Up to 70pc Australian companies cutting costs with salary reductions and lay-offs: Deel research

Some 20,000 financial services and telecommunications roles have been shifted overseas as local contractors are given the flick and employers begin to cut costs.

Seven out of 10 Australian companies are implementing cost-cutting measures including lay-offs and salary cuts, new data has found. Picture: NewsWire / John Appleyard

More than 20,000 Australian jobs in the telecoms and financial services sector have been sent offshore over the past 12 months, according to a leading global recruitment agency, while up to70 per cent of large Australian companies are looking to implement cost-cutting measures including lay-offs and salary cuts.

The offshoring has been described as “alarming” and “unacceptable” by the Financial Services Union, which has claimed Australia’s largest banks only care about “maximising profits”.

The major shift arrives when as many as a third of contractors have been axed in the past six to eight months, Talent International Australian managing director Matthew Munson said, adding the cuts had been largely under-reported or not reported at all.

Talent Australia managing director Matthew Munson.

AMP economist Shane Oliver said the figures were not surprising, with many of Australia’s largest companies flagging lay-offs when delivering their financial reports in August.

“It seems like the focus for corporates has sort of shifted a little bit from inflation towards lay-offs,” Dr Oliver said.

“Cost pressures are still quite significant and they’ve had softer sales which are the key factors driving talk of cost-cutting.”

Contractors, who are often paid a premium of about 40 per cent, are typically hired to work on special projects. Many of them enjoyed a wages boost in the first couple years of the pandemic as companies raced to implement digital-first strategies.

But now as companies look to cut costs these workers have become the first to go, with some companies enjoying the fact there’s no public recognition of the cuts, Mr Munson said.

“The corporate sector doesn’t tend to announce these numbers publicly and it doesn’t get reported at an unemployment level because these contractors generally run their own businesses so they don’t report when they’re out of work even if they are,” he said.

In the private sector, a lot of the work is being sent offshore to the likes of the Philippines and India, where some companies have begun to set up offices while others have relied on offshore firms including HCL Solutions and Tata Consultancy Services.

Outsourcing to India has grown 7 per cent over the past 12 months, Mr Munson said, adding that some firms were seeing as much as a 75 per cent cut in costs.

In the past, many Australian companies were reluctant to hire offshore workers but the shift to remote and work-from-home roles and the reluctance of some Australians to return to the office had shown employers they could get the same for less with overseas staff, he said.

But the cuts aren’t just taking place in the private sector, with the federal government in May announcing its plan to save up to $1bn by hiring more APS staff and reducing its reliance on “expensive non-public servants to perform public servant roles”.

Dr Oliver said while there had been a “down trend” in costs and price pressures, labour costs were still “relatively high”.

“I think it’s particularly an issue in an environment of relatively low unemployment. Companies feel they don’t have a lot of control over their wages bill so they’re trying to find ways to minimise it,” he said.

The unemployment rate could rise, he said, adding that if more companies continued to cut roles it could grow to around 4.5 per cent, up from the last reported figure of 4.2 per cent.

Talent was already seeing the impact of contractor cuts, recording a 1400 per cent jump in applications for software engineering roles over the past two years, while project manager roles were up 775 per cent and business analysts roles up 650 per cent.

The average tenure in tech, information and media roles was now 1.9 years and jumped up 10 months to 2.7 years for workers with 20 or more years experience, it found.

A survey from global HR platform Deel, released overnight,indicated 70 per cent of Australian businesses were implementing cost-cutting measures.

The research comprised 250 leaders from businesses with 500 or more employees and was undertaken through June and July. The largest number of leaders came from the retail sector, followed by IT and manufacturing.

Australia’s unemployment rate could reach 4.5 per cent if companies continue to axe jobs as they look for ways to cut costs. Picture: Getty Images

About 45 per cent of respondents were considering cuts to salary spend, while 41 per cent were looking to lay off staff.

“Many businesses are understandably cautious amid market uncertainties,” said Deel’s Australia manager Shannon Karaka, adding that companies were also considering which roles could be replaced with technology.

“Businesses are turning to AI in particular as a way to cut costs. By automating manual, repetitive tasks and streamlining operations, companies are finding ways to achieve efficiencies while empowering their people to tackle more valuable activities,” he said.

The survey also found that remote work was “a top strategic priority” for 92 per cent of respondents, who said it helped them reduce costs.

Over the past few months, many Australian companies have enforced strict return-to-work policies that threaten employees with performance management plans and ineligibility for pay rises if they don’t adhere to working from the office.

Mr Munson said most employers were concerned about skills transfer, worried that younger workers wouldn’t be able to learn from more experienced employees in person. But the broader shift of some roles overseas posed another threat, he said, adding that it would further exacerbate the nation’s skills crisis.

“It is going to have a significant impact on the more junior members coming into an organisation if they’re not surrounded by peers with more experience that they could learn from and I think that’s what really concerns the CEOs.”

Mr Munson said outsourcing typically came in waves and that the shift to overseas workers was “going to greatly impact (companies) down the track when they’re looking to hire people locally again”.

Originally published as Up to 70pc Australian companies cutting costs with salary reductions and lay-offs: Deel research