Crystal Umbrella

Despite recent research by Adecco suggesting that 2012 may be a prosperous year for the UK’s IT contracting community, the chances are that they are going to have to work a lot harder for their money.

This is according to a new survey by the specialist IT recruiter ReThink Recruitment, which reveals that although 90% of the IT directors polled anticipate greater workloads during the coming year, only 39% expect to have bigger budgets. Many fear that they will be unable to get business-critical projects off the ground: this is the third year running that budgets have fallen behind the expansion in workloads.

The net effect is that PAYE umbrella contractors specialising in the IT skills market are toiling away for longer hours to meet increasingly impossible deadlines with no corresponding increase in income.

The ReThink survey polled IT directors from firms with 250 or more staff members – and the evidence is that several years of Scrooge-like austerity has hit IT departments hard. The pressure has been to push pay rates down but the predictable consequence of such an approach is that key talent just is not sticking around. Losing your best techies is hardly a recipe for business success.

In the past incentives could be offered to skilled contactors to keep them on board, but this option is disappearing for many IT heads, with the consequence that their most valuable staff are being poached by rival companies with bigger funds in their talent war chests.

32% of the respondents reported that their budgets had actually fallen last year; however, 43% said that their budgets had increased on the previous year.

The Treasury’s recent statement concerning personal service companies, published in the Red Book accompanying the Chancellor’s Budget statement, is attracting growing hostility from industry experts.

The statement pledges the government to initiate a consultation on the practicalities of “requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.” This appears to have been a political reaction to the media furore over the ‘exposé’ of top civil servants working as directors of their own limited companies. It is not going down at all well amongst experts representing the UK’s contractor community and the recruitment industry.

One of the latest to speak out is the REC’s Head of Policy, Gillian Econopouly, who described the unexpected consultation as “extremely disappointing.” She went on:

“The IR35 Forum, which the REC sits on alongside other professional bodies, has worked extremely hard in the past year to improve the administration of IR35, a tax rule whose uncertainty causes many concerns among legitimate contractors. Bringing forward new legislation in this area risks replicating this uncertainty and cuts the heart out of the valued flexibility that highly skilled contractors bring to organisations across all sectors.”

Vowing to challenge the proposals head-on, she added that the best way of ensuring that contractors were deployed properly within organisations, including public sector organisations, was to improve hiring policy and workforce management processes. Imposing new and frankly unnecessary legislation on the whole economy would be likely to damage the productivity of firms that rely on skilled contractors and undermine the competitiveness of the flexible labour market, Ms Econopouly concluded.

Many jobbing PAYE umbrella contractors will be rather pleased that they chose not to work through their own personal service companies following an ambiguous statement in yesterday’s Budget relating to contractor taxation. Already a chorus of concern has been sounded by a number of prominent industry experts, who fear it may be a knee-jerk reaction to the media feeding frenzy surrounding top civil servants who work through their own limited companies.

No one will be surprised to learn that, as widely predicted, IR35 regulations will remain in place unchanged, and that measures will be implemented in April to improve HMRC’s administration of them. The statement that has squeezed expert adrenals announces that the Government is to consult on “requiring office holders/controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged.”

The PCG lost no time in responding to these words, stating that it was “deeply concerned about the ramifications of this proposal on the interim sector and we will seek urgent clarification on what exactly this will mean for freelancers.” The organisation’s MD, John Brazier, said that the plans sounded “ambiguous,” and could have an adverse effect on senior interims. He added that it is “crucial that these legitimate businesses do not suffer as a consequence.”

Contractors working through umbrella companies may not have been the prime targets for media hostility recently following disclosures of remuneration arrangements involving personal services companies amongst senior civil servants, but with a budget looming the Chancellor’s responses to the issues of self-employment in general and IR35 in particular are at the forefront of many experts’ concerns.

Kate Cottrell, an employment status expert, told the industry news source ContractorUK:

“From an IR35 perspective it is usual to ‘announce’ nothing much. But this year there may be something in the [Budget’s supporting] documents about addressing the recent personal service company issue in the public sector.”

Mr Osborne is duty bound to at least consider advice from the OTS which, in addition to recommending the simplification of the UK’s labyrinthine tax regime, wants the Chancellor to be clear that “personal service companies are legitimate business vehicles.” Knee-jerk populism in response to a media frenzy just won’t cut the mustard.

