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Will mass big tech lay-offs affect employment prospects of IT contractors in 2023?

With some of the biggest tech firms in the world announcing mass redundancies, will the flood of new entrants to the jobs market affect the prospects of IT contractors already looking for work amid the cost-of-living crisis?

The start of 2023 has seen several of the technology industry’s biggest names, including Microsoft, Amazon and Meta, announce tens of thousands of job cuts.

This is against an economic backdrop of high interest rates and rising inflation, prompting tech firms to find ways to reduce their operating costs as their customers similarly seek to tighten their belts too.

Many of the tech firms cutting jobs now embarked on huge hiring sprees during the Covid-19 coronavirus pandemic, as the world pivoted en masse towards remote working – and social distancing forced people to rely on digital services and apps like never before.

While the Covid-19 virus remains an ongoing presence, the restrictions it placed on people’s movements are now – in most parts of the world – no longer in play, which has led to a downturn in the reliance of consumers and businesses on some of these tech firms’ services.

Music streaming service Spotify published a memo on 23 January 2023 stating its plan to reduce its employee base by “about 6%” due to the company’s operational expenditure growth outpacing its revenue in 2022, with the firm’s CEO admitting to expanding the company too quickly.

“Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us,” said Spotify CEO Daniel Elk.

“In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason, we are reducing our employee base by about 6% across the company.”

Silver lining to job cuts cloud?

With so many tech firms seemingly coming up against the same economic challenges and having to cut their permanent staff, what does this mean for the employment prospects of the IT contractor community, given the jobs market will now – seemingly – be flooded with new entrants?

Research published on 16 January 2023, compiled by IR35 insurance provider Qdos, suggests 2023 is a year that contractors have already been feeling trepidatious about, thanks to the fallout from the UK government’s flip-flopping over repealing the IR35 reforms and