A tech pay bonanza for IT contractors is on, and permie bonuses just can't keep up

Across the UK, tech professionals are demanding higher pay and ‘pay’ includes these one-off financial incentives you’ve probably heard about or seen advertised, writes Adrian Smith, senior director of operations at Randstad UK.

But even if these bonuses are reserved just for permies, such sweeteners actually represent only a small percentage of salaries, and all the while, IT contractors are nailing the per diem rate even when one-off windfalls are factored in.

Rising, shifting, unbalancing

Contractor or perm, the rising pay curve for UK technologists reflects technology adoption during the pandemic. This has shifted customer behaviour and business needs, unbalancing supply and demand.

According to the latest data from the ONS, the number of programmers and software development professionals in the UK grew by seven per cent last year. And the number of web design and development professionals has increased by a fifth year-on-year.
That sort of growth is of course affecting pay, and employers now need to put their money where their mouths are. 

That 24-year high, in contractor starting rate terms...

On the contractor side too, day rates are up. Indeed, the latest REC figures indicate pay for new starters is at a 24-year high.

According to our own records, a .Net developer on a six-month contract working fully remotely could currently command a day rate of £500 inside IR35, through an umbrella company. Compare that to just a year ago, and that role might have been paying south of £400.

At the time of writing, we have a client looking to engage a contract Business Analyst to assist them with requirements gathering, process mapping and general day-to-day planning of a booking system. In 2020, this BA candidate might have been looking at a day rate of £400. Now it’s more like £500 a day.

Decent rates are vital in attracting and keeping the elite performers. And why shouldn’t they be? Isn't it fair that the creativity, effort, leadership, and hard work of top contractors gets rewarded? 

Employers on the back foot

Occasionally, engagers are trying not to play ball. But it’s a lost cause. As soon as they’re back on the market, high achievers are talking to rivals and recruitment gazumping is rife. Not only are employers who want contractors competing, there is such a shortage of permanent candidates that employers who want to fill a permanent role are widening their searches to look for contractors too!

Be aware, there are sectors where this is a bigger deal than others. While there’s a huge shortage of development and software engineering professionals, there’s also clearly a shortage of cyber-security professionals. These are two areas where the power really lies with candidates.

These forces are affecting the perm workforce similarly. For example, employers aren’t going to get away with a heart-warming token gesture at bonus time, not this year. More tech professionals expect to get bonuses, and they expect those bonuses to be bigger and better as well. 

The tech bonus bonanza of 2021

As a result, we expect the UK’s tech bonus pot to increase massively in 2021. Not only have salaries risen this year, so have the number of people expecting them. Individual applicants’ bonus forecasts are 25 per cent higher than they were last year. Oh, and 39 per cent of tech professionals now expect to receive a bonus. In turn, with average salaries higher in 2021 -- up to £43,100, from £41,800 -- and the number of people working in the sector now sitting at more than 1.25 million, the tech industry’s bonus pot is set to top £1bn this year, up from £664m in 2020.  So employers will have to comply with this fundamental requirement of the  new normal. In short, if they don't pay a bigger bonus this year, their best people will walk. 

If you’re a contractor ineligible for a bonus, all this may leave you feeling pretty green. It shouldn’t. Firstly, we still aren’t seeing the sort of colossal pay-outs that investment bankers regularly trouser in the City. And despite the spectacular-sounding £1bn bonus pot, at an individual level, these aren’t yet extravagant rewards. Specifically, bonuses remain only a small component of total earnings in tech.  

Naming your price

In addition, while three times as many tech workers expect to get a bonus representing more than a third of their annual salary this year, that still represents only three per cent of permanent, employed tech workers. In software development for example, people who were happy with a 4 per cent, £1,600-bonus last year will now be looking for £2,100. The extra money is nice, certainly -- but life-changing? No it’s not. And in comparison (ContractorUK should be pleased to note), contractors in IT are actually now naming their price when it comes to a diem rate when all this is factored in.  

So, what’s the outlook on tech pay? Well, as demand starts to cool slightly -- and we approach a traditionally slower period in the recruitment calendar -- it should be dropping off. 

Finally, (really) nice work if you contractors can get it

But no, not a bit of it right now. Not yet anyway. Yesterday, we took on an exciting opportunity for a full stack engineer to join a leading investment company on an initial six-month contract (with the view to extend). It’s a remote working role as part of a scrum team. This time last year, I could have placed this role for £475 a day. Now, I expect we’ll get an experienced contractor in at £560 a day – so that’s a hefty 18 per cent increase. No amount of bonus from no amount of covid-recovering client is going to elevate a permanent salary to an even vaguely similar level, not when compared to £70,000 for just six months’ work it's not.