Changes in the Contract Market.
Dave Chaplin is an IT contractor and has worked in the industry for 7 years. He recently completed a contract leading a development team at a major on-line bank. He is a practised expert on the XP techniques of Automated Unit Testing, and Test First Programming and has delivered training courses and mentoring on those techniques. He can be contacted at davechaplin@byte-vision.com. He is also the founder of www.ir35calc.co.uk.
Introduction
It’s certainly been an eventful year in the IT Market. IR35 has become more and more of a going concern for many contractors, combined with the downsizing in the IT contracting market. But is there really anything to be too concerned about? I personally think the market is changing for the better. Lets look at the issues of IR35 and reducing demands for contractors and the effects it could have.
IR35
IR35 appears to be working quite fairly. Contractors tend to fall into one of the following categories:
- They are entrepreneurial switched on people who proactively prepared for IR35 and have passed with ease.
- They should have passed but stuck their head in the sand and have subsequently realised that they will be caught.
- They are part of the company furniture and are quite rightly should pay tax as a full time employee.
If you fall into category 1 then well done. If you fall into category 2 then you have yourself to blame. I’ve spoken to numerous contractors who moan that they are getting caught by IR35 who then tell me that they did not actually do anything to prepare for it. With a lack of foresight to reduce risk they can hardly call themselves budding entrepreneurs!
I have sympathy for those who fall into category 3 since they cannot claim adequate costs against running the company and most importantly training themselves. If you take everything into account (the contract rate versus permanent rate plus benefits) things work out about the same. Thus, the only real difference is the individual choice as to whether to do contract type work, or stay with a single company. The talk about these types of contractors taking on extra risk is folly since permanent staff can be made redundant as quickly as contractors.
So, my message on the IR35 issue is to get yourself sorted out, stop sticking your head in the sand, and choose contracts wisely. If you do this, you should be able to avoid being in category 3.
Lets now turn to the issue of the downturn in the market and the effect it is having on the IT industry.
Market Changes
Okay, it is true that the demand for contractors is not what it was a year ago. We have all heard stories of contractors being chopped or being asked to reduce their rates or leave. These reductions in head count are due to the unease companies are feeling about a potential recession on the way. There are also some effects due to the relaxations on visa requirements. And of course, there is the massive impact of the bubble bursting in the E-Commerce industry. Quite hard hit are the on-line trading organisations who have suffered from the huge reduction in private trading volumes. Just think how many people you knew who were trading last year in the bullish market who got stung and are no longer interested in shares!
However, in my opinion, this reduction in IT demands in the long term is not such a bad thing for those contractors who are highly skilled category 1 hot shots. Lets reflect on the last 4 years or so in the IT market.
We have had the year 2000 problem and the internet boom (and bust) that massively increased the requirements for IT skills. This resulted in a large majority of the market going contracting. Many managers I have spoken to highlighted this by stating that they found it virtually impossible to try and build a team of permanent development staff. It got to the point where graduates could come out of university straight into a programming job earning £60,000+ a year. Many developers with only 2 years experience found they could earn £100,000+.
In a free market, that situation cannot remain the same forever. Market forces will dictate a more sensible level of balance between experience and salaries.
To make an analogy with football. The David Beckhams and Sol Campbells will always be around earning vast sums of money because they work hard to be the best at what they do and command premiums accordingly. Others will not be as high calibre and will remain in the Vauxhall conference. Perhaps never again will all players in all leagues earn enormous amount for having a particular set of words on their CV. I hope not.
So, lets discuss how the market will stabilise after this over inflated lucrative era.
We will see a return to a more sensible state of the contract market, where those who are highly skilled and continually update their skills will continue to get contracts. By the nature of the industry there will always be demand for contractors. Companies will always have projects that require a short input of high level skill for a one off project that cannot be filled by permanent staff who would then have nothing to do after the project.
Rates will level out as many existing contractors return to permanent employment, but they are unlikely to return to the levels we have seen over the past couple of years. So, this means that if you want to earn the same income you will need to increase your knowledge.
E-Commerce will take a while to recover, but will see a burst when the high speed broadband services are rolled out. The scope of applications will increase when bandwidths become much faster. There will always be requirements for those with Internet skills for Intranet projects since the model is a cost effective one for roll outs / updates.
Closing Thoughts
It is time to take a good look at where you want to be over the next few years and what you need to do to get there. The luxury days of the last few years are over and action is required to maintain the lifestyle that you may have become accustomed to.