Crystal Umbrella

Despite the welcome drop in unemployment revealed in last week’s figures from the Office for National Statistics, employer confidence remains fragile, driving many toward PAYE umbrella contractors and other temporary workers in 2012. So say experts from the REC and the Chartered Institute of Personnel and Development, both of whom agree that underlying economic conditions remain precarious despite welcome employment developments.

The REC’s Chief Executive Kevin Green said that the unemployment decrease was “good news and fits in with our data that shows employers intend to increase their numbers of both permanent and temporary staff over the course of the next year.”

However, he also noted the continuing turbulence in the eurozone and the parlous state of the UK’s economy following its double dip into recession. Any further bad news could hit employer confidence hard, he believes, and is already driving them to increase their use of flexible working arrangements. This is good news for contractors working through umbrella companies and less so for those seeking permanent positions.

His views were similar to the CIPD’s Gerwyn Davies, who was commenting on his organisation’s latest Labour Market Outlook Survey for the first quarter of 2012. Fewer hirers intend to cut their workforce compared to Q4 2011, although this does not necessarily translate into a rise in permanent vacancies any time soon, largely because of “the zigzagging economic backcloth.”

The CIPD survey shows that 31% of new public sector openings and 18% of new private sector positions in 2012 are likely to be temporary/contractor roles. Overall, roughly a quarter of forthcoming new vacancies will be temporary/contractor roles, as hirers remain cautious over appointing permanent staff.

Modestly encouraging news for jobbing PAYE umbrella contractors has emerged in the latest Monthly Trends analysis from the Association of Professional Staffing Companies (APSCo). Given the parlous state of the UK economy, especially with a potentially apocalyptic Euro-storm brewing, modest encouragement is considerably preferable to a poke in the eye.

The temporary jobs market has performed significantly better than the permanent market. Demand for skilled temporary workers in accountancy and finance saw a third successive month of growth, rising by 37%. Even so, this total is 35% lower than that recorded in March 2011. Temporary vacancies in engineering also rose – up 3% on February, and 5% higher than March 2011.

Employers remain nervous about hiring permies, however. Permanent openings for professional level personnel declined by 3% in March and are 20.5% lower than the same time last year. Vacancies for permanent IT professionals also fell, although demand for specialists in IT contracting remained strong.

APSCo’s Chief Executive, Ann Swain, said:

“The jobs market staged a rally at the start of the year, but has lost momentum over the past month. Demand for permanent candidates is still around a third down on last year. With the economy having flatlined during the past year it has been very difficult for employers to make all but the most essential hiring decisions.”

She went on to say that temporary workers, including skilled contractors working through umbrella companies, provide a flexible alternative, enabling employers to absorb transient spikes in workload “without having to add to fixed employment costs.”

While Sir Mervyn King’s ominous warnings about a dangerous new economic storm emanating from the Eurozone are not to be taken lightly, contractors supplying the UK’s IT skills market have some encouraging news to boost their morale: ReThink Recruitment’s annual survey of IT directors reveals that a majority expect pay rates in their departments to increase over the coming year.

The anticipated rises continue a trend seen over the last 12 months, during which 54% of directors pushed IT salaries up by 4.3%, trouncing the 2.3% seen by general workers. Even so, inflation is eroding the real value of incomes. Noting the RPI inflation rate of 5.2%, which has wiped around £360 off the purchasing power of average annual earnings, ReThink spokesman Michael Bennett said:

“Salaries for many IT staff have actually fallen in real terms over the last year. However, when compared with the average UK worker, IT staff salaries are still ahead of the game.”

He added that ReThink had “not any seen any major rate reductions in our clients in the first quarter.”

Techies working through umbrella companies may be heartened to hear that, in retail and financial services especially, pay rates have ‘rocketed’, with specialists in mcommerce securing premiums 20% higher than those enjoyed by experts in traditional mcommerce.

Moreover, an impending ‘Security II’ compliance deadline is driving many insurers to recruit experts in IT contracting and a shortage in skills has driven salaries skywards, with senior specialists earning over £1,000 per day (that is £150,000 a year). According to ReThink, there is no sign of those pay packages falling.

A week is a long time in politics, Harold Wilson famously declared; it also appears true of the IR35 Forum, amongst whom unseemly divisions are erupting.

Just a week ago, the Forum appeared united, opposing the new ‘business entity test’ as weighted and selected by HMRC. All parties seemed to endorse PCG Chairman Chris Bryce’s view:

“HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed.”

