Hays and Parity blame IR35 reforms for public sector decline

Two large IT recruiters have blamed IR35 reform in the public sector for taking the shine off their performances in the last six months.

Parity Group, an AIM-listed agency hiring for state bodies, and Hays, a FTSE-listed firm with public clients like TfL, each cite the off-payroll rules in trading updates up to June 30th.

Hays, which reported first, said its temp business was “negatively impacted” by factors including “uncertainties created by the recent implementations of the IR35 regulations.”  

‘Uncertainties’

These IR35-induced uncertainties, the firm explained, served to drag its public sector gross profits down 17%, on top of a nine per cent drop in temp recruitment fees as a whole.

A few days later in its update, Parity said its staffing unit had turned over “slightly lower” revenues in 2017’s first half than a year ago, due to “lower public sector contractor volumes.”  

The dip in the number of contractors was not specified by the group, but it was blamed -- at least in part -- on the “transition required to deal with the IR35 taxation reforms.”

‘Familiar story’

With two recruiters in about as many days each pointing an accusing finger at the April framework, “a familiar story” is unfolding, say IT analysts TechMarketView.

Yet Parity hinted that an end is in sight, as its affected unit (‘Professionals) “appears to have weathered the [IR35 reform] process more favourably than some other staffing businesses”.

Alan Rommel, group chief executive told ContractorUK: "Hays [is] a recent example but others [too] have declared unfortunate drops."

The Parity CEO also said that, despite the IR35 reform’s initially downward impact on contractor volumes, “client demand has been restored post-implementation.”

"Client demand is high both public and private, and both contract and perm -- we are working hard to replace churn on contract," he said. "Demand is there."

'Tight ships'

No restoration in demand was noted by Hays, which told Bloomberg in a video interview that all its UK clients were exercising “very tight cost control.”

This financial restraint seems to add to the growing list of pressures that a growing list of contract IT staffing agencies seem to be facing.  

“Hays, this month cited a tough public sector market and also pointed to IR35 issues,” TechMarketView said. “And [another recruiter] PageGroup pointed to Brexit, political uncertainty and a late Easter for its poor UK performance.”

Meanwhile, asked for his input, the boss of a London-based IT contractor jobs agency told ContractorUK: “At the moment we haven’t really seen a big reaction either way [to Brexit], it’s been a pretty normal period. Although I would say that people are watching their money more and there is pressure to run tight ships.”

Editor's Note: Related --

Contractors' Questions: Can clients prepare for private sector IR35 reform?