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Contractor hiring suffers worst month in 11 years

COVID-19 places UK labour market “on pause”

The COVID-19 outbreak saw contractor hiring in March fall at its steepest rate since 2009, with the number of individuals placed in permanent positions also impacted dramatically last month. With firms cancelling or postponing plans to take on new staff – whether in a contract or permanent capacity – recruiters reported a weakened demand for workers, leading to a significant fall in the number of placements recorded. 

Contractor hiring falls at fastest rate since 2009

Having risen in the three months prior to March, KPMG and REC’s Report on Jobs signalled the sharpest decline in temporary and permanent placements since February 2009. Recruiters said the combination of COVID-19 and the pending arrival of IR35 reform (which has since been postponed) resulted in the biggest decline in contract billings in over a decade. 

Eight of the ten industries monitored experienced a decline in placements, with the steepest reduction in the IT & computing and retail sectors. That said, the growing need for locum doctors and nurses to help fight COVID-19 led to a rise in demand for contractors working in healthcare, with blue-collar workers also sought after.

Demand falls for first time since financial crisis

In addition to an overall drop in placements last month, the number of vacancies also deteriorated. KPMG and REC say the appetite for contract and permanent staff fell for the first time since the global financial crisis in 2009. However, permanent staff vacancies were said to have fallen at a quicker pace than contract opportunities, while the rates of contraction were apparently mild in both cases.

Contractor pay growth eases

Unsurprisingly, the lack of demand for contractors and a fall in placements throughout March impacted contractors’ pay growth, with temporary wage inflation easing to its slowest rate in more than seven years. Permanent starting salaries, meanwhile, grew at their weakest pace since July 2016.

Against a backdrop of strong candidate availability, the fall in contractor hiring, slowing demand for these workers and easing pay growth was recorded across all four of England’s monitored regions, with London experiencing the sharpest decline, followed by the Midlands. 

Labour market “on pause”

In response to this worrying trend, REC’s CEO, Neil Carberry, said: “The Coronavirus pandemic has put the labour market on pause.” And while Carberry explained this has resulted in “massive disruption” in the short-term, he stressed that “we must remember that this has to be done in order to protect businesses and save lives.”

KPMG’s Vice-Chair, James Stewart, added that “uncertainty grips the nation”, before urging companies to remain resilient in the face of COVID-10: “UK business needs to do what it can to adapt and survive this pandemic – and be able to emerge in the best position possible to ramp up once the crisis comes to an end.”

By Contractor Weekly

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6 thoughts on “Contractor hiring suffers worst month in 11 years”

  1. IR35 Victim

    The contract market has been destroyed, IR35 was the killer it dealt a savage blow back in November and now Corona Virus.

    The loss of income and the total lack of proper support for freelancers will drive most to snap up any role at any salary.

    When we restart in 2 months the job layoffs will be massive and freelancers will still be without income.

    We were demonised by HMRC and then punished by the chancellor.

    Bad times lie ahead.

  2. IR35 Slaughter house

    Sadly the government jumped on the short sighted HMRC bandwagon and supported scaremongering tactics to frighten corporates into believing many potentially outside ir35 roles are inside, or ambiguous enough not to take the risk.

    Instead of focusing on what a true outside ir35 contract should be most are lost in risk avoidance stick them in an umbrella or get shut.

    Contractors are also to blame too. Many have poor contracts and were or are working inside ir35 as a result. Contractors (the true variety) have a responsibility to manage themselves and their client contracts, whether through an intermediary or not. Many of my colleagues were like rabbits in the headlights and jumped into umbrellas with hardly a wimper. Quite frankly that’s where they belong.
    Contractors are small businesses and have a responsibility to behave as such. In theory that’s all that is required if clients understand how the model should work, but hmrc doesn’t say how it should work. It just implies it might take you to court and charge you millions… So the corporates just run for risk free cover.
    A very smart way for hmrc to kill contracting whilst saying that are not responsible.
    Outside ir35 contracts are easy enough, but it takes know-how that is sadly lacking and willingness from hr hiring, which is also in extremely low supply.
    …. And then, once most were fired or into umbrellas, they postponed it (too late for most) and if that wasn’t the last straw Corona came along and put the last nail in the coffin.
    I am a very lucky survivor delivering a critical change to a large corporate, but once that is done this summer I don’t expect to find rich pickings in our decimated market.

