Contract staffing demand for tech talent nears pre-COVID levels

After a largely dismal year, things seem to be finally looking up for contract staffing firms catering to the IT sector. After having witnessed a steep decline due to the pandemic since April, demand is now back to 80-90 percent of pre-COVID-19 levels. Also, salary increases of up to 20 percent are on offer for niche talent.

“Never seen a December as bullish as this year,” said Sanju Ballurkar, President of Experius IT, a part of staffing firm ManpowerGroup India.

December is a seasonally weak quarter for IT firms and demand is usually sluggish in this period. Now, with demand recovering and IT firms having better visibility for the next few months, contract firms like ManpowerGroup are now seeing a surge in demand.

According to a 2017 report by the Indian Staffing Federation, flexi-staffing in IT accounted for about 2.6 lakh of the total Indian IT workforce. The IT industry currently employs close to 45 lakh people.

Decline in contract staffing

When the lockdown began in April, most of the staffing companies saw demand decline by more than half with not much visibility on when the situation would improve. There was a hiring freeze across IT firms for lateral hiring and on-boarding of freshers were delayed. This impacted the contract staffing firms as well.

“April, May and June were the worst for us,” Ballurkar said.

Most of the companies improved their utilisation of existing employees to meet the demand and focused on reskilling activity. With attrition an all-time low for the firms, it also impacted their business.

An executive from a staffing firm, on the condition of anonymity since the data is confidential, said that a top IT services provider, who was hiring 150 contract staffers per month drastically reduced the number to 20 per month from April due to the pandemic.

However, the situation had turned for the better since the beginning of the second quarter for IT firms.

Demand recovery

Despite industry estimates that indicated otherwise, the IT industry weathered the pandemic better and was able to sign a large number of deals, the majority of them in digital.

Infosys signed $3.15 billion deals, one of the largest deal wins it had signed in a quarter, in Q2 FY21. This is 12 percent more than the $2.8 billion signed in Q2 FY20. Total contract value for TCS was $8.6 billion in Q2 FY21 compared to $6.4 billion in Q2 FY20.

Among firms that were able to sign large deals during the period are Infosys Vanguard deal, Wipro’s Marelli and TCS’ Phoenix deal. C Vijayakumar, CEO, HCL Tech, in a recent interaction with Moneycontrol, said that HCL Tech saw a 20 percent quarter-on-quarter increase in new deal wins, primarily driven by digital. All these have given the IT firms confidence about the recovery in the coming months.

Execution of these deals is in part driving the demand for staffing firms.

Surge in hiring

Four staffing companies Moneycontrol spoke to said their hiring has almost gone back to pre-COVID-19 times, and December is seeing more hiring than ever before.

Sunil C, Head – Specialized Staffing, Teamlease Services, said that the demand has gone back to 80-90 percent of what it was before COVID-19. For instance, Ballurkar explained that if the requirement was 1,000 per month before the pandemic, it now stands at 800-900 per month.

The earlier staffing executive, who did not want to be quoted, explained that after a lull, the staffing firm is seeing a huge surge. “Since April, I was handling close to a couple hundreds of people since we had to downsize our team. Now, we are getting requirements to hire in hundreds in a short time for different firms,” he added.

The reason for the surge, he added, was that the hiring which is usually stretched over a year, is happening in a couple of months.

Pent-up Demand?

Staffing executives explained that while the sudden surge in part could be attributed to pent-up demand, this is sustainable at least till July. It is till when the IT firms have visibility on their project pipeline and demand is expected to pick up from January for captive centres as well, they added.

There are a couple of reasons that could be cited for the surge in demand.

For one, many of the projects that were stalled earlier are coming back and companies are looking to meet this through contract hiring. Ramesh Alluri Reddy, Director – Managed Services & Professional Services, Adecco Group India, a staffing firm, explained that companies are still wary of going full-time and contract staffing gives them the flexibility.

Secondly, even in existing projects, the nature of work has changed. With everyone working from home, companies would also need to change the way their applications work. For instance, many retail firms have pivoted to digital offerings at the back of COVID-19 apart from the legacy services. Even as the economy is opening up, the newer model of working is likely to continue, driving demand.

However, one of the key challenges is talent availability -- though staffing agencies can cast their net wide.

Talent availability a challenge

While in pre-COVID-19 times hiring was location-specific, this is not the case anymore. Customers are more open to hire quality talent from tier 2/3 cities since remote working is here to stay.

The challenge is the gap in demand and supply. Most of the demand is in the areas of cloud, data science, cybersecurity, full stack developer and those that are skilled in programming languages such as Python and Java.  Here, talent availability continues to be a challenge, staffing executives said.

This is leading to inflation of salaries in some cases for talents in these niche skills. Ballurkar said, “I would not call this inflation but rather recalibration of salaries.” For niche skills, he said, clients are willing to offer increased payscale by as much as 20 percent.

This was not the case during COVID-19, as people were cautious about moving jobs and opportunities were tepid. Reddy explained that with the job market opening up, quality talents have more offer on hands and are choosing permanent positions over contract staffing.

What is also happening is the increased mindset change among talents and firms to choose contract staffing, given the flexibility it offers. However, this change would take time, as firms evaluate their current hiring models, added Kamal Karanth, co-founder, Xpheno, a specialised staffing agency.