Thousands of ‘benched’ IT hires to become billable by March

Top domestic information technology (IT) firms are looking at their own ‘bench’ to optimize costs and improve margin in the next two months. The bench refers to employees who have been offered jobs but not absorbed into the workforce as yet. In their earnings announcements for the December quarter, top brass of many firms hinted that a larger number of benched employees will be brought into the ‘billable’ workforce.

Industry analysts and experts, too, believe that the upcoming March and June quarters could be the period when a larger chunk of the unutilized workforce is brought into the fold. The bench refers to employees on a company payroll who are presently not assigned an active project. While all IT companies have a sizeable bench strength at any given period, a higher utilisation of the bench typically signifies better cost optimisation for companies, since IT firms can only 'bill' employees to a client when they are assigned to a project. At that point, they become 'billable' employees.

According to Akshara Bassi, senior research analyst at market researcher Counterpoint, greater utilisation of bench typically shows a cautious approach on behalf of companies due to the potential of weak demand in the near future. As a result, utilising the bench may offer companies the ability to better manage their cost, as opposed to fresh hires.

Most IT firms reported a rise in their benched employee count during the earnings calls. Infosys and Wipro reported an utilized workforce of 77.1% and 72.3%, respectively, down from 82.7% and 75.6% in the year-ago period, respectively. With overall headcounts (benched and unbenched) of 346,845 and 258,744 employees, this means that these two firms alone may start paying thousands in the coming months.

Industry analysts and experts noted that increased bench utilization is a result of strong increase in overall deal bookings by IT firms. For instance, HCL Tech signed digital transformation and automation deals with Mondelez, the holding company of Cadbury. Similarly, Infosys disclosed $3.3 billion worth of deals signed in the December quarter, while Wipro disclosed deals worth $2.5 billion.

Utilizing the bench will also help firms to rationalize rising employee costs, experts said. “There has been a clearly positive sign in the overall deal bookings, and as hiring numbers fall the companies will look inward to bring more of their employees into the billable workforce. FY24 is expected to be a year of margin consolidation, and since the unutilized workforce typically makes for the bottom of the pyramid in terms of the employee costs incurred, most IT firms will likely see clear benefits in operating margins as a result,” said Ruchi Burde Mukhija, vice-president at financial research firm Elara Capital.

Omkar Tanksale, senior research analyst at brokerage firm Axis Securities, concurred.

To be sure, even as overall attrition in the sector has gone down employee costs have remained high due to diversification of deals from established sectors to new ones. As a result, IT firms have to hire specialized, and hence more expensive, executives who can perform niche duties required for new sectors like blockchain, data analytics, etc. The bread-and-butter for the sector includes banking, financial services and insurance (BFSI) sector, healthcare, etc.

Tanksale noted that TCS’ guidance of operating margins to hit 25% by end-FY23, shows general positive signs in terms of the benched workforce coming into the field. Since the bench largely comprises freshers with lower salaries, could further help IT firms offset the higher salaries that they may pay for specialized roles.

According to data shared with Mint by employment services firm Foundit (formerly Monster APAC and ME), the average fresher salary in IT services was between ₹4,82,962 and ₹9,35,350 in FY23.

The trend is also true for midcap IT services firms, Noida-based Coforge. The company has net executable deals value of $841 million for the upcoming 12 months — which will see the company increase employee utilization, it said in the earnings report.

Sekhar Garisa, chief executive of Foundit, said that companies will likely focus on hiring new employees in the second half of FY24, buoyed by the new deals signed through FY23.