  3. Paul

    So HMRC, just to provide another indication of being outside of IR35, my contract for services was terminated with 2 hours notice by my client. Is this the kind of thing employers do to their employees? No.
    With absolutely no prospects of other contracts in the short term due to the government enforced lockdown, my family and I must now exist on the retained profits my company has been able to accrue over the years and I will be signing up myself and my wife for furlough, but with a low salary, that won’t be much to live on.
    So, if I were to use the CEST tool now, would it consider my current situation and the complete lack of Mutuality of Obligation shown by my client? I don’t think so.

  4. A once-happy contractor

    Blaming Covid-19 for the destruction of the GIG economy, is like blaming doctors and nurses for the lack of PPE.
    It is those nameless souls in Whitehall departments whose lack of foresight and a penchant for hiding behind (often absurd) process that destroys peoples lives with no accountability.
    How many people at HMRC will lose their jobs if the tax take actually falls due to IR35?
    Do I sound angry?

  5. Rasta

    The belligerence of the Treasury to continue with IR35 directly created a decline in Contractor roles as the 6th April 2020 deadline loomed. This Philip Hammond inspired idea was sheer lunacy for several reasons:

    1) It contravened basic Corporate Law, particularly the “Veil of Incorporation”. The Client Company was being asked to underwrite the book keeping of the Contractor’s Company. Similarly if an Employment Agency was involved the Agency was also expected to underwrite the book keeping of the Contractor’s Company.
    No Company should be forced to underwrite the Tax affairs of another Company, especially when they have no shareholding, and this was precisely what IR35 was trying to enforce.

    2) The IR35 rollout in the Public Sector was a total smokescreen. When Public Sector Quangos required uber-skilled Contractors, these Contractors were placed outside the scope of IR35. There is not one precedent ever of HMRC pursuing a Public Sector Quango (say TFL) for miscalculated tax.

    HMRC have themselves placed Contractors outside of IR35 when it suited them to do so.

    Even if HMRC persued another Government financed organisation they would simply be ‘robbing Peter to pay Paul, and there would be a zero-sum gain to the Treasury.

    Not so of course once this policy applied to the Private Sector.

    3) The Public Sector has rarely had to contend with commercial realism and provide a genuine ‘Retail Offering’. This has been demonstrated quite comprehensively in the last month, for example, few are clear unfortunately whether the responsibility for maintaining stock levels of PPE lies with the Primary Care Trusts, Public Health England, or the Department of Health.

    The CEST Tool that was devised by HMRC to establish IR35 could hardly be described as a genuine ‘Retail Offering’; it’s a complete mess !!!

    4) Even now instead of just conceding that IR35 was a floored concept that requires a wholesale re-evaluation, there is still some belligerence. with talk of a 12 month postponement.

    Just the prospect of IR35 has already wrought considerable damage, and it technically has not yet been implemented.

    Yet Contractors have provided enormous flexibility to organisations helping to make the UK among the most competitive business locations in the world.

    5) HMRC and the Treasury really do need to state what they are trying to achieve with IR35. There is some talk of “Cashflow”, which suggests that they want the inflow of tax to flow either earlier or more consistently.

    HMRC and the Treasury are currently really having to contend with genuine “Cashflow” issues, and Contractors will be part of the solution and must be part of the solution.

    • Burdock Casper

      Agree with Rasta comments.
      Have seen first hand what HMRC are doing in the Public Sector by instigating audits where they think the ratio of inside v outside IR35 does not favour inside. They then put pressure on the public sector body to change their policy on substitution etc and update their tax office guidance for the CEST tool to bias inside determinations. Some of the guidance to recruiting managers actually attempts to
      suggest how a limited company should operate its finances regarding expenses incurred suggesting that if the expense is not high enough e.g £2000 it is a suggestion of operating inside IR35. Any expense by a ltd company in the pursuit of a contract delivery no matter how small is a legitimate indication of operating outside IR35. It operates from its registered address so travel costs to undertake a contract are not commuting costs as suggested in this guidance they are expensed travel costs. The net is closing with the latest version of the CEST tool guidance deliberately skewed to provide an inside IR35 determination. The recent House of Lords report was correct the whole IR35 legislation needs to be scrapped and reviewed otherwise the gig economy will die.

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