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Employee Wage Costs Reached a Six-Year High in the Third Quarter

CIO Insider Team | Monday, 16 October, 2023
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At two of the top three software services providers in India, Tata Consultancy Services (TCS) Ltd. and HCL Technologies Ltd., employee wage costs as a percentage of overall expenses reached 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 that staff expenditures continue to account for more than 60 percent of overall expenses during periods of cost pressure.

This demonstrates that even if companies have stopped hiring on campuses to cut costs, lateral recruiting from the market at a 30 percent premium is still the norm, and retention is challenging.

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 wage costs.

However, it is concerning for information technology organizations that staff expenditures continue to account for more than 60 percent of overall expenses during periods of cost pressure.

The September quarter saw a continuation of higher employee salary costs than revenue growth. Wage costs as a percentage of revenue were, on average, 56.6 percent, a modest decrease from 56.9 percent in the June quarter.

TCS (58.8 percent), HCL Technologies (57.2 percent), and Infosys (53.8 percent) had the highest ratios. Weak reductions were seen at TCS and Infosys. On October 18, Wipro will release its quarterly results.

“Wage hikes have been rolled out and will be effective from 1 November for all employees. From a margin outlook, we are aware of inefficiencies within our pyramid structure. Bench utilization is at 81 percent—this raises a question, since despite headcount going down by 7,500, utilization only went up by 70bps," said Nilanjan Roy, chief financial officer (CFO) of Infosys, after the September quarter earnings were announced.

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

The largest IT firm also admitted that it plans to now lay greater emphasis on reining in costs. “Utilization, as well as some flab sitting on the direct cost itself, are levers...productivity, utilization, and in the given environment, the subcontractor costs also, continue to be levers in Q3 and Q4," said TCS CFO Samir Seksaria. TCS had wage hikes in the second quarter of the fiscal.

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