One senior expert in the field of IT contracting said: “I am not expecting anything too momentous to come out of this Budget. It has to focus on growth; I just hope it recognises that us small, flexible one-man-bands are actually the engine for that growth.”

On a cautionary note, a spokesperson for the FCSA added: “We do expect an increase in HMRC activity around employment status in the new tax year and we would recommend to all self-employed professionals that they should engage with their professional advisors to ensure they can clearly demonstrate their self-employed status if challenged.”

Flexible workers are positively opting to work as contractors, either through umbrella companies or their own limited companies, rather than being forced into temping by the economic downturn, a new survey by the recruitment company Randstad has revealed.

Over 3,000 firms and employees were polled and the results show that 63% of respondents deliberately opted for contracting or temping. Nearly half of the permanent staff polled said they were actively considering alternatives such as working through PAYE umbrella services or other forms of freelancing when they next changed roles.

Employers, too, expressed positive evaluations of contractors and temporary personnel, with 13% saying they enhanced productivity and 11% believing they help drive innovation.

The survey also tested the water vis-à-vis the AWR. The so-called ‘Day One’ rights of the regulations, which grants temporary workers access to company canteens, nurseries, parking etc, have had little effect, not least because over three quarters (78%) of the firms polled had already extended these rights to contractors and temps anyway. Half of respondents found the equal pay and conditions measures consequent to the twelve-week rule advantageous, although it remains too early to gauge the long-term impact of this provision.

Randstad’s CEO, Mark Bull, said: “[T]he lack of job security during this slow recovery is also encouraging people to think seriously about temping or contracting for the first time.”

“The UK already has the greatest penetration of temporary and contract workers in the EU, at about 4% of the total workforce, and our expectation is that over time, the economy will see a gradual development of interest in the benefits of temping and contracting by both job seekers and organisations.”

The appointment of a new employment minister might be a new opportunity to dispense with the miles of excess red tape impeding the recruitment industry (and the UK economy more generally), the Recruitment and Employment Confederation seems to believe.

Ed Davey has vacated the post to embrace the role of Energy and Climate Change Secretary in the wake of Chris Huhne’s decision to step down. In a little reported substitution, Norman Lamb has stepped into the shoes of Employment Minister – a role that comes with a Coalition promise to cut down on red tape.

The REC has long argued that the UK’s flexible workforce, which includes highly skilled contractors working through umbrella companies and limited companies, suffers from the over-regulated landscape which needlessly hampers the efficiency of recruiters. As many PAYE umbrella contractors will be aware, recruiters groaning under the weight of excessive regulation make the business of securing new contracts slower and more laborious.

REC Director of Policy Tom Hadley said that he would be meeting with the new minister shortly and emphasising the positive role of recruiters in the UK economy as well as highlighting the need for the right regulatory landscape and compliance framework. Both are vital if the sector and the contractors it sources work for are to prosper.

Mr Hadley added that the government’s Red Tape Challenge constituted an “excellent opportunity” to convey the recruitment industry’s views. He also expressed the hope that the Department for Business will throw its weight behind the sector, especially in the areas of employment policy, pensions reform and taxation.

A specialist in information law has alerted contractors working in the IT skills market to the pending impact of a proposed new data protection directive from the EU. If passed by the European Parliament and the European Council, the law will impose new obligations on IT contractors, which could result in fines for failure to comply. IT contracting could be about to get a more complicated.

Until now, the processing of personal data has been governed by the UK’s Data Protection Act of 1998, which imposes obligations on data ‘controllers’ only (these are usually the IT contractor’s clients – the party determining the purposes and manner of personal data processing). Specialist lawyer Olivia Whitcroft warns that the new EU law will place new responsibilities for compliance on ‘processors’, too (that is IT contractors to you and me).

Writing in ContractorUK, Ms Whitcroft explains that IT contractors will be obliged to protect the data that they use from loss, damage or misuse. Failure to comply will leave the contactor open to punitive action by the regulator, the controller (end client) and/or the subject of the data.

In other words, you not only have to ensure that you are complying with the terms of your contract but you also have direct responsibilities for the data you process. This includes an obligation to notify the controller promptly should a security breach occur (currently, notification of data breaches in the UK is voluntary and only tends to occur when serious breaches arise).

