IT firms' salary costs growing faster than revenues

There has been a surge in hiring and revenue growth in IT services companies in recent years, but the industry's earnings are not keeping pace with the rising employee costs.

- KRISHNA KANT

The result has been a steady decline in margins and subpar growth in profits.

The analysis is based on the annual finances of the top six IT services companies: Tata Consultancy Services, Infosys, Wipro, HCL Technologies, Tech Mahindra, and Mindtree.

Over the last five years, the IT companies' average salary and wage costs per employee are up 19.7 per cent compared to a 13.6 per cent rise in net sales per employee in the period.

The six IT services firms, on average, earned net sales of around ₹38 lakh per employee in FY22, up from ₹33.5 lakh in FY17 and ₹37.3 lakh in FY20.

In comparison, their salary and wage costs per employee increased from ₹17.3 lakh in FY17 to ₹20.1 lakh in FY20 and further to ₹20.7 lakh in FY22.

As a result, the industry's operating profit per employee grew by only 10.3 per cent between FY12 and FY22 while net profit per employee inched up by just 5.6 per cent in the period.