Idle staff haunts IT cos as ‘bench’ grows

- Reserve employees paid without any productivity

- It’s impacting operating margins

- Cos exploring slowing down hiring

- Finding ways to utilise idle employees

- Aiming at reducing subcon costs

Bengaluru: Stuck with high bench strength and falling utilisation level, Indian IT firms are looking at improving overall revenue per employee number by improving utilisation level coupled with low hiring and reducing dependence on subcontractors in coming quarters.

According to industry officials, raising employee utilisation level is seen as a priority in the first half of the current financial year.

“Our utilization levels including the freshers has come down in this quarter. So that is that an opportunity for us to improve the utilization in the coming quarter, as well as probably the H1 also,” NG Subramaniam, Chief Operating officer of TCS has said during the analyst call.

Not only TCS but both Infosys and HCL Tech are also similar situation wherein higher number of freshers are still sit on the bench (as reserved employees), pulling down the overall utilisation numbers.

“We have other opportunities of improving the pyramid, because the higher bench comes with a double whammy of course. One is you have the idle cost of the bench and at the same time you have a very rich pyramid. So, the moment you start moving freshers into the pyramids, you get a double benefit of cost that, the idle cost goes away from the bench and your quality of the pyramid improves on the production side. So, you are sitting on in fact two inefficiencies now,” Nilanjan Roy, Chief Financial Officer of Infosys, said.

Infosys’ utilisation level has fallen to 76.9 per cent in the fourth quarter of FY23, a level not seen in the last five years. Though both HCL Tech and TCS don’t provide the utilisation numbers, sources in the know said numbers are not very different for these companies.

Lower utilisation level usually drags the operating margin down as more reserve employees are paid salaries without much productivity. As all companies have hired record number of freshers in the last two years, they are now stuck with many freshers yet to be onboarded to projects. With demand environment deteriorating, IT firms are now right sizing their freshers’ intake apart from developing cold feet in hiring more fresh graduates into the system.

Moreover, hiring numbers are already down. For the full financial year, the net hiring number for HCL Tech stood at 17,067 down 57 per cent from the 39,900 employees hired by the Noida-headquartered firm during FY22.

Similarly, net addition by both TCS and Infosys in FY23 stood at 51,819 people in FY23 compared to 1,57,942 employees in FY22.

Apart slowdown in hiring, management of top three firms have shown interest in reducing their dependence on subcontractors (third-party vendors) to improve operating margin.