Wage costs in IT giants inch up in Q4

For Wipro, which had the highest wage burden among Indian IT companies, 61.4% of the quarterly revenue went on employee benefits in the three months ended March, up from 60.5% in Q3 and 61.5% in Q2. TCS reported a marginal increase from 57.3% in Q3 to 57.4% in Q4, while Infosys allocated 53.8% to employee costs in Q4, up from 53.2% in Q3.

All the three companies have announced their earnings in the last two weeks.

Despite the increase, the employee costs-to-revenue ratio was still lower than the peak seen for TCS and Infosys in the first quarter of the fiscal year 2023-24. Wipro had hit its most recent peak in the September quarter. The decline since then could be attributed to the ongoing headcount reductions at these IT majors.

The rise in wage costs was accompanied with the lowest number of employees exiting the firms in the March quarter. In the fiscal year 2023-24, the net decline in the headcount of Infosys and Wipro was of 26,000 and 23,000, respectively, while TCS’ net loss was of over 13,000 employees.

Recruiters expect the reduction in employee strength and associated cost savings for IT services to continue for some time.

“The continued drop in headcount is leading to lower wage costs. While this is expected to last for another quarter, the next six months will see the hikes factored into the costs, addition of campus hiring and increase in lateral AI-skilled talent,” said Vijay Sivaram, CEO, Quess IT Staffing.

Last week, Mint reported that TCS assessed office attendance, among other metrics, before rolling out annual hikes, highlighting the company’s emphasis on employees returning to offices, a trend observed across the IT sector over the last six months.

Additionally, IT majors’ recent earnings calls highlighted the industry’s focus and expenses related to AI and generative AI to enhance their businesses in the medium term. TCS, for instance, has been upskilling its workforce in generative AI for a long time.

“The large IT services clients say that their order books are full but they will await more clarity from clients before hiring. Demands are up for AI, ML, Digital, Analytics and Data insights roles. We are getting crore-plus mandates by mid-sized IT firms and the uptick in leadership hiring will have some impact on wage cost,” said Ritu Sethi, partner (technology, outsourcing and  offshoring) at ABC Consultants.