India’s information technology services companies are reviewing their bench policies and letting go of staff not deployed on projects for over two months to cut wage costs amid slowing client spending.
According to employees at the IT companies, HCL Technologies Ltd has cut down on the time employees can spend on the bench without getting on a project. While Nasdaq-listed Cognizant Technology Solutions Corp. assists benched employees get a project, it asks those unsuccessful to leave. For some firms, that has bumped up the utilization rate—or the percentage of employees currently working actively.
HCLTech, Cognizant, Tech Mahindra Ltd, Infosys Ltd and Wipro Ltd didn’t respond to emailed queries. A bench at a software services provider refers to employees who are not deployed on a project. This group, including new hires, must sit for client interviews to get selected for assignments.
If people are not being deployed over a number of quarters, then “it is upon us to make sure that we are optimising”, Sandeep Kalra, chief executive officer of Pune-based IT Persistent Systems Ltd, said while responding to a query on higher attrition in a post-earnings call on 19 July. “If we cannot give someone a career path, they are better off going somewhere else.”
Reducing the bench size is another indicator of a jobs slowdown at India’s tech sector, which has cooled from the pandemic-driven frenzy for talent that inflated wage bills. Lower demand for IT services from Fortune 500 clients caused the $254-billion Indian software services industry to grow at its slowest clip of 3.8% in the year ended March. The sentiment hasn’t improved yet.
“We still see situations where clients are ramping down programmes or re-evaluating programmes at very short notice,” K. Krithivasan, chief executive officer of Tata Consultancy Services, said in the first-quarter earnings call on 11 July. His peer Srinivas Pallia at Bengaluru-based Wipro, also speaking in an earnings call, said, “We did not see a significant shift in the demand environment. Clients remain cautious and our discretionary spending continues to be muted.”
Hiring frenzy’s fallout
Hiring frenzy during ‘Great Resignation’ made IT services companies spend more on employees, who make up more than 40% of the costs. Save for TCS, each of the top five IT services companies reported a drop in their profitability last year compared to Covid levels.
“The onus across all the service providers is to run leaner benches and reduce costs on staff who are simply not being used,” said Phil Fersht, chief executive officer of HFS Research. “This is also driving more incentives for staff on the bench to get utilized faster.”
IT services companies usually let employees sit on the bench for up to 120 days or four months. This period has fallen to about two months, said a Tech Mahindra staffer on the condition of anonymity. If employees are unable to get a project within that period, they are being asked by HR to leave, this person said.
“If the employee on the bench has a good performance rating, they are given time beyond 60 days on the bench to get a project but if they are bad performers with a lower rating, they are being asked to leave before two months,” said an HCLTech employee.
Peter Bendor Samuel, chief executive of US-based consultancy Everest Group, said the firms are taking advantage of this opportunity to remove poorer performers.
Utilization rates improving
With fewer employees on the bench, utilization rates are improving. Infosys, Wipro, and LTIMindtree Ltd reported a sequential increase in the percentage of staff deployed on projects—between 83% and 85%. But Tech Mahindra Ltd reported a 100-basis-point decline to 86%.
Leaner benches will further hit employment in the IT sector. Three of India’s largest IT services companies—including Tata Consultancy Services Ltd, Infosys Ltd, and Wipro Ltd—posted a cumulative full-year decline of 63,759 people in their workforce in the year ended March 2024.
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“While cost-saving is a key factor, the move is also about ensuring that employees are continuously engaged, upskilled, and contributing to the company’s objectives,” said Krishna Vij, vice-president of IT staffing at Bengaluru-based TeamLease. “It is less about removing those who are not trying to work and more about optimizing talent deployment to meet evolving market demands effectively.”