Overview of the HIRE Act 2025

The Halting International Relocation of Employment (HIRE) Act is a U.S. proposal. Its aim is to discourage companies from moving jobs abroad. Led by Senator Bernie Moreno, the Act adds a 25% tax on outsourcing payments. This includes any money paid by a U.S. company or taxpayer to a foreign worker whose work helps American consumers.

If passed, the legislation would change how U.S. businesses work with global talent. It would especially impact outsourcing to India. India is a key hub for IT services, software development, and business process outsourcing (BPO).

Key Provisions of the HIRE Act

The Act introduces three primary measures designed to reshape outsourcing practices:

1. 25% Tax on Outsourcing Payments
   • Applies to all payments made by U.S. companies to foreign workers delivering services to American markets.
   • Significantly increases the cost of engaging offshore employees.
2. Creation of a Domestic Workforce Fund
   • All tax revenues go to support apprenticeship programs and workforce development in the U.S.
   • Aimed at strengthening the U.S. labor pipeline and reducing dependency on foreign workers.
3. Disallowing Deductions for Outsourcing Expenses
   • Companies can’t deduct outsourcing costs as business expenses. This increases their financial burden.

Why India is Directly Affected

India has long been the largest beneficiary of U.S. outsourcing, with exports of IT and BPO services forming a key pillar of its economy. If enacted, the HIRE Act will have the following direct consequences for India:

• Increased Costs for U.S. Clients: A 25% tax boosts outsourcing costs. This makes offshore operations less appealing financially.
• Pressure on IT Service Providers: Indian firms like TCS, Infosys, Wipro, HCL, and Tech Mahindra may face fewer contracts. U.S. companies are re-evaluating their vendor strategies, which could lead to renegotiations.
• Shift Towards Onshore Hiring: U.S. companies might bring jobs back home. This helps them avoid penalties.
• Impact on H-1B and Skilled Migration: Rising doubts about work visas might limit opportunities for skilled Indian workers in the United States.

Strategic Implications for India’s IT Sector

The passing of the HIRE Act, even in a modified form, would compel Indian service providers to rethink their positioning. Possible adjustments include:

• Nearshore Expansion: Set up delivery centers in Latin America, Eastern Europe, or Canada. This way, we can provide U.S. clients with cost-effective services and avoid the outsourcing tax.
• Increased Automation: More use of AI, machine learning, and process automation means less need for cheap labor.
• Client Pricing Models: Moving from time-and-materials contracts to fixed-price or outcome-based models takes risk off U.S. buyers.
• Domestic Market Focus: Enhance service offerings in India and the Asia-Pacific. This aims to lessen dependence on U.S. clients.

Broader U.S.–India Economic Relationship

The HIRE Act introduces geopolitical and trade complexities beyond simple taxation:

• Technology Partnerships: India and the U.S. are boosting their ties in semiconductors, AI, defense, and digital infrastructure. A restrictive outsourcing law could clash with these shared strategic goals.
• U.S. firms gain from India’s skilled, English-speaking workers. They also enjoy cost benefits. Eliminating these ties could weaken global competitiveness.
• India will likely lobby against strict measures. They will argue that outsourcing boosts U.S. innovation, cuts costs, and helps the American labor market.

Possible Outcomes of the HIRE Act

While the proposal is bold, legislative approval remains uncertain. The likely scenarios include:

1. Full Passage: A 25% outsourcing tax is enforced, triggering a sharp decline in U.S. contracts for Indian firms.
2. Partial Compromise: A new plan may offer lower tax rates or exemptions. This would apply to important sectors like healthcare, IT, fintech, and cybersecurity.
3. Legislative Deadlock: The Act might get stuck because U.S. businesses and trade allies oppose it. As a result, outsourcing may stay the same.

Conclusion

The HIRE Act 2025 represents a major challenge for India’s outsourcing-driven economy. By penalizing companies with a 25% outsourcing tax, it seeks to protect U.S. workers but risks disrupting the global IT and BPO ecosystem. For India, the Act highlights the need to diversify markets. It calls for investment in automation and suggests exploring nearshore strategies. 

This legislation will impact U.S.–India economic ties. It will also change how we balance workforce development and global trade.