providers, especially smaller, midsized, and scaling MSPs like Harbor IT. Many smaller US providers run lean, high-performing teams with selective and sporadic input from global talent. Most MSPs sponsor few, if any, H-1Bs. So, while the $100,000 surcharge is meaningful, its direct impact will be muted for organizations with only a handful of visa holders, even those with existing international delivery capacity.
Rather than an existential threat, the new policy will create a competitive opening for aggressive MSPs to take share from down-market body shops whose entire models are now under threat, prompting many to sharpen workforce planning and expand nearshore collaboration. This evolving environment will reward firms that think strategically, combining strong US-based client engagement with cost-efficient global execution. Mid-sized MSPs and cybersecurity providers that have built integrated, hybrid delivery networks, flexible staffing models, and automated service architectures are positioned to adapt quickly. Over time, these US-centric organizations will compound their competitive advantage as clients move to partners with the agility and foresight to navigate evolving regulatory and economic terrain.
At the same time, foot-forward American IT providers that continue to scale mixed on-and-offshore delivery may become acquisition targets for larger, reeling body shops seeking to maintain their US footprint. For firms like Cognizant and Infosys, buying a sophisticated mid-market MSP may be the most efficient path to preserve or grow market share in a new environment where their ability to compete has been degraded. Rather than building out the infrastructure to recruit and retain ever-more-expensive US IT talent, acquiring MSPs will allow the offshoring firms to bolt-on much-needed US talent, localization, and client relationships. In any case, we expect the H-1B reforms to only increase the value of stateside MSPs.