Then Kate Cottrell, an IR35 expert from the employment law specialists Bauer and Cottrell, advised directors of limited companies, potential targets of the regulations, not to panic. Dissenting from the PCG view that the new HMRC test amounted to a major “missed opportunity,” Ms Cottrell said in a statement to industry news source Shout99:

“These tests are a minor part of the administration of IR35 and as the IR35 legislation has not changed, failure to put in place an easy business test cannot be seen in my opinion as a missed opportunity as there was no opportunity.”

In other words, provided contractors running legitimate limited companies carry on as before by keeping up their tax investigation insurance, reviewing their contracts regularly and ensuring professional confirmation of arrangements, they will be fine.

The PCG, for its part, disagrees with Ms Cottrell and considers the test as is stands to be a threat to contracting.

Maybe it is time to start seeking the best PAYE umbrella solution.

With storm clouds gathering ominously over the Eurozone once again due to the crisis building in Greece, UK contractors working assiduously through umbrella companies cannot be faulted for worrying a little over their future job prospects; however, if British businesses heed the advice of one expert, a significant hike in contractor roles can be expected.

Ewan McKay, who is the marketing manager at Response Recruitment, has urged businesses to consider outsourcing some of their key projects – a move which, he insists, will lead to improvements in their overall performance.

Bringing in specialists in IT contracting or marketing for specific projects, McKay maintains, will help firms lower their costs, expand their pool of knowledge and improve their service to their customers or clients. Outsourcing these roles, he said, reduces service costs and associated revenue rather than increasing them.

He added: “It can help improve your customer’s experiences through enhanced customer insight and allows firms to tap into the latest innovative thinking and developments whilst limiting capital expenditure.”

McKay urged more business leaders to consider the option, claiming that outsourcing enables companies to focus their attention on their core objectives while remaining safe in the knowledge that side projects are in the capable hands of highly skilled contractors. It also helps businesses to develop new knowledge in specialist areas and establish potentially highly fruitful relationships with a range of industry experts working in the UK’s contractor community.

Given that his intervention follows hot on the heels of the REC’s latest Report on Jobs, which suggested that businesses continued to view contractors as a “valuable resource”, he might just have offered his suggestion at a very apt time.

PAYE umbrella contractors with experience in the digital IT skills market have good reasons to be cheerful, following the latest quarterly jobs index released by specialist recruiters JM Digital.

Over the last twelve months, the report reveals, demand for digital skills has ‘exploded’, with the financial sector in particular attracting experts in digital IT contracting through lucrative pay offers that can be up to 25% higher than those offered by other sectors. Remarkably, this burgeoning success has taken place against the backcloth of an otherwise moribund economy.

JM Group CEO David Pye said: “The demand for digital projects has never been so great but the problem companies now face is the shortage of digital skills available. Over the last six months we’ve seen a crossover of digital contractors moving from agencies into the financial sector. This has been a real issue for companies which are unable to compete with the rates these banks are offering.”

The head of JM Digital, David Young, confirmed that banks have indeed lured digital IT contractors not only with significantly more money but with better working hours too, which are often appreciably less than the consultancy sector usually requires. Candidates are also attracted by the challenge of the banking sector’s high levels of complexity, he added.

Not all candidates are suited to the banking world’s corporate culture, he continued, and while pay is less spectacular in the digital media sector, “it is still very good.” The working environment tends to be more relaxed without compromising on creativity, Mr Young explained, adding that digital IT contractors offering expertise in mobile/tablet platforms can expect to command around £500 per day.

A somewhat mixed picture for PAYE umbrella contractors has emerged from the latest REC/KPMG Report on Jobs. Permanent vacancies rose modestly in April, while temporary billings fell slightly.

Demand for permanent staff appears to be solid, continuing the trend seen at the beginning of the year, although the growth rate fell back to January’s level. Contractor and temporary billings, however, fell at the fastest rate since July 2009, although this overall figure conceals much better news for some, especially specialists in IT contracting and engineering, both of which enjoyed a growth in opportunities compared to March.

It is possible that the latter sectors benefited from end-of-financial-year spare cash, which companies appear to have ploughed into technical skills. Pay rates for contractors and temporary workers eked up a little on March’s average, but permanent salaries stayed flat.

REC Chief Executive Kevin Green said that the UK jobs market remains fragile, although both consumer and employer confidence appeared to be growing, a trend which may yield more jobs in the private sector in the second half of 2012.

However, despite a recent poll of REC members that suggested that the Agency Workers Regulations were having little to no impact on contractor and temporary billings, Mr Green begged to differ, adding:

“Temporary staffing is declining as employers take on more permanent staff and come to terms with the Agency Workers Regulations, however, temps will continue to be a valuable resource for many businesses.”

