Amid hiring and high attrition, employee cost overload deepens in IT sector

Amid hiring and high attrition, employee cost overload deepens in IT sector

(PTI) The net hiring by top Indian IT companies surpassed the 50,000-mark in the June quarter as the deal flow continued from key markets but soaring attrition, margin pressures, HR cost overload and employee-related challenges have put the industry in a bind.

Sector experts, striking a note of caution, say the war for IT talent may continue till the time industry-ready manpower pool is expanded significantly.

With IT companies compelled to fill vacant positions to serve incoming demand, and non-tech firms on the prowl for tech talent to serve the needs of their digitally-savvy consumers, market watchers believe that employee-related issues will keep the IT industry poised on the razor’s edge.

Consider this. The net hiring by the top three IT companies — Tata Consultancy Services (TCS), Infosys, and Wipro — crossed the 50,000 mark in the June quarter. There has been no significant moderation yet on hiring targets for the full fiscal as the industry claims tech demand in the US and Europe has held up so far, despite fears of a looming global recession.

According to Sunil C, chief executive officer of TeamLease Digital, overall six million (60 lakh) new tech jobs are expected to be created in the next five years. While the hiring spree has cheered tech professionals, worry lines have started to emerge among IT employers over unprecedented levels of attrition, rising manpower costs, and issues such as moonlighting (techies taking up side gigs to work on more than one job at a time).

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Recent scale back in variable pay by companies such as Wipro and Infosys reflects the extent of pressure on margins. And murmurs about a possible slowdown in global business momentum are bound to add to the industry’s woes.

“In the short run, IT companies will continue to see the margin pressure as there is a cost overload whereas there is no increase in the deal structure. Once companies get the talent strategy right and cost optimisation projects executed, they will be able to improve margins,” according to TeamLease Digital’s Sunil.

Companies may also try to get new projects and deal renewals at a better price by incorporating factors such as inflation and cost escalations, but that may prove to be easier said than done.

India’s second-largest IT services company Infosys led the hiring spree with a net addition of 21,171 professionals in the June quarter as attrition rose to 28.4 percent against 27.7 percent in the March 2022 quarter and 13.9 percent a year ago. Higher employee benefit expenses, sub-contracting costs, and travel expenses pushed up overall costs for the Bengaluru-headquartered firm in the June quarter.

Compensation hikes impacted margins by 160 basis points, and utilisation dipped due to the impact of new freshers coming in, although Infosys said it continues to optimise various cost levers to drive efficiency in operations.

With operating margins at about 20 percent in Q1 FY23, Infosys has maintained the margin guidance at 21-23 percent for the full year but made it amply clear that with the increase in cost environment, it will be at the lower end of the margin outlook.

More recently, Infosys has scaled back the average variable payout of employees to about 70 percent for the June quarter amid margin squeeze and high employee costs. Infosys is not the only one biting the bullet on variable payouts. Wipro has held back employees’ variable pay due to pressure on margins.

Managers to the C-suite level of the company will not get any portion of variable pay, while employee grades between freshers to team leaders will get 70 percent of the total variable pay. The net hiring for Wipro was at 15,446 professionals for the June quarter, while the attrition rate stood at 23.3 percent, compared to 23.8 percent in the March quarter and 15.5 percent a year ago.

As IT companies fight a pitched battle on the HR front, issues like ‘moonlighting’ in the tech industry have also ignited a fresh debate.

Wipro Chairman Rishad Premji took to Twitter recently to highlight the issue, saying: “There is a lot of chatter about people moonlighting in the tech industry. This is cheating – plain and simple.”

TeamLease Digital’s Sunil says the war for tech skills or tech talent is not going to be confined only within IT companies but also among telecom, engineering, retail, healthcare and others who have launched major digitisation drives.

“There is a huge opportunity opening up even in non-native IT companies and we are seeing a month-on-month increase in tech requirements in non-IT space,” he revealed.

For TCS, the net hiring stood at 14,136 professionals during the June quarter of this fiscal and its attrition rose to 19.7 percent from 17.4 percent in the previous sequential quarter and 8.6 percent in the same period of the previous year.

As per Anurag Malik, Partner – People Advisory Services at EY India, the hiring spree in India over the past few quarters has been prompted by an all-time high demand for digital skills across sectors to navigate through rapid technology adoption after the pandemic.

Deloitte India Director Vamsi Karavadi noted that while hiring is “definitely a positive” from an employee perspective and a validation of the talent abilities and skillsets in India, it “has challenged organisations to redefine their employee value proposition.”

“The hiring has definitely reached pre-pandemic levels and in some niche skills surpassed them as well,” Karavadi said, adding premiums being dished out for niche skills are reflective of the spike in demand seen over the past 6-8 months.

Malik (EY India) says the solution to the HR challenges in the IT industry lies in engaging the internal workforce to curb employee turnover, future-proofing the workforce through skilling, career advancement opportunities for staff, attracting the right talent, and prioritising learning experiences as well as employee wellness.

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