The gradual reversal in wage costs indicates a deliberate effort to clamp down on excessive spending on talent, including measures like counter offers and substantial increments to retain talent. Besides, the steady drop in employee costs also reflect a hesitancy among job seekers, suggesting a shift towards an employers’ market for the next few months.
According to Mint analysis, Wipro, which had the highest wage burden among Indian IT companies, spent 60.5% of revenue on employee benefits, down from 61.4% in Q1FY24 and 61.5% in Q2FY24. Tata Consultancy Services (TCS) spent 57.3% of revenue for employees in Q3, compared to 58.8% in Q2,and 59.2% in the first quarter of the current fiscal year. HCL Technologies allocated 55.8% to employee costs in Q3, down from 57.2% in Q2 and 57.1% in Q1, while for Infosys it was at 53.2% in Q3, declining from 53.8% in Q2 and 54.3% in Q1.
However, there is room for improvement as the current figures exceed those from a year ago. To put it in perspective, a year back, cost as a share of revenue for TCS, Infosys, Wipro and HCL Tech was at 55.8%, 52.9%, 58.6% and 53%, respectively. That said, wage costs typically surpasses 60% of total expenses for IT services firms heavily reliant on manpower.
Recruiters expect a further reduction in employee costs for IT services companies, with the likes of Infosys and Wipro tightening their campus hiring initiatives. However, the costs are higher than the year-ago period as the pool of skilled professionals available in the market are expensive, the experts said.
“Some businesses in these companies have delayed appraisals. Recruiting talent with the relevant AI prowess and upskilling existing employees to make them client-ready is far more expensive than hiring professionals with generic skills from the market,” Vijay Sivaram, chief executive, Quess IT Staffing, said.
Infosys, for instance, implemented salary hike last year in November instead of its typical June cycle.
The fall in wage costs has also been accompanied by one of the highest net reduction in staff strength in the December quarter. Wipro saw the exit of 4,473 employees, TCS 5,680 employees, and over 6,000 left Infosys. Although the attrition rates have touched an over-two-year low, the firms are still losing crucial talent to global capability centres (GCCs).
HCLTech was the only one of the four IT services firms that showed a net addition to its employee strength in the December quarter.
Aditya Narayan Mishra, chief executive of CIEL HR Services, expects the three leading companies to adjust bonuses and salary hikes for key talent. In fact, even in a muted job market the firms will retain them by offering higher payouts, Misra added.
“Over the next few quarters while employee costs may continue to dip it will not be a drastic fall, as retaining key talent will remain expensive for the companies.”
GCCs are the biggest recruiters for skilled IT professionals and they have large mandates with skillsets similar to experienced professional with 4-10 years behind them.
In Q3, Infosys’s attrition rate was at 12.9%, the lowest in 12 quarters, while TCS, at 13.3%, posted lowest attrition rates in nine quarters. The highest rates for the companies were at 28.4% (Q1FY23) and 21.5% (Q2FY23) respectively. Wipro clocked 14.2% attrition in Q3 versus 21.% a year ago.
The drop in attrition is in contrast to the levels exceeding 25% observed a year after the end of the pandemic, when IT firms recruited extensively from campuses and industry, even at times doubling salaries. The job market underwent a U-turn since then.
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Published: 12 Jan 2024, 11:35 PM IST