What we are seeing in the IT contracting market is the industry beginning to level out and pay rates reaching a saturation point, with pay cuts reflecting the disparity between what contractors expect and what companies are prepared to pay for them, according to Enigma People Solutions Director David Mains.
For too long now, large companies like RBS who employ thousands of IT contractors across the business have been a “cash cow” for some recruitment agencies and contractors, undermining what some companies are trying to achieve. Not only are some companies to blame for pushing up pay rates but David says IT recruitment agencies must take their fair share of responsibility for this rise.
Contracting is popular as it allows companies to outsource skills and talent for a fixed period of time, providing a flexible workforce to cope with the ebb and flow of demand. It can provide a gap fill for specialist skills for certain projects, bringing in skilled staff who can get the job done and then move on. The companies needn’t spend time or money training staff or providing benefits and instead can offer contractors a higher rate of pay. It allows them to very easily bring in specialist skills they may otherwise not have access to, cover workload in case of holidays or sickness or just temporarily increase manpower and bring in fresh ideas for a specific project.
This symbiotic relationship works well and can have many benefits to employers, recruiters and employees. With the IT industry however there became a supply and demand issue, where supply of skilled talent was low and so demand rocketed. Those who have abused the system have created the market situation we face today.
RBS, who is predominantly owned by the tax payer, has caused outrage in the past for ‘throwing money at contractors’ whilst in the process of cutting thousands of permanent staff. Companies like RBS attempt to circumvent hiring rules by taking on contractors to start expensive new projects. Projects which have only become so expensive due to the price paid for the contractors brought in to complete them. There are then recruitment agencies out there who will sell these services to the highest bidder and companies more than happy to pay this top price. What this has done is create a vicious circle continuously pushing up the pay rates contractors have become used to.
IT Contractors at RBS have now been hit with the decision to take a 10% pay cut or to quit, with many contractors’ 2 week notice only taking them to the end of the month. Contracting is deemed as a service and for any struggling business looking to cut costs, services are the first thing to get axed. With RBS looking to save £1 billion by the end of the year, a 10% pay cut across their thousands of IT contractors will help them save £65 million towards that goal. This decision interestingly comes just after Barclays announced a 10% cut in IT contractor wages across UK and America in March 2014, again in a bid to save money.
efinancial careers argues that the ‘most effective way of chopping contractor remuneration without experiencing an exodus of talent is to follow a ‘unionised’ method whereby all the major banks pull back at a similar time’. It seems this is what is happening at RBS and Barclays, however the Recruiter argues that their decision is short sighted and can only result in contracting talent leaving the business in search of pay rates they are used to getting. Contractors at Barclays reportedly refused to accept their pay cut and left, I wonder if RBS contractors will follow suit.
With wages 3 times the national average, IT contractors are the most in demand talent in the UK. This is a direct result of the skills gap we are currently experiencing for certain skills sets and the war for those that do posses the skills has created an unprecedented demand. IT contractors saw year-on-year pay increases spike up to 13%, between 2013 and 2014, according to Robert Walters Salary Survey 2014.
David argues that contractors who provide their services through their own limited companies should by all means also expect to be treated the same way as other suppliers, when end users ask them “to sharpen your pencils” in order to cut costs. Although the skills gap is far from being filled are we beginning to see the demand wane for the top rate contractors?
Unemployment has reached its lowest level for 6 years and this means a drop in the availability of a flexible workforce. More and more businesses are confident in their growth and hiring more on a permanent basis. What does this mean for the contracting market?
I suspect the market will pretty soon level itself out and businesses will no longer be able to pay out large scales for specialist skills and that’s exactly what we are seeing at RBS and Barclays. It isn’t just the Banks who are cutting down their contractors pay rates. In March this year the Office of National Statistics also issued its IT contractors with a pay ultimatum, stipulating they cut their rates by six per cent or face termination according to Contractor UK.
Is it high time the IT contracting market got a wake up call in order for demand and supply to reach equilibrium? Will other companies follow RBS and Barclays and cut the top rates they offer their IT contractors in order to save money?
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