Employee Cost in Quarterly Results: Reading Wage Hikes, Headcount and Margins

Open any results filing and the first number most people hunt for is profit. Fair enough. But if you want to know whether that profit will hold up next quarter, the line to stare at is often a few rows higher. Employee cost in quarterly results tells you how much a company is paying its people, how fast that bill is growing against revenue, and whether management is buying margin by squeezing hiring or losing margin to wage hikes. In a services business it can be the biggest cost of all; at LTM, which we use as the worked example below, it was about 60% of revenue last quarter. In a factory-heavy business the share is usually smaller, but it is sticky, and sticky costs are the ones that hurt when demand slows.

Educational content only. Not investment advice. The LTM figures below are from the company’s own exchange filing; the Sahyadri Engineering example later is made up for illustration and is not real company data.

Where to find employee cost in quarterly results

Indian companies follow the format in Schedule III of the Companies Act, 2013, which lists “Employee benefits expense” as its own expense line in the statement of profit and loss, next to cost of materials, finance costs, depreciation and other expenses. LTM’s quarterly statement on NSE, for instance, uses the same heading and lists it first under “Expenses”. So you won’t need to dig for it.

What goes into that line? Schedule III asks companies to break the aggregate up in the notes into four buckets:

• Salaries and wages
• Contribution to provident and other funds
• Expense on employee stock option schemes (ESOP) and employee stock purchase plans (ESPP)
• Staff welfare expenses

The quarterly results table is shorter. In LTM’s, for example, you get one number for the quarter. The skill is in reading that one number against three others: revenue, headcount and the previous quarters.

One thing that is not in the line, and catches people out: contractors. If a company hires people through a staffing firm or outsources work to another vendor, that bill often lands under a separate head such as “Sub-contracting expenses” or inside “Other expenses”. Two companies with identical people costs can show very different employee cost lines simply because one uses more contract staff. Keep that in mind; we will see it in a real filing in a minute.

The three ratios that actually matter

A raw rupee figure means little on its own. A company growing 15% a year will have a bigger salary bill every single quarter. What you want is the bill relative to something.

1. Employee cost as a percentage of revenue

Employee benefits expense divided by revenue from operations. This is the cleanest margin signal. If revenue grows faster than people cost, this ratio falls and operating margin gets room to expand. If wages outrun revenue, the ratio climbs and margins get squeezed, unless something else gives.

2. Cost per employee

Employee cost for the quarter divided by headcount. Companies that publish headcount, as LTM does in its investor release, let you work out an average cost per head. It is rough. Headcount is a period-end number while cost accrues through the quarter, and the average mixes freshers with senior staff and onsite with offshore. Still, the direction over several quarters tells you whether the company is paying more per person, hiring cheaper, or both.

3. Employee cost growth versus revenue growth

The simplest of the lot. Compare year-on-year growth in employee cost with year-on-year growth in revenue. If you want a refresher on why year-on-year and quarter-on-quarter comparisons tell different stories, the reasoning is the same as in our guide to operating leverage in results: a cost that grows slower than sales lifts profit faster than sales.

A falling employee cost ratio is only good news if the work is still being done by the same kind of people. Check the contractor line before you celebrate.

A real worked example: LTM’s Q2 FY27 numbers

Let’s use a live filing. LTM (formerly LTIMindtree) announced results for the quarter ended September 30, 2026 on October 16, 2026. All figures below come from its consolidated results and investor release filed on NSE, reported in ₹ million. We have converted to crore where it reads better and done the division ourselves.

Start with the headline ratio. Employee cost fell from 62.22% of revenue a year ago to 59.98% this quarter, a drop of about 2.2 percentage points. On its face, that looks like a big efficiency gain. Employee cost grew 9.5% year on year while revenue grew 13.6%.

Now add the contractor line. Sub-contracting expenses jumped 41.2% year on year, from ₹805 crore to ₹1,137 crore, and rose from 7.74% of revenue to 9.63%. Put employee cost and sub-contracting together and the combined people bill went from 69.97% of revenue to 69.61%. So the improvement shrinks from roughly 2.2 points to well under half a point. Most of the “saving” on the employee line was work moving to the sub-contracting line.

That isn’t a criticism of the company. Firms use contractors for flexibility, niche skills or short projects, and the filing doesn’t tell us why the mix shifted. The point is simply that if you had read only the employee cost line, you would have overestimated how much margin room the company had found.

Quarter on quarter, the picture is flat. Employee cost rose 1.73% and revenue rose 1.72%, so the ratio barely moved (59.97% to 59.98%). No margin help from people costs this quarter, but no damage either.

Cost per head

Divide employee cost by period-end headcount. In Q2 FY27 that works out to about ₹7.97 lakh per employee for the quarter (₹70,821 million over 88,835 people). A year earlier it was about ₹7.48 lakh (₹64,676 million over 86,447 people). That is roughly 6.6% more per head. Headcount itself rose by 2,388, or 2.8%. So the 9.5% rise in employee cost came from both more people and higher average cost per person, with cost per head doing more of the work.

