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Why only 10% of unicorn jobs are in the formal sector

Their regulatory filings with the EPFO show they deposited provident fund for about 272,000 employees this March, about a tenth of the total number of jobs they have created.  (Photo: iStock)Premium
Their regulatory filings with the EPFO show they deposited provident fund for about 272,000 employees this March, about a tenth of the total number of jobs they have created.  (Photo: iStock)

India’s 100 unicorns provide formal sector employment to about 272,000. While this number has grown briskly in the last two years, it’s a small fraction of overall corporate employment and also what these unicorns employ via the informal sector.

When it comes to employment, the 100 Indian companies that have ever been unicorns are more about the informal sector than the formal sector. Their regulatory filings with the Employees’ Provident Fund Organization (EPFO) show they deposited provident fund for about 272,000 employees in India this March, about a tenth of the total number of jobs they have created.

This is about 46% of the workforce of Tata Consultancy Services, India’s largest private-sector employer, and about 50,000 less than the entire force of delivery partners of Zomato, one of these unicorns. The remaining jobs, which are in the informal sector, are presumably in “ancillary areas such as contractual employment, content creators, tutors, delivery partners, and drivers, among others", according to YourStory. It estimates that these unicorns have created 2.84 million jobs in all.

As more unicorns lay off employees amid funding headwinds, this could come under pressure. Over the last five years, formal-sector employment among these 100 unicorns has mostly been a growth story. The highest year-on-year growth came in 2018-19, of 54%. The only significant break was between September 2019 and March 2020, which coincided with the outbreak of covid-19. During this period, the count of formal-sector employees with these 100 unicorns fell about 3%. Since then, though, it has expanded 60%. For March 2022, it has again dipped by about 2%. However, with companies filing EPFO returns late, the number may be revised and the true extent of layoffs will be evident only one to three months on.

Higher salaries

Typically, formal sector employment gives employees benefits related to social security, leave and insurance. It is also the grounds to attract talent in more skilled functions. Given the paucity of good talent and the urgency to grow fast, these 100 unicorns have seen average salaries increase in the past year or so.

This is in contrast to 2017-18, when headcount in the unicorns increased, but the average provident fund (PF) contribution per employee fell from 7,466 to 7,125. The average contribution here includes both the 12% components of the employee and the employer. Over the year, this indicates a 5% drop in average basic salary, which could be because more hirings happened at the base of the salary pyramid. In 2018-19, which also corresponds to high growth among unicorn employees, average PF contribution increased 16%. In 2022, average PF contribution increased 18% over 2021. This is a 40% jump in average basic pay compared to 2017.

Sectoral swings

Sectorally, the landscape of unicorns has seen significant shifts in the last five years. Take ecommerce. In January 2017, the sector accounted for 21.3% of all formal sector employees among the 100 unicorns. In April 2022, its share had dropped to 12.9%. Three more prominent sectors that have seen big declines in share are groceries, travel and ride hailing.

Groceries has been subsumed into foodtech and e-commerce via acquisitions. But travel and ride-hailing have shrunk. Oyo’s employee count peaked at about 18,000 in 2019-20, but is now just 3,000. Similarly, Ola, India's only unicorn in ride hailing, has dropped from 4,200 employees in 2017 to 1,600 in April 2022. The biggest beneficiary of the startup and funding boom has been education technology, or edtech, whose headcount has rocketed from 2,200 in December 2016 to about 65,000 in March 2022. And it’s now also the grounds for the biggest cutbacks, with layoffs reported in Unacademy and Vedantu.

Company contrasts

Employment growth in unicorns has been gradual. In 2017, none exceeded 5,000 formal sector employees. Now, 12 have reached that mark, including four with above 10,000 employees. At about 58,000 employees, edtech major Byju’s accounts for about 21% of the formal sector headcount of all unicorns.

The other three with more than 10,000 employees are Delhivery, Paytm and Zoho. Paytm hired more than half its employees in the run-up to its public listing in November 2021, while SaaS major Zoho has consistently grown its workforce 1% on a month-on-month basis. Further, only eight unicorns have seen a drop in headcount in the last five years: Snapdeal, ShopClues, Ola, Hike, CarDekho, Mu Sigma, BigBasket and MakeMyTrip. If the recent upheavals are anything to go by, things will get worse before they get better.

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