Covid-19 impact: IT services let go of contract staff to reduce bench

In the last few years, subcontracting costs for most IT firms have also increased manifold due to protective measures around issuance of H1-B work visas

Employment of contractual software engineers by Indian IT services companies has fallen significantly in the wake of the Covid-19 pandemic.
 

Most of the IT firms are struggling to manage their growing bench (reserve employees who are not deployed in any revenue-earning projects) owing to cancellations of projects in verticals such as hospitality and aviation, as well as delay in project starts and ramp-ups.
 

According to several people, expenses towards deploying contractual staff, which used to account 10 per cent of the overall billable employee cost at IT firms, has fallen to around 3 per cent. IT firms typically use the contractual workers from staffing solutions providers or subcontractors. “Right now, usage level of subcontractors by IT firms is low. But, we expect it go up in the near future as economies open up,” said Supaul Chanda, vice-president at Experis of Manpower Group. “As of now, we have not seen any layoffs (by the staffing firms). But, we can’t have a high bench for a long time.”

US-based Manpower Group, along with Swiss firm Adecco and Dutch firm Randstad, are among the large subcontractors that supply critical human resources to global IT industry. These staffer play a critical role in faster execution of projects as well as temporary spurt in demand, mostly in the US and European regions.
 

In FY20, subcontracting cost stood at 22 per cent of the overall employee cost at Wipro, while for Tata Consultancy Services and Infosys it stood at 3 and 12 per cent, respectively.

According to HR experts, given the focus on cost control by Indian IT firms, the use of subcontractors is not expected to see any significant rise in coming quarters. All big firms such as TCS, Infosys and Wipro have said they would reduce their dependence on subcontractors and use their own resources instead.
 

“We have opportunities to rotate our subcontract (contractual employees) and replace them with our own people. So there are a few levers that are still available where we can try to improve utilisation,” UB Pravin Rao, chief operating officer at Infosys, had said in a post earnings analyst call.

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