New immigration rules and stricter enforcement in the UK are likely to shoot up staff costs for Indian IT services companies by about ?2 million a year. New guidelines, released in April this year by the UK government agencies, have compelled IT firms employing Indians in the country to restructure minimum wages required for employment.
Top-tier firms, such as Infosys Technologies and Wipro, and mid-tier firms like Mastek, have already completed the required adjustments. During the September quarter, a small part of Wipro?s 250 basis points margin dip was a result of changes made in the way wages are now computed in the UK.
An uncertain economic climate and fear of job losses have made many countries raise the entry barriers for migrants. The UK Border Agency (UKBA) wants to ensure that all migrants (onshore workers) are paid an appropriate salary rate so that the resident labour market is not undercut and there is a level playing field between foreign workers and locals.
UKBA?s new guidelines want the actual gross salary package to be quoted in the ?Certificate of Sponsorship??this should include allowances and tax that are actually incurred and not a figure that anticipates future tax relief.
Indian firms, for instance, have been adding a ?dispensation? benefit in calculating the minimum wages. There is no tax on expenses covered by dispensation items such as travel, fuel for company cars and telephones among others. Firms usually would have to wait until the end of the year to know what dispensation can be claimed for each employee and since minimum wages needed to be paid at the point of entry, they added a notional tax in calculating salaries. This has to be now done away with since the UK wants comparable wages for migrants and locals. Dispensation is available only to expatriates for the first two years.
?What was earlier known but not enforced is now getting enforced. It is more an enforcement law,? an executive from a an IT services company said. ?Indian firms also need to keep employee wage records such as pay slips for inspection. What was earlier getting generated annually, now have to be generated on a monthly basis,? he added.
Industry experts estimate a hit of ?2 million to a tier-one firm because of the restructuring. It is now felt that companies can offset the hit, by giving lesser wage hikes to onshore employees.
Wipro Technologies CFO Manish Dugar said most of the firm?s employees in the UK were above the minimal wage required excluding the tax. ?There were a few that were not getting the minimum wage if you were to exclude the tax. So we had to gross up their salary. To that extent, there was an impact on people cost,? he said. People costs impacted Wipro?s margins by 120 basis points during the September quarter. Roughly 5% of this was because of the UK law change, he added.
Infosys Technologies, which has about 4,000 employees in the UK, completed restructuring the salaries in the June quarter itself. ?The minimum wage is different for different roles. The roles also went through a re-look. What we call as project managers versus them is different as well. A software engineer with 4 years of experience therefore came under a different cadre and his salary grade changed,? said Nandita Gurjar, senior VP and group head (HR), Infosys.
Mastek said it has changed its policy on dispensation to ensure that it complies with the new regulations.
