Zoho employees will miss out on their usual annual pay rises as the software company tries to absorb soaring artificial intelligence costs without resorting to mass layoffs or increasing prices for customers.
The Indian software-as-a-service (SaaS) company has frozen annual salary increments for 2026, cut marketing expenditure and kept its workforce from growing for 18 months, according to statements by its leadership. The move highlights the financial pressures facing software businesses as they invest in AI while dealing with an uncertain market.
Zoho co-founder and chief scientist Sridhar Vembu announced the pay freeze on 13 October, citing a fourfold increase in server prices and rapidly rising AI-related expenses. On 15 October, CEO Mani Vembu reiterated that the company was foregoing pay rises and appraisals to help avoid layoffs and price increases for customers.
Why Zoho Is Freezing Employee Pay Rises
Zoho is facing a sharp increase in the cost of the infrastructure needed to run its software and AI services.
Sridhar Vembu said server prices had risen fourfold, increasing the cost of equipment required for data centres. The company is also dealing with higher expenses as the use of AI grows across its operations.
In a post on X on 13 October, Vembu said the outlook for the software industry was uncertain and that the company was trying to control its rising costs. He also pointed to geopolitical challenges affecting the business environment.
Zoho has responded by reducing its marketing budget and suspending its usual annual pay increases for the year. Vembu apologised to employees for the decision and thanked them for their understanding. The company has not announced a specific date for restoring annual increments.
Zoho Says It Wants to Avoid Mass Layoffs
The pay freeze comes alongside a prolonged period without workforce growth.
Vembu said Zoho had not increased its employee headcount for 18 months and warned that the outlook for software jobs in general was grim. He added that the company would work hard to avoid mass layoffs.
Zoho has more than 19,000 employees worldwide, according to its official website. Its decision to hold down costs rather than announce large-scale redundancies puts the focus on whether the strategy will be sufficient if the software market deteriorates further.
The latest statements from Mani Vembu also indicate that Zoho wants to avoid passing its higher costs on to customers through price increases.
However, the company has not provided a detailed financial breakdown showing how much the pay freeze and marketing cuts are expected to save, or how long these measures will remain in place.
AI Is Creating New Costs for Software Companies
The situation highlights a complication in the AI boom: although AI tools can help companies automate tasks and develop products more quickly, building and operating those systems requires substantial computing infrastructure.
Data centres need servers and other specialised equipment to process the workloads involved in AI services. When hardware prices and usage rise, companies can face higher operating and capital costs even as they try to benefit from the technology.
Software businesses must also contend with competition from AI-powered coding tools that allow customers to build some applications themselves instead of paying for traditional software subscriptions.
Sridhar Vembu has previously warned that AI could reshape the software-as-a-service business model. Zoho is attempting to adapt while controlling expenditure and protecting its workforce.
The company has not attributed its pay freeze to AI alone: Vembu also cited an uncertain software market and geopolitical pressures.
Zoho's Next Three to Five Years Will Be Crucial
Zoho is in the middle of what Vembu described as a business reinvention, with the next three to five years expected to determine how successful the effort proves to be.
For employees, the immediate consequence is clear: the usual annual pay increase will not arrive in 2026. For the wider software industry, the decision raises questions about how businesses will balance investment in AI, rising infrastructure costs, employee compensation and customer pricing.
Zoho has said it will work to avoid mass layoffs, but it has not guaranteed that job cuts will never be necessary.
The challenge now is whether the company can control its costs and adapt its business model without placing further pressure on employees or customers.
