Contractor Calculator Market Report October 2008

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In spite of the turmoil in the global financial markets and the shockwaves running through the UK’s banking system, UK PLC is still not yet formally in recession.

Most indicators suggest that the job market is shrinking, with employers freezing recruitment. This is proving a double edged sword for contractors: in some sectors there are fewer contracting opportunities and falling rates; in others there is high demand, with rates either stable or rising.

Key topics covered in this month’s ContractorCalculator Market Report include:

  • Credit crunch hits IT contractors’ pay in financial services
  • Monster Employment Index falls again, the fifth drop in the last six months and the first time the index has shown no annual growth
  • Skilled engineering contractors in short supply, with firms recruiting from overseas
  • Mixed messages for IT contractors as contracts fall overall but some roles show increased demand
  • Important changes to company law will affect contractors using their own limited companies
  • Removal of VAT Staff Hire Concession could cost the contracting sector up to £400m.

IT contractors in financial services see lowest rates for 5 years

Recent research by the Association of Technology Staffing Companies (ATSCo) and into contractors’ rates in financial services has shown an average fall for new contracts of 12% over the last six months, to £44 per hour.

According to their research, this is the first fall in IT contract rates in the City since 2002. Ann Swain, Chief Executive of ATSCo, says: “Falling demand for IT contractors from banks is now impacting pay... Some belt tightening is to be expected, but mass layoffs seem unlikely at this stage.”

The good news is that the pay squeeze is not affecting the wider contracting market, with average contract rates for all sectors static at £40 per hour.

Falling demand for IT contractors from banks is now impacting pay... Some belt tightening is to be expected, but mass layoffs seem unlikely at this stage

Ann Swain, Chief Executive, ATSCo

Monster Employment Index falls – again

Employment woes continue with the latest Monster Employment Index falling again this month, the fifth drop in the last six months and the first time the index has shown no annual growth.

However, although the index has dropped significantly for the IT sector, construction and engineering are showing small increases in demand. The top five sectors seeking workers are:

  • Public sector, defence, community
  • Arts, entertainment, sports, leisure
  • Construction and extraction
  • Telecommunications
  • Banking, finance, insurance.

Increased demand from the financial sector seems at odds with events in the industry and particularly in the City, but demand for workers has increased slightly month on month since June.

Engineering contractors in short supply

During a recent overhaul of the UK’s immigration system, it has become apparent that highly skilled engineering contractors across nearly every engineering discipline are in short supply, and firms will be able to recruit from outside the EU to fill vacant contracts.

Engineers’ pay is also reflecting demand, and serious regional disparities have arisen according to research by ATSCo. For example, the booming aerospace and oil and gas sectors have resulted in engineering rates in the Midlands and the North rising 26% higher than in the South.

Mixed messages for IT contractor demand from

Specialist IT job board has shown an overall decrease in the number of IT positions advertised of 9% over the summer. There are fewer opportunities for contractors seeking IT manager, developer and project manager roles.

However, some positions have shown increases during the period, including:

  • Java (+ 4.8%)
  • SQL (+ 2.3%)
  • Business analyst (+ 2.6%)
  • Networking (+ 6%)
  • Oracle (+ 0.9%)
  • UNIX (+ 3.5%)
  • Testing (+ 0.3%)

Contractors with the right skill set, or who can rapidly make the transition into other IT areas, are looking at a relatively buoyant market.

Changes in company law to affect contractors

1st October 2008 saw the introduction of a raft of new legislation, as part of the Companies Act, which will affect contractors who contract through their own limited companies.

The area perhaps most likely to affect contractors covers directors’ duties regarding conflicts of interest. From this month, company directors are under an express duty to avoid conflicts of interest, including not accepting benefits from third parties where there is the possibility of a conflict arising.

Contractors in some specialist sectors might be wise to consult their legal advisors about other legislative changes regarding employment law, intellectual property law and environmental law.

Who will foot the bill when the VAT Staff Hire Concession goes?

Recruiters and some contractors are concerned that the government will stick to its guns and abolish the VAT Staff Hire Concession in April 2009, as it announced in the April 2008 Budget.

This would affect those parts of the public, private and not-for-profit sectors in which organisations cannot reclaim. If the concession is abolished, end-user clients will find themselves paying an additional 17.5% on the wages element of the fee they pay to agencies. The key question is; who is going to foot the bill?

Inevitably any price movements filter down the food chain and the real concern is that contractors in some sectors where VAT cannot be reclaimed by the client will find their rates being squeezed from next April as agencies are forced to levy VAT on contractors’ fees as well as their commission.

Alliance Accountants

Published: Tuesday, October 07, 2008

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