IT companies struggle with rising staff expenses

 IT companies struggle with rising staff expenses

Top Indian software services businesses pay their employees at six-year high levels.

Pune and New Delhi: At two of the top three software services providers in India, Tata Consultancy Services (TCS) Ltd. and HCL Technologies Ltd., employee salary expenditures as a percentage of overall expenses hit at least a six-year high in the third quarter of 2017.

The second-largest software services provider in the nation, Infosys, reported a slight decrease in personnel costs. However, it is concerning for information technology organizations because staff expenditures continue to account for more than 60% of overall spending during periods of cost pressure. This demonstrates that even if companies have ceased hiring on campuses to save costs, lateral recruiting from the market at a 30% premium is still the norm, and retention is challenging.

An research by Mint found that HCL Technologies dedicated 69.6% of their budget to salary expenditures, compared to 77.4% for TCS. Wage expenditures were 68% of overall spending at Infosys, down from a high of 68.4% in the June quarter.

The September quarter saw a continuation of higher employee salary expenses than revenue growth. Wage expenses as a percentage of sales were, on average, 56.6%, a modest decrease from 56.9% in the June quarter. TCS (58.8%), HCL Technologies (57.2%), and Infosys (53.8%) had the highest ratios. Weak reductions were seen at TCS and Infosys. On October 18, Wipro will release its quarterly results.

The high pay expenses show that IT businesses still struggle with talent retention. With a 30% increase, those with 4–10 years of professional experience are making their way to the global capability centers (GCC). IT companies are prepared to up their counter offers to keep them, according to Kamal Karanth, co-founder of IT staffing agency Xpheno.

1.68 million professionals were employed in the GCCs in India in FY23, according to a research by the IT industry association Nasscom and the consultancy firm Zinnov. By the end of 2026, the number is anticipated to double. Salary increases were implemented, which is another factor contributing to the rise in employee pay expenses.

To employ their personnel as efficiently as possible, the businesses struggle. Infosys is aware of the problem.

All staff will start seeing pay increases on November 1st when they have been implemented. We are aware that our pyramid structure has inefficiencies from a profitability perspective. "Bench utilization is at 81%, which raises a concern because, despite a 7,500 decrease in headcount, utilization only increased by 70 basis points," stated Nilanjan Roy, chief financial officer (CFO) of Infosys, after the release of the company's September quarter data.

Utilization rate shows the proportion of personnel working on current projects, while "bench" refers to staff members who are waiting to be given a project.

As a result, even though attrition has been steadily declining, the withdrawals have often been from the lowest ranks of the workforce.

The biggest IT company acknowledged that cost containment would now get more attention. Utilization and some extra fat on the direct cost itself are levers, according to TCS CFO Samir Seksaria. "Productivity, utilization, and in the given environment, the other party costs also, continue to be levers in Q3 and Q4," he said. In the second quarter of the fiscal year, TCS increased wages.