Eight in 10 firms struggling to hire IT contractors due to IR35 – Hays

More than eight in 10 organisations have found it “difficult” to hire IT contractors over the last year, a FTSE-listed recruitment company says.

In its newly published UK Contractor Day Rate Guide 2021, Hays Technology hints that a ‘push-pull’ dynamic has hit the market, as demand for technology skills increased just as IR35 reform made it difficult to source contractors.

Of the new off-payroll rules, which took effect in April, Hays Technology’s UK and Ireland director James Hallahan said: “Most contractors want to stay outside of PAYE, presenting a potential shortage for organisations seeking to secure their skills.

'A difficult time'

“So, while the increase in [IT] activity means there is great demand for tech contractors, organisations are having a difficult time engaging with them.”

To secure the “best talent” in the contractor candidate pool and avoid potential project delays, Hallahan recommends that organisations “may need to take an assignment-by-assignment view” of IR35 status.

Hays recommended the same in March 2020 before IR35 reform applied, saying that although it can be “time and labour intensive”, individual assessment were the “primary way” to meet the new HMRC requirements.

'Over 10% rate premiums'

Since then, another agency has said hefty pay rate increases for IT contractors of 40% have been pocketed thanks to end-users compensating for the greater tax impact of the April rules.

But according to Hays's guide, the “premiums” since IR35 reform hit have been more in the “over 10%” region, and reserved for project and change managers.

Niche skillsets and software developers have commanded 2.4% more -- also on a daily basis.

These increases were said by the recruitment company to be part of an overall uptick in average IT contractor rates of 0.8% over the last 12 months.

'Strong demand for Java and Python contractors'

“There is also strong demand for skills in cloud-based technologies like AWS, and for contractors skilled in Java, JavaScript, Python, and for full-stack developers.”

Hays continued: “[But] many organisations are experiencing an IT skills shortage, with 42% saying they don’t have the talent to achieve current business objectives.”

Potentially another effect of IR35 reform, these internal shortages bode well for contractors, with more than 75% of organisations already hiring such niche workers predicting they will “need more” IT contractors in the future.

Also according to the May 2021 findings, 58% of organisations said the anticipated extra support from IT contractors would be down to demand peaks, and 45% said it would be led by specific one-off projects.

'IR35 concerns'

In return, contractors will likely ask for more flexibility because, keen to retain the better work-life balance that more than half say they have struck since covid-19 hit in March 2020, 46% say they want more control over their hours.

And despite Hays acknowledging IR35 reform has caused “concerns for contractors and organisations alike,” the two-way relationship appears to be working out as reactions to the April rules mature.

In fact, on top of a 21% leap in job demand across the tech space, Hays said that actual contractor placements between the first half of 2021 and the second half of the year were already up by 17 per cent.

'Refine the offering to contractors'

However to keep getting the niche skills they need, organisations were advised to ‘refine their offering.’

Mr Hallahan said: “Contractors with the most sought-after technical and soft skills, and those with a proven track record for successfully managing projects and leading change are going to expect assignments that deliver on flexibility -- and terms.”