Employee costs surge over 12% to a record Rs 10.8 trillion in FY22

IT sector accounts for nearly 54% of total employee costs

Employee costs of the Nifty 500 companies surged more than 12 per cent year-on-year (YoY) to a record Rs 10.8 trillion during the financial year 2021-22 (FY22). This was the first time that the figure crossed the Rs 10-trillion mark.

All the sectors witnessed an increase, with non-banking financial companies (NBFCs) and information technology (IT) firms witnessing the fastest growth -- at 23 per cent and 19 per cent, respectively.  The Nifty 500 firms account for nearly 90 per cent of the country’s total market capitalisation.

“After logging single-digit growth in 2020 and 2021, employee cost of the Nifty 500 firms (based on 470 comparable companies having a 10-year history) clocked an eight-year high of 12.4 per cent YoY in FY22... Employee cost of the Nifty 500 companies has compounded at 9 per cent/10 per cent/11 per cent against sales compound annual growth rate (CAGR) of 8 per cent/11 per cent/9 per cent for 3/5/10 years, respectively,” said a note by Motilal Oswal.

The IT sector accounted for 53.7 per cent of the total employee cost. Automobiles (6.3 per cent), metals (5.7 per cent), and utilities (5.5 per cent) were the other big contributors.

“An analysis of the employee cost trend for 500 companies in FY22 shows a broad recovery, led by the tech sector. The unorganised sector is yet to fully recover. A fully reopened urban economy is slated to now drive urban informal job creation,” said a note by Jefferies.
 

The sharp increase in the IT wage bill was driven by increased hiring, particularly in the start-up space. But experts expect a slowdown in the current financial year.

“Hiring in the IT industry was more than thrice the historic trend and a big driver of formal jobs growth. FY22 was also a strong year for Indian start-ups with a record 44 unicorn additions. Start-up activity could decline now. IT hiring could still be robust given the (estimated) 10 per cent revenue growth outlook, though dependence on the US economy is high,” the Jefferies note added.

Tata Group’s retail arm Trent (55.7 per cent) saw the highest increase in employee headcount in percentage terms, followed by fast-food chain Devyani International (29.1 per cent), and Tata Steel (15.2 per cent).

The Motilal Oswal note highlighted that the total employee cost for firms has zoomed three times over the past 10 years, from Rs 3.7 trillion in FY12. Also, the share of private corporates in employee costs has gone up to 75.2 per cent in FY22, from 66.8 per cent in FY12. Meanwhile, the share for PSUs has declined by 840 basis points to 24.8 per cent in FY22.

As a percentage of sales, employee cost has been hovering in the 11 to 13 per cent band, said the domestic brokerage.