Stagnant job market and IR35 remain key concerns for contractors

demand it contractors

New research from a leading contractor accountancy firm shows that IR35 remains a critical concern for contractors, alongside securing new contract work in a difficult jobs market.

The latest Contractor Census report commissioned by Sapphire Contracting surveyed over 2300 people, and the results provide some interesting insights into what life is like for contractors in 2024.

IR35 continues to haunt IT contractors

IR35 has been a thorn in the side of contractors for decades now. The tax rules became even more onerous in April 2021, when the ‘off payroll’ rules made clients responsible for determining the employment status of contractors.

Interestingly, according to the research, 31% of IT contractors say IR35 is a top priority – over double the rate recorded within other industry sectors.

This could be because the IT industry has historically hired large numbers of professional contractors—in fact, IT workers were HMRC’s original target back in 2000 when the IR35 rules became law.

IT contractors, in particular, are more likely to encounter blanket limited company bans by risk-averse clients who would rather hire umbrella company workers than deal with off-payroll related paperwork.

Mark Connor, Managing Director at Sapphire, said:

Contractors have shown remarkable adaptability to the IR35 regulations, but with potential changes under a Labour government, staying informed and proactive is key.

The IT contract market continues to frustrate

The report also shows that the market for IT contractors has been flat for over a year. In fact, according to the REC, demand for contractors hasn’t grown since August 2023, although the rate of decline has slowed in recent months.

You can see the general stagnant trend in temporary (and permanent) staff billings in the latest August 2024 REC report on jobs.

Unsurprisingly, the percentage of IT contractors who cited a lack of contract opportunities as their main concern is almost double (30%) the 16% average across other industry sectors.

Again, IT contractors are generally less optimistic about the health of the jobs market, with only 56% giving their confidence a 7/10 level or more, compared to 70% in other sectors.

More interesting findings into the state of the contracting market in 2024

All contractors know that a healthy economy is essential for a thriving jobs market. Unfortunately, the effects of COVID-19, Brexit and political uncertainty have combined to provide an anaemic environment for new contractor opportunities.

The three-month anticipation of Rachel Reeves’ first Budget, for example, has delayed firms’ investment decisions, including future contract hire plans.

These concerns are all reflected in the survey results.

A significant 40% of respondents cited the cost-of-living crisis as their primary concern, with job security (17%) and sluggish wage growth coupled with a lack of opportunities (14%) following closely behind.

Interestingly, only 5% of the contractors surveyed expressed no concerns about the economic outlook.

Confidence levels and worries vary across sectors, shaped by their recent performance and experiences. As we have discussed, the IT sector, in particular, shows the lowest confidence in the job market.

Alex Moore, business development director at Sapphire told us:

With the ongoing economic pressures and the rise of disruptive technologies like AI, end hirers need to be highly attuned to the specific needs of IT contractors. Addressing concerns around IR35, while also offering competitive pay rates and stable contract terms, will be crucial to securing top talent in a market that’s becoming more selective.

Let’s hope the economy turns a corner and leads to a stronger demand for IT contractors towards the end of 2024 and the start of 2025!

Our Partner Accountants