Why IT attrition is high despite a risk of recession

The junior to middle layers of the IT industry are the most impacted, Photo: Mint
The junior to middle layers of the IT industry are the most impacted, Photo: Mint


Attrition in Q2 of the fiscal year remained high for major players: 27.1% for Infosys, 23% for Wipro, 21.5% for TCS, and 23.8% for HCL.

Hiring freezes and fewer counter-offers have brought the recruitment frenzy in India’s information technology (IT) companies to a halt. Still, attrition in the sector for the October-December period will hover around 20%. Mint explains why:

What’s behind the high attrition?

Corporates worldwide went digital during the pandemic, fuelling demand for IT services. IT firms, in turn, got more hands on deck to service the demand, and later realized they had over-hired. Then came the pressure on balance sheets, leading to involuntary attrition—or layoffs. Overall attrition in IT will be 18-20% range in the December quarter, estimates Prasadh M.S., head of workforce research at recruitment firm Xpheno, which tracks the tech sector. Attrition in the second quarter of the fiscal year remained high for the major players: 27.1% for Infosys, 23% for Wipro, 21.5% for TCS, and 23.8% for HCL.

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Graphic: Mintt
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Graphic: Mintt

How big are the layoffs and who is impacted?

The junior to middle layers of the IT industry are the most impacted, since during the hiring frenzy, they were the ones to be hired on a mass scale. And many of them got out-of-turn promotions as a retention measure. However, companies are getting more stringent with productivity now with a slowdown and possible recession looming in many advanced economies, said Manu Saigal, director for general staffing at staffing firm Adecco. New entrants in the lower ranks are being terminated as IT firms downsize their reserves—they no longer need the bench strength they did a few months ago.

Who are those leaving voluntarily?

Ironically, the startup sector, which retrenched 17,000-20,000 this year, still attracts middle management employees from IT services. They are lured into joining with steep pay packages and stock options. The IT sector is also losing staff to the captive units of global corporations. Many captives are hiring project managers and tech experts.

What is the impact of the exits on IT firms?

For IT services firms, wage bills are one of the largest expenses. During the days of hiring frenzy, counter-offers, out-of-turn hikes and bonus, impacted employee costs. But with the economic slowdown in Indian IT’s export markets, the negotiation power of the candidates has weakened. The exits, voluntary and involuntary, may now help IT companies shore up their margins. According to the September quarter earnings data, wage cost as a share of revenue fell at TCS and HCL Technologies while at Infosys, it remained flat.

When will voluntary attrition ease?

Some IT firms, over the last quarter, have rolled out measures such as skills training, promotions and bonuses to retain staff they want to. The impact of these measures will play out in the coming quarters. The demand-supply gap is easing and it will stabilize to pre-pandemic levels in a couple of quarters. In fact, some companies may even take the risk of reducing the expected hikes in 2023 by 150-200 basis points. The IT-enabled services (ITeS) industry may settle for a 10.1% hike in 2023 compared to 10.7% in 2022.

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