The UK’s brisk reopening from covid-19 will likely offset IR35 reform’s initial malaise

With many business sectors opening back up after the impact of covid-19 and the ramifications of IR35 transpiring before our eyes, it certainly is a unique time for the contractor recruitment industry, writes Matt Collingwood, managing director of IT recruitment firm VIQU.

In fact, I can easily say that demand for technology talent is at the highest I’ve seen it in my 24 years in IT recruitment. The Y2K and .COM booms didn’t even come close to what we’re seeing right now!

Extremely healthy and exciting demand

If I compare the first three months of 2021 to the last two weeks alone (1st-14th April), the amount of contract requirements we have received has increased by an extremely healthy 18%. At the same time, requirements for permanent staff are up a staggering 44%.

There is an excitement in the air from swathes of the economy reopening from coronavirus lockdown – and reopening under blue skies too, and this is driving confidence.

Although there are obvious negatives associated with the new IR35 legislation, we have seen some positive developments.

Increase in contract extensions

For example, our contractor extension rates are up a solid 7% in the first quarter of 2021. This is likely due to either:

• Contractors accepting to move onto payroll/umbrella working because of IR35 reform, and in turn, businesses upping pay rates because of the additional  deductions from contractors’ take-home pay.
• Certain skillset sets being in-demand. Businesses realise the value of these sought-after contractors, and are simply paying in order to retain them.

It’s true that in the last 12 months, certain areas of IT recruitment have been hit hard, while other areas such as cloud, ecommerce and logistics have been in demand. In the last month however, we have noticed all areas of IT recruitment pick up, and pick up drastically.

From an end-user perspective, the leisure, tourism and financial industries seem to be leading the hiring activity.

The ballast we all hoped for

So we believe that this strong demand will counterbalance the ill-effects of private sector IR35 reform, at least in the short-term.

From speaking with other recruitment leaders, some have quietly told me they have experienced a drop of up to 30% in CV submissions from ‘active’ contractors. This clearly indicates that IT contractors are back ‘on-assignment’ and being highly utilised.  

Interestingly, that level of utilisation is so high that some contractors might be getting ahead of themselves. That’s partly because nobody could have really foreseen how strongly the recruitment bounce back has been, from covid lockdown lifting in line with the prime minister’s February roadmap.

Us, left in the lurch

In particular, in the first week of the new off-payroll rules, we experienced four situations where contractors had agreed to provide services through an umbrella company but then secured another contract, elsewhere, outside IR35. So we were left to refill the requirement at quite short notice!

These contractors had originally signed up with an umbrella to avoid IR35 as an issue, and to avoid uncertainty in demand for their skills brought on by covid-19. However, due to the uptick, they since learned that their skills were both in demand and that they could secure a contract outside IR35. 

Although we understand why these particular contractors made the decision to find an alternative contract, we do expect contractors to honour their professional and contractual obligations, including serving out any notice period. Walking out of a contract for a better one causes a lot of disruption to recruitment agencies like us, including incurring losses and negatively impacting relationships.

The agency you want, and the contract you want

For any contractors who are experiencing the upturn but feel unsure of the market, or whether it’s a good time to agree to an inside IR35 contract, I would recommend speaking to your agency about your concerns.

A good agency would much rather have an open conversation with a contractor and look for an alternative assignment, rather than losing them altogether. In short, as IR35 reform’s introduction looks like its ill-effects will be offset by the economy briskly reopening from covid’s malaise, contractors should feel encouraged by the market and look to secure a contract which matches their requirements.