The same release shows utilisation (excluding trainees) at 86.4%, down from 88.1% a year ago, and trailing twelve-month attrition at 13.3% against 14.2%. Lower attrition generally means fewer replacement hires; lower utilisation means more people on the bench relative to billable work. Both feed into how much revenue each rupee of salary generates. Revenue per employee for the quarter was about ₹13.3 lakh, up from about ₹12.0 lakh a year ago, which is the other side of the same coin.

The one-off you should strip out

LTM’s notes also flag that the Government of India consolidated 29 labour laws into four Labour Codes effective November 21, 2025, and that the group estimated an incremental expense for past service costs on employee benefits because of it. Being material and one-time, that amount was shown as an exceptional item in the previous year rather than inside the regular employee cost line. When you compare employee cost across years, check the exceptional items too. Our explainer on exceptional items in results covers how to adjust for them.

Wage hikes: why one quarter looks worse than the others

When a company gives its annual increments at a fixed point in the year, the employee cost line steps up in that quarter and stays up. That creates a predictable pattern: margins dip in the hike quarter and recover over the following quarters as revenue catches up.

Here is a made-up example to show the arithmetic. Sahyadri Engineering (fictional) reports Q1 revenue of ₹500 crore and employee cost of ₹60 crore, so people cost is 12.0% of revenue. Its EBITDA margin is 18%.

• An 8% wage hike takes effect from July 1, the start of Q2. On a ₹60 crore base, that adds ₹4.8 crore a quarter, taking the bill to ₹64.8 crore.
• It also hires 40 people, adding ₹1.2 crore. Q2 employee cost: ₹66 crore.
• Revenue grows 4% quarter on quarter to ₹520 crore.
• Employee cost ratio: ₹66 crore divided by ₹520 crore is 12.69%, up 0.69 percentage points.

If every other cost stays at the same share of revenue, Q2 EBITDA margin drops from 18% to roughly 17.31%, about 69 basis points, purely from the hike and the new hires. Nothing went wrong with the business. The increment simply arrived before the revenue to pay for it.

So when a company says “margins were impacted by wage hikes”, the right question is: in which quarter did the hike land, how big was it, and what does management expect over the next two or three quarters? Look for that in management’s commentary or the earnings call; it matters more than one quarter’s ratio.

A wage-hike quarter is a timing issue. A ratio that keeps rising for four or five quarters with no hike to blame is a pricing problem.

Headcount: the number that moves before margins do

Headcount changes usually show up before the cost line catches up. A company that adds thousands of freshers in one quarter will carry them as cost for months before they are fully billable. A company that cuts headcount for three straight quarters will look great on margins, but it may also be telling you that demand is soft.

Some patterns we watch for when reading results:

• Headcount falling, revenue rising. Productivity gains, automation or more contractor use. Check the sub-contracting line to see which.
• Headcount rising faster than revenue. Either the company is hiring ahead of expected deals or utilisation is slipping. Look at utilisation and order book commentary.
• Cost per head rising sharply with flat headcount. Wage inflation, a senior-heavy mix, or variable pay catching up after a weak year.
• Cost per head falling. Often a sign of fresher hiring or more offshore work, which can support margins later.

None of these is good or bad by itself. The story comes from putting two or three of them side by side.

Sector differences you should not ignore

The level of employee cost varies hugely by industry, so never compare an IT company’s ratio with a steel company’s. In LTM’s case people cost is close to 60% of revenue, and that is what a services business looks like. For a manufacturer, cost of materials consumed is often the bigger line, so the employee share of revenue tells you less on its own.

Within a sector, though, comparing the ratio across peers is useful. If two IT companies with similar revenue mix show employee cost ratios a few points apart, ask why: offshore mix, contractor use, pricing power, or pyramid structure. And always compare like with like, consolidated with consolidated. Our explainer on how to analyse quarterly results of a company walks through the full checklist.

A quick routine for every results day

1. Note employee cost for this quarter, last quarter and the same quarter last year.
2. Divide each by revenue from operations. Did the ratio go up or down?
3. Find any contractor or sub-contracting line and add it to employee cost. Recalculate.
4. If headcount is published, work out cost per head and revenue per head.
5. Check the notes for exceptional items or one-offs linked to employee benefits.
6. Read management’s comment on wage hikes and hiring plans for the next few quarters.

It takes five minutes with a calculator. And it will tell you more about whether a margin beat is real than any headline profit number.

Key takeaways

• Employee benefits expense is a separate line in the profit and loss statement under Schedule III, and its notes split it into salaries and wages, PF and other fund contributions, ESOP/ESPP expense and staff welfare.
• Read it as a ratio: against revenue, per employee and in growth terms versus revenue growth.
• In LTM’s Q2 FY27 filing, employee cost fell to 59.98% of revenue from 62.22% a year earlier, but adding sub-contracting costs narrows the improvement to 69.61% from 69.97%.
• Wage-hike quarters cause predictable margin dips; persistent rises without a hike are a bigger warning sign.
• Strip out one-off employee-related charges, such as the Labour Codes past service cost LTM flagged as exceptional in the previous year, before comparing years.

Disclaimer: This article is for information and education only and is not investment advice or a recommendation to buy or sell any security. Company figures are taken from the cited exchange filing and may be restated later; the fictional example is for illustration only. Consult a SEBI-registered investment adviser before making investment decisions.