There seems to be a quality over quantity hiring trend playing out in several sectors other than technology services. Confirming this, a senior official at recruitment platform TeamLease, told CNBC-TV18.com that the need for a "must-have employee" rather than a "nice-to-have one" has changed the dimensions of recruiting.
While high attrition rates and hefty pay package demands made headlines amid the Great Resignation wave, a report by Axis Capital now suggests that companies managed to swell net profits by 54 percent in 2021-2022 thanks to reduced employee expenses and interest costs.
IT sector employee bill crossed that of the manufacturing sector
“The wage bill of the IT sector crossed that of manufacturing companies for the first time (granted that this is limited to the listed universe),” the Axis Capital report based on the analysis of financials of about 1,800 companies stated.
The report highlighted that the manufacturing sector's net profit margin improved to 9.2 percent in FY22. But cost trends indicate that there was increased automation during the pandemic in the sector and labour productivity was higher, too.
Manufacturing employee cost to sales catching up with net profit margin
“Employee cost as percentage of sales for manufacturing fell to 9.7 percent in FY22, near its lowest ever,” the report stated, adding that the net profit margin of manufacturing companies is now almost the same as employee cost.
Employee cost in manufacturing versus IT and banking
The wage bill of the IT services sector crossed that of manufacturing despite employing less than half the number of people.
The tech sector has seen a consistent increase in employee costs over the past 10 years, and the margin of increase rose in the past three years or so.
IT sector wage bill keeps increasing
Banking sector wage bill driven by PSU banks
The banking sector, too, continued to see higher wage bills, largely thanks to the public sector banks (PSUs), according to the Axis Capital report.
How do non-IT sectors manage to spend less on employees?
According to TeamLease, employee expense reduction in manufacturing and other sectors denotes that the hiring ecosystem continues to evolve in non-IT sectors, mainly due to changing economic needs and the heightened pace of digital transformation.
This has led to a surge in demand for new-age roles, mobility of roles, and transformation in the markets.
"Adoption of remote work, job rotations, fresher hiring in large and continuous form has brought the versatility in talent to traditional industries," Munira Loliwala, AVP - Engineering Staffing & RPO Solutions, TeamLease Digital, told CNBCTV18.com.
Industries like chemicals and pharma/healthcare that did well during the pandemic experimented with the dynamics of gig, flexibility, and task-based hiring with minimal costs and headcounts, she explained.
Total sales growth versus employee cost growth
Loliwala said the unpredictable spike in demand in the retail sector, supply-chain disruptions, and a hybrid model of work leveraged low cost, implying high margin plans for many unicorns, start-ups, and established players.
Similarly, e-commerce and education were the other industries that witnessed exponential growth and are constantly envisioning newer methods to scale up while costs are controlled, she said.
A story of industry growth and recovery
Professional services firm Aon acknowledges that the trend of lower employee costs holds true across the manufacturing industry. However, it is a story of industry growth and recovery more than a reduction in employee spending, it said.
“While the manufacturing sector has seen rapid infiltration of technology and automation seeing unprecedented productivity levels on the operations floor, the cost per employee (and also the skill requirement) continues to grow," Nakshatra Bhatt, director, Aon Human Capital Solutions, told CNBC-TV18.com.
"An analysis of key players across various sub-industries in the manufacturing industry shows a drop of 14 percent (in employee expense as a percentage of revenue) for the cohort analysed. This was primarily down to revenue growth over the same period being three times the growth of employee expense (which grew at 11 percent compared to 33 percent revenue growth),” he said.
Bhatt’s comment came following Aon’s analysis of 60 (listed) organisations in the manufacturing sector (a mix of chemical, auto, cement, metals and mining, and engineering/manufacturing firms).
Rapid top-line growth/recovery in FY22 tells a part of the story, Bhatt said, explaining that the 2020 pandemic saw a freeze and/or reduction in growth hiring (primarily down to a de-growth in the sector), and employee expenses remained constant between FY20 and FY21.
Wage inflation may not be as high as last year
Sanjeev Bikhchandani, Executive Director at pure-play internet company Info Edge, earlier told CNBC-TV18 that though the pressure continues, it is off the boil where it once was six months ago, simply because enough start-ups have begun to actually let go of people.
“But those people are getting jobs immediately, which means that the demand is still there. I suspect you may not see the kind of crazy wage inflation that you saw a year back in the next two years but we wait and watch,” he said.
Also Read: Employees' bargaining power in Indian organised job market here to stay for a few more months
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