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India’s top information technology (IT) services companies such as Tata Consultancy Services Ltd, Infosys Ltd, Wipro Ltd and HCL Tech are grappling with high employee costs despite a decline in overall headcount.

Attrition rates indicate that the companies are losing talent and are being forced to hire executives for specialized roles at higher salaries, said analysts. The industry will continue to see high attrition as it remains the poaching ground for startups, and the companies will need to replace them with a billable workforce, they added.

Graphic: Mint
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Graphic: Mint

“With a wage bill top up of more than 10,000 crore for adding over 83,000 employees, the cohort of (Wipro, Infosys, Tata Consultancy and HCL Tech) has incurred heightened talent costs on replacement and retentions. The high churn in mid- to mid-senior roles has necessitated replacements at a higher cost," said Kamal Karanth, co-founder, Xpheno, which specializes in technology and startup hiring.

According to a Mint analysis, all four companies reported a drop in staff costs as a share of revenue in the fiscal third quarter. On an average, wage costs as a share of revenue fell from 56.2% in the September quarter to 55.1% in the December quarter.

Bengaluru-based Wipro posted the biggest decline, from 60.9% to 58.6% during the period. Wage cost for Infosys fell from 53.2% to 52.9%, and for TCS, it dipped from 56.1% to 55.8%. HCL’s wage costs fell from 54.6% to 53% during the period.

However, despite the sequential decline, wage costs as a share of revenue are still higher than the same quarter a year ago. In fact, wage bills in the manpower-intensive IT sector has the largest share of revenue.

The overall employee costs include benefits, provident fund, insurance, as well as salaries.

“The attempts by bellwethers to rein in attrition and retain talent has seen an upward revision of compensation costs for top talent tiers. Wage bill spike is a result of the combined impact of high replacement volumes at a heightened cost and sustaining the high attrition rates," Karanth added.

Over the last year and a half, the IT industry has seen mercurial HR trends—a hiring frenzy, where counter offers and out-of-turn promotions had dominated the scene, followed by challenges posed by a looming global recession. The impact is seen in the attrition rates and a rise in recent hiring initiatives.

It was the first time in over a year that the attrition rates, or share of employees leaving a firm, dropped sequentially for all four companies to under 25%, said analysts.

Saurabh Govil, chief human resources officer, Wipro, however, cautioned that although attrition has declined and is expected to drop further, there are certain areas where a gap remains between demand and supply of skilled talent.

“There are pockets of capability that continue to see skillset gap. People with certain expertise will continue to be in demand," Govil said.

“Attrition has reduced meaningfully during the quarter and is expected to fall further in the near-term," Infosys chief financial officer Nilanjan Roy said, in a statement.

TCS and Wipro have reported drop in headcount for the first time in 10 quarters. Infosys posted its weakest growth in headcount at 0.5% in the last nine quarters while HCL’s employee growth was also weak at 1.3%, but the best among its peers.

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