As inflation continues to rise, there seems to be no evidence of an economic recovery on the horizon. So, businesses are looking for ways to reduce their overheads and manage their bottom line to stay afloat. 

One way to do this can be to review their employment structure, with some implementing hiring freezes and redundancies. However, when a role is essential, and you need to recruit someone to do the job, many companies are now turning to contractors to plug the gap.

According to recruitment experts McGregor Boyall, a noticeable trend has emerged over the past 12 months, with businesses increasingly flipping from requesting permanent candidates to requesting contractors. 

This is backed up by LinkedIn data which shows that job postings for contract roles in the tech sector have tripled in the last two years, despite an increase in layoffs for permanent tech professionals over the same period. In addition, at the start of 2021, less than 6% of tech listings were for contractors, but by the end of 2022, the number of job postings had risen by almost 20%.

Why are companies opting for contractors?

During an economic downturn, contractors can offer cost savings and flexibility that permanent staff cannot. Where a business is likely to offer benefits such as health insurance, paid leave and other company perks to permanent employees, contractors generally receive none while not requiring lengthy notice periods or expensive severance packages. It is easy to see why this can be an attractive option for organisations looking to save money and not be tied into long-term plans for their team structure.

Is there a downside?

Indeed, there can be an argument for taking on permanent staff regardless of the economic climate. In particular, talent can be lost as quickly as it was found when a top professional is taken on in a contract capacity, and it is also worth bearing in mind that while contractors provide flexibility and cost savings in some respects, they can also charge a higher day rate than the equivalent salary of a permanent employee.

What's in it for the candidates?

Again, there are pros and cons to working as a contractor. On the upside, many find that they have an improved work/life balance with more flexibility over when, where and how much they work. It can also be beneficial as a way to rapidly gain a range of experiences and skills in various sectors.

On the downside, some people find the uncertainty of short-term work challenging to manage financially and mentally and prefer the job security of a permanent role. Equally, some businesses shy away from hiring serial contractors for permanent positions as they feel that they are unlikely to stay in post for long and perhaps often wrongly assume that they are not invited to stay in a role they have taken on in a temporary capacity because of an issue with their ability to do the job. 

Finally, for those working within IR35, contract roles often now pay less than they used to before the legislation was introduced. However, this can still be more than a permanent role, and for those working outside of IR35, there are still opportunities to earn substantially more than in a permanent position.

There is much for both parties to consider when it comes to contract vs permanent employment, but there is no doubt that in the current economic climate, the availability of contract roles keeps rising.

If you are looking for contract or permanent staff or a professional looking for a contract or permanent role, contact McGregor Boyall today to find out how we can help you.

What is IR35? 

IR35 is a tax regulation in the United Kingdom that aims to determine the employment status and tax obligations of individuals who work through an intermediary, such as a limited company or a personal service company (PSC). It was introduced in 2000 to tackle tax avoidance by individuals who would have otherwise been considered employees but provided their services through intermediaries.

In the Public Sector, since April 2017, the responsibility for determining the employment status under IR35 shifted from the worker to the public sector organisation or the agency engaging the worker. This means that the Public Sector organisation determines whether a worker falls within IR35 and should be taxed as an employee rather than a self-employed individual or through their intermediary. If the worker is deemed inside IR35, the Public Sector organisation or agency deducts income tax and National Insurance contributions (NICs) from their earnings before making any payments.

From April 2021, the responsibility for determining IR35 status in the Private Sector shifted from the worker's intermediary to the end client, similar to the Public Sector rules. This change places the onus on the Private Sector organisation to assess the employment status of the workers they engage through intermediaries. If a worker is deemed inside IR35, the organisation deducts income tax and NICs from the worker's payments.

Overall, IR35 aims to ensure that individuals working like employees pay similar taxes, regardless of the legal structure they use for their work. Its implementation in both the public and private sectors has significant implications for workers, intermediaries, and the organisations engaging them, requiring careful assessment of employment relationships and compliance with tax obligations.