Both the growth and the confidence behind it are fragile, he said, and he warned that both could be undermined by reports of the double-dip recession and any further deterioration in the ongoing Eurozone crisis.

HMRC has finally published its new business entity tests – and they are every bit as bad as leading industry figures from the IR35 Forum feared, being weighted in such a way as to place most contractors working through limited companies in medium to high risk categories.

HMRC appears to have completely disregarded advice given by a plethora of organisations, including the Federation of Small Businesses (FSB), the Association of Professional Staffing Companies (APSCo), the Freelancer and Contractor Services Association (FCSA) and, of course, the PCG and REC. Instead, it has ploughed ahead with its own selection of questions and its own weighting system, wholly unmodified by key suggestions for improvements.

There are significant changes to the administration of the regulations, however, including an improved helpdesk, clearer guidance, better trained Revenue teams and more detailed IR35 scenarios; however, the business tests are widely perceived as a retrograde step.

APSCo’s Ann Swain expressed her organisation’s “exasperation” at HMRC’s refusal to listen, while PCG Chairman Chris Bryce said:

“HMRC’s new guidance demonstrates their fundamental lack of courage and commitment to improve the operation of IR35. While the external members of the Forum have worked tirelessly to develop innovative solutions, HMRC appear at this stage to have opted for a risk averse approach that will not deliver the improvements that are so clearly needed.”

The FCSA’s Martin Hesketh condemned the tests for pushing a “disproportionate number of businesses into the high risk category,” a move which will obscure the identification of genuinely high-risk cases.

The tests may evolve over the coming 12 months, but expect the ranks of those opting to work through umbrella companies to swell.

PAYE umbrella techies specialising in the field of IT contracting may be perturbed to hear of a new and unhelpful trend among some corporate hirers: many are ‘stockpiling’ cash rather than feeding it back into the business, with the result that openings for highly skilled contractors are being squeezed.

The recruitment firm Hudson told the industry news source ContractorUK that the first quarter of 2012 saw significantly fewer billings for IT contractors than the same period last year. Stuart Rogers, Hudson’s associate director of IT recruitment, said: “There has been a noticeable slowdown in the contracting market as clients begin to take a more cautious approach to hiring contractors. Clients believe that significant savings can be made by reducing the contractor headcount and replacing with permanent employees.”

Rogers’ assessment was echoed by ReThink Recruitment’s director, Michael Bennett, who said that more firms are attempting to drive down overall costs by hiring permanent staff for high-end roles rather than using contractors, some of whom are being absorbed into the permanent workforce.

One of the consequences, according to another recruiter (SQ), is that contractors are prepared to work longer hours and accept the same contract with the same pay rates at renewal.

However, this is a trend that may not be possible to sustain, according to ReThink: the permanent skills base for these specialised roles is limited in the UK. Mr Bennett predicts a “tipping point” later in 2012 when companies will be forced to re-hire contractors with specialist skills if key projects are to be delivered.

He added: “So, we are pretty confident that demand will keep holding up well for contractors.”

Amidst ongoing concern amongst jobbing PAYE umbrella contractors about the potentially negative impact of the Agency Workers Regulations, a recent webinar organised by the Recruitment and Employment Confederation suggests that the effects remain minimal so far.

Key contributors to the webinar included legal experts Paul Chamberlain of Brarners, Chaffe, Street solicitors and the REC’s own solicitor and Head of Professional Services, Lewina Farrell. 140 people participated, raising queries about ‘pay between assignments’ arrangements and other issues relating to the regulations, such as calculating holiday entitlements and managing requests for information.

A poll of REC members, which include recruiters finding placements for contractors working through umbrella companies, gave an interesting snapshot of the AWR’s emerging impact (although perhaps the main question should be ‘Impact? What impact?’). 86% of respondents rated the AWR’s effect on demand as either minimal or nil. Only 15% described the impact as ‘significant’.

Given the fanfare of publicity surrounding the regulations last October when they were implemented, a surprisingly small 9% of respondents reported that workers were raising difficult questions or preparing a challenge. Just 8% believed that there would be a surge in tribunals over the next six months.

The seminar concluded that, while the effects of the regulations on demand for contractors and other temporary workers remain negligible, continued support for practical implementation was necessary. It seems that hirers still want skilled contactors for specific roles rather than taking the risk of hiring permanent staff, and are prepared to work with recruiters to navigate viable courses through the new regulations to that end.