Crystal Umbrella

As depressing unemployment figures from the Office for National Statistics hit the headlines, many PAYE umbrella contractors may be feeling disheartened for 2011. However, the latest “JobsOutlook” from the Recruitment and Employment Confederation (REC) offers a more hopeful prospect for freelancers in umbrella companies, revealing that 86 per cent of private sector employers are planning to maintain or expand staff on agency payroll.

Unemployment rose by 44,000 during the last quarter of 2010 to hit 2.5 million, a figure which includes 965,000 young people aged 16-24. Altogether, 7.9 per cent of the adult population in the UK is currently jobless.

However, despite these dispiriting trends, optimism amongst private sector employers appears to have remained strong, according to the latest REC survey. 94 per cent of those polled said they were planning to increase or maintain at current levels their permanent staffing complement in 2011, and 35 per cent plan to expand their temporary workforce. Considering that only 22 per cent planned to do so last year, this represents a significant growth in confidence.

The REC’s Director of Research, Roger Tweedy, said that even though there is still concern over the UK economy, it is a “very positive sign” that so many private sector employers continue to turn to temporary staff, which include PAYE umbrella contractors, to deliver the flexibility they are seeking. He again expressed concern over the sheer scale of public sector cuts, which are yet to be fully felt. However, he also believes that in the long-term, “demand in the economy will lead to more private sector businesses employing more people,” which should largely make-up for the “public sector fall-out.”

SThree are one of the industry’s leading recruitment agencies. They have reported a sharp fall in their 2009 revenues in comparison with previous years. However, it is good news for contractors as they have announced that the contracts section has continued to do well despite difficult conditions.

In their Preliminary Results report they stated: “2009 was by any standards an extraordinary year and was without question one of the most difficult the Group has faced in its twenty three year history. The impact of the global crisis on demand for specialist staff was as tough, if not worse than the dot com crash.”

In actual fact, during 2009, SThree’s contract margin actually increased to 22.1%, up from 21.5% in 2008. You can actually see the difference between the effect on permanent placements, which were down 40.8% and contracts placements which were down 27.6%. It is inevitable that temporary placements are stronger during tough economic times.

With regards to the future, SThree are staying positive: “Towards the end of the year there were signs that certain markets were improving and that others were at the least stable and, so far, this has continued into 2010. Compared with what the Group has been used to in recent times, this was a welcome positive trend which was reflected in the Group’s return to headcount growth. Whilst there are indications that confidence is gradually returning to the market and this above all else is what is needed for a full recovery to gain traction, it remains true that in overall terms market conditions have yet to recover to anything close to normal.”

The British Chamber of Commerce has released the results of its Q4 2009 Economic Survey which shows that while improvements are continuing, growth was slower than in the third quarter of 2009. The evidence gathered would suggest that the country is starting to come out of recession but it is still a slow process.

BCC Director General, David Frost, stated: “Although these results are not as impressive as hoped, they do contain some positive features – most notably strong improvements in employment and exports within the manufacturing sector. Businesses are showing resilience despite difficult and uncertain trading conditions. Confidence is improving, and the boost in exports must be nurtured in order to strengthen Britain’s trade position globally, and to help rebalance the economy away from an over-reliance on the public sector.

He continued: “It is vital that the government now demonstrates a determination to support wealth-creating companies in 2010. Additional business taxes must be avoided, and the 1% increase to employers’ National Insurance Contributions planned for 2011 should be scrapped. Unless the private sector is given the freedom to create jobs and wealth, the UK’s economic recovery will be slower than it should be, and we will face the serious risk of a double-dip recession.”

The BCC’s Chief Economist, David Kern, warned that this recovery will only happen if the government helps out and “strengthen Britain’s AAA credit rating by urgently producing a more credible medium-term plan for cutting the country’s huge budget deficit, and restraining public spending.”

While experts are predicting that the IT sector is set to recover next year, 44 per cent of those seeking jobs from the IT Job Board believe that it will take until 2011 for the sector to recover. Twenty five per cent of those surveyed said they were looking for work as their role had been made redundant.