The rules won’t become law for at least two years but Ms Whitcroft advises IT contractors to think now about their future compliance requirements.

It will hardly have many PAYE umbrella contractors popping open champagne bottles but the latest REC/KPMG Report on Jobs, which is published today, does contain a few ‘glimmers of hope’ that the economy may not be heading for the knacker’s yard just yet.

Permanent staff appointments rose slightly in January, marking the first time in four months that this has happened. Salaries for permies, however, languished in January, rising only minimally, while hourly rates for contractors and temporary staff climbed again after sinking in December.

On the down side, contractors working through umbrella companies hardly experienced a jobs bonanza during the month, although the AWR-induced Armageddon that some commentators had forecast for January failed to materialise. Growth of temporary billings fell slightly, but even so demand for both permanent and contractor roles was particularly strong in IT, engineering and construction. Hotel and catering job seekers had a disappointing month, with the sector showing a marked decline in demand.

REC Chief Executive Kevin Green remarked “This month’s Report on Jobs highlights that there are glimmers of hope for the UK jobs market with permanent placements increasing for the first time in four months.” He went on to note that although temporary billings dropped slightly, they represented an improvement on December’s figure, and that “there is still little evidence that the Agency Workers Regulations have had a significant impact on hiring and employers are still making considerable use of flexible working arrangements.”

KPMG’s Head of Business Services, Bernard Brown, added “Perhaps employers are beginning to accept that they need to have the right people in place to kick start the economy?”

The general economy may be limping painfully at present but the market in IT contracting is likely to remain in good health over the next twelve months, according to a prominent online recruitment site.

The IT Jobs Board has released data which shows that, while employers remain cautious about hiring new staff, many are finding it exceptionally difficult to find appropriately qualified and experienced experts in the IT skills market. Enter the intrepid PAYE umbrella techie.

The site has seen a significant increase in the number of contractor roles available, which currently account for over a quarter (26%) of all advertised openings. The site’s Director of Sales, Pete Healey, said that the general trend in the contractor market was strong in relation to permanent roles, a characteristic development during economically uncertain times during which businesses tend toward the contractor route.

Although the cost per hour is higher, he went on, employers favour contractors at times like this because of their flexibility: they allow businesses to make rapid changes in their team sizes in line with fluctuating economic conditions.

General uncertainty about the economy is likely to persist through 2012, Mr Healey said, but his firm expects demand for skilled ICT professionals to remain high. Topping the list of most sought-after proficiencies are SQL and SQL Server skills, he added, but web-based skills, especially in applications such .NET and JAVA, are also much in demand. Healey believes this is a consequence of the growing move from physical computing environments to the cloud.

Other prized roles include Project Managers and IT Security experts, demand for whom is rising as more systems move toward web-based environments.

Oil and gas engineers working through umbrella companies or limited companies could well benefit from a major new drilling project in the North Sea, as oil leviathan BP seals a multi-million pound deal with a giant offshore engineering company Subsea 7.

The new Subsea 7 initiative, based in Wick, will build new pipelines at the immense Clair Ridge drilling project, which is located at the point just off the Shetland Islands where the North Sea and Atlantic Ocean rub nautical shoulders with each other. The deal represents Phase Two of the Clair project, part of a massive £10 billion investment by oil giants BP, Shell, Chevron and ConocoPhillips.

The investment is expected to yield upwards of 3,000 gas and oil supply jobs, including many for PAYE umbrella contractors specialising in the industry. The latest contract will see the installation of nearly nine miles of new gas pipeline and is worth a weighty £63 million.

Michael Moore, the Scottish Secretary, said “This major contract underlines the confidence of the oil and gas sector and world-leading engineering firms with bases in Scotland. The construction of the pipeline is an essential step in opening up the considerable potential of the west-of-Shetland field.”

“The contract award to Subsea 7 is just the latest piece of good news for the UK’s oil and gas sector and its supply chain in Scotland. I welcome the investment by BP and the jobs and expertise which will be secured in the Wick facility as a result.”

Subsea 7’s UK Vice President, Steph McNeill, added “We look forward to helping bring on-stream the Clair Ridge project in an efficient, timely and safe manner.”