Bangalore: Employee attrition in the IT sector has always been a dreaded issue. The June 2010 quarter saw the annual attrition rate go over 15 percent. This number has been the highest for some of the biggies in the past 10 quarters; report Ranjit Shinde and Parul Bhatnagar of The Economic Times. The blow of the turnover seems to be harsher on the small and medium enterprises (SME). With the IT giants hiring big time now, the SMEs are having a hard time in both retaining as well as hiring talent. It is anticipated to have an effect on the performance of the SMEs. For example, the Mumbai-headquartered Mastek hired more than 400 fresh and experienced employees in the June quarter. However, it could only add 83 employees at the net level - after taking into account the attrition during the quarter - against its target hiring of 300 employees. Thus going through a 14 percent employee turnover in the quarter. In fact, tier II companies are witnessing attrition at a much higher level in the bracket of 18-20 percent as compared to their larger counterparts. Desperate measures by the companies to halt the growing rate of attrition have had them hike the salaries. While some are pondering on mid-term salary hike, others have carried out double-digit wage revisions across the board. B Ramaswamy, Managing Director and President, Sonata Software said, "We raised wages by 12 percent effective April 1. On top of that, we plan to hand out a five percent increase effective October." Motilal Oswal, a brokerage firm has reported, "Mid-sized companies fall short of assuring similar growth visibility (as offered by bigger firms), and are therefore offering better hikes than their larger peers to attract talent." If the companies continue to increase the salaries to retain talent, it would further strain their operating margins. However, one relief could be revival in demand reported by some of the mid-tier players during the June quarter. For instance the Mumbai-based Geometric has seen a turnaround in its engineering solutions division in the June quarter, which reported losses during FY10. Other companies, including KPIT Cummins and NIIT Technologies, have also reported demand traction. The attrition rates look like they are going to be high in the short term. Now it remains to be seen if recovering demands help the companies battle the pressure on their wage costs.