Contract-based hiring drops by 20% in IT sector

There is an almost 20% drop in contract hiring by the IT services sector as tech firms under burgeoning margin pressure are preferring to retain their permanent workforce over contract staff. Recruitment companies are scrambling to get more clients on board as demand from IT clients plunges. 

“Tech talent-hiring witnessed a 10-20% decline in the demand for contract staffing since March this year among IT firms. The main reasons contributing to the slump are macroeconomic conditions playing out and IT services firms shifting focus to retain permanent employees,” said A.R. Ramesh, director of digital business solutions, professional staffing and international engagement, Adecco. 

Adecco estimates that there are about 10 -12 % of contract workers in the IT and ITeS space with less than 8 years of work experience in the technology space. 

The drop in contract staffing comes on the back of a ballooning crisis in the IT sector where the companies had gone on a hiring frenzy after two years of Covid induced hiring lull. From the second half of 2021 to a quarter back, companies were rolling out 60%-70% hikes , counter offers as businesses across sectors needed tech teams who can digitize and bring in cloud computing. 

However, now straddled with large bench strength -employees who have been hired but yet to be deployed; and a slowdown in the economy of US based clients, tech firms are slashing their hiring targets for the coming fiscal. Onboarding of campus recruits has been delayed in many tech firms by six months and the spillover to the next year means reduced need for contract workforce. 

“The tech firms are now realising that they have to balance the long term with the short term in attracting and retaining talent. Correction was needed in some recent short-term tactics and that may have impacted the demand for contract staff if not completely reduced,” said Rituparna Chakraborty, co-founder and executive director of TeamLease Services. 

The recruitment companies heavily dependent on contract staffing that in tech sector is for about 6-12 months will take a hit on their revenues if the trend continues. 

“About 40% of our revenues depends on IT contract staffing and there has been a 30% dip in demand in this quarter (July-September) compared to the previous three months,” said Saran Balasundaram, founder of the tech recruitment firm, HanDigital. The founder estimates that if the dip continues then their revenue from contract staffing in IT will take a hit of 12-15% by the end of the fiscal. 

Staffing firms said they are “knocking on doors” of other IT companies to increase their client base and escape revenue hit. 

“We have been trying to knock at more doors to generate business and looking for greener pastures to generate new orders and at the same time, working harder to generate more candidates for companies to choose from,” said Aditya Narayan Mishra, director and chief executive officer (CEO) - CIEL HR Services. 

The recruitment firm has seen a 10-20% drop in hiring mandates in July-September compared to same period last year.