The IT Job Board reflected: “As we approach the last month of the year, this is a common time to start re-evaluating your position, your pay and your career progression. Many [IT professionals] decide to rethink their situation and start contemplating a new challenge for the New Year.”
Peter Healey, the IT Job Board’s sales director, commented: “I believe that next year the finance sector will really pick up. Banking was the first to be hit during the recession, but it will also be the first to recover, and it will offer a lot of opportunity in terms of IT recruitment. As we continue to get to grips with social and business networking, Web 2.0 skills will be critical, for example .Net and Java.”

The website continued: “Many companies’ budgets are renewed in January and this coupled with positive forecasts for the economy in 2010, could mean the New Year jobs wave will counterbalance the number of applicants. Fortunately, IT seems to be a thriving area that has not been as badly hit as some other industry sectors, so if you are considering a career move, there’s no time like the present.”

The PCG carried out a survey on National Freelancers Day which asked for the opinions and experiences of 1600 freelancers. The results have shown that, with the exception of business services, IT contractors have been affected more by the recession than contractors working in any other sector. A massive 70 per cent of contractors working in computer services stated that work for IT contractors had become more difficult to find since the start of the economic downturn. In fact, only 16 per cent of IT contractors had not experienced an effect on their pipeline of contracts during the recession.

Of course, other sectors have been affected too. 60 per cent of engineers surveyed have experienced a reduction in contracts. However, the lucky few working in sectors including journalism, PR/Publicity and other creative roles had not experienced as severe an effect from the recession.

Speaking about these findings, a spokesperson for PCG commented: “Due to the fact that IT contractors tend to work for big clients, such as financial institutions and government departments, it is more likely that in the recession they will shed contractors as a savings exercise. There is a greater propensity for big business and large departments to outsource and look for the most efficient way of managing this procurement process.”

One contractor who took part in the survey commented that IT jobs within the public and  private sector were always vulnerable to outsourcing, with or without a recession, although  a recession does make the contracts even harder to come by.

Following UK based economists Markit’s confirmation of recovery in the IT sector, the Monster Employment Index figures for October confirm that employment opportunities in the sector rose higher than they have over the past eight months. This Index counts the millions of job adverts online across all sectors.

Hugo Sellert, head of economic research at Monster Worldwide, said that it was too early to draw conclusions that hiring trends have completely turned around in the IT sector. He pointed out that in comparison to this time last year, IT vacancies have dropped by 23%. In fact they have dropped since 45% since their highest point in February last year. Mr Sellert confirmed that last month IT vacancies actually bottomed out. Vacancies are increasing at a relatively slow rate and redundancies are continuing.

Sellert stated: “Labour turnover typically falls during economic downturns as employees perceive it more difficult to get another job, and therefore tend to stay in their current position. As signs of optimism return to the economy, more workers consider changing employment, thereby creating a higher need for replacements.”

While other surveys have confirmed a rise in hiring intentions, Sellert suggests that “it could take some time” before this translates to online vacancies. This is coupled with extensive candidate availability due to the number of layoffs which have occurred in recent months. This is backed up by data from TotalJobs.com who report 148,000 applications across 15,000 IT jobs advertised in September. This is not an increase in users of the site, but there has been a decrease of around two-thirds in employment opportunities in the sector over the past twelve months.

UK-based economists Markit have commented that the demand for IT contractors has risen to its highest level since the economic downturn took hold in April of last year. Speaking to Contractor UK, Markit stated that their index shows that the demand for IT contractors in October was at 53.8, the highest level in 17 months. The demand for permanent IT staff had also increased, peaking at 51.5.

Markit’s index uses 50 as an indication that there has been no change, therefore a figure above 50 denotes an increase and below 50 shows deterioration. One of their economists, Jack Kennedy confirmed that this increase in demand for IT workers is the result of the sector benefiting from “broad based stabilisation”. He also attributed the improvement to reported shortages of software developers, CNC programmers and specialists in Sharepoint and .Net. He also stated that companies now seem to be eager to put their technical projects into operation, after being put on the backburner for months during the recession. This is shown in the increased demand for permanent and temporary IT staff.

The REC also confirmed a growth in contracted IT positions rising to its highest level in sixteen months. However, in comparison to other sectors, the increase in IT demand was the least marked. Also, pay rates for IT contractors have continued to decrease although they are no longer decreasing at such a fast pace.

As this year progresses, it would seem that demand for IT contractors is also progressing. Speaking to Contract Eye, IT recruitment agency CV Screen reported that they has seen demand for IT professionals rise by a staggering 23% during the past three months. During the same period, the agency noticed that there was less applicants per job, equating to a drop of around 25%. Back in May, the agency received an average of 109 applications per position in comparison to an average of 68 in September.

Matthew Iveson of CV Screen commented to Contract Eye: “We’re hopeful that the IT Jobs market is over the worst with an encouraging increase in the number of roles registered in quarter three. We are now seeing confidence returning to the IT jobs market. Many IT professionals had put their career aspirations on hold due to the economic climate are now beginning to test the water.”

“With unemployment rising and the economic climate bleak, many IT professionals sensibly decided to remain with their current employers until the market improved. There are early signs that these candidates are beginning to seek new opportunities where better training, salaries and long term career opportunities are on offer.”

Iveson ended on a positive note: “With confidence gradually returning to the industry, we fully expect that by early next year the IT Jobs market will be returning to pre credit crunch levels.”

Tech recruiter Morson has credited contractor recruitment with boosting its profits and helping them to outperform their rivals. In fact, Morson have stated that the skilled contractors that they provide for infrastructure projects have helped them to cope “far better” than their industry rivals.

Morson has seen their pre-tax profits rise from £4.1m to £4.9 million for the six month period to June with an overall turnover of £219.9m, up from £212. They currently have 9,000 techies on their books.

Morson has commented that this “solid trading” results from new orders received within the rail, nuclear and defence sectors. They have also acquired new clients, namely EADS, Thales and Ericsson while BAE Systems and Airbus have extended existing contracts. The company believes that this is a sign that they should expect “further progress” in the coming year. This is even more likely given the potential for new contracts through the Olympics and the access to European opportunities through EADS.

Ged Mason, chief executive of Morson, said: “We do believe that the provision of outsourced technical services and technical resource is a resilient market and remains strong with good long-term prospects. In particular, the market benefits from skill shortages and the ongoing investment in long-term infrastructure that is required in the United Kingdom.”

With regards to their income, fees received from permanent recruitment accounted for just £400,000, down 50 per cent. In fact permanent recruitment represented a mere 2.2 per cent of Morson’s net fee income. By contrast, contract recruitment accounted for £14.4m of the firm’s total £181.1m in received fees.

Despite existing debts, which have lessened, Mason stated that the firm is “very much seeking to position the business to gain market share.”

New research by Clydesdale Bank has shown that confidence is rising amongst employers and contractors. This fresh belief that the economy can recover comes at a time when figures suggest that employment is growing for the first time since the recession hit.

Data received from the Clydesdale Bank research showed that ninety per cent of those polled expressed optimism for the future, while one thirds of businesses believed that they could survive in these tough economic times.

Mike Williams, Clydesale Bank Executive said of the research: “This is a positive sign: where confidence exists, growth often follows. It has clearly been a challenging time for businesses, but these figures show there are signs of stability creeping into the market but it is still important to retain a grounded and cautious perspective as the market changes.”

Further evidence that things are improving comes from data compiled by the Recruitment and Employment Confederation (REC) and KPMG. According to these statistics, permanent employment grew in the month of August for the first time in nearly a year and a half. There was also a growth in the number of contractor positions for the first time in over a year. August also recorded less salary reductions than previous months.

Despite the positive connotations of this data, Bernard Brown, partner and head of business services at KPMG warned that it is “too early to speculate”.

He continued: “Given that employment costs are a substantial element of public sector spending, you would expect significant pressure on those costs going forward. This is likely to have a significant impact on the UK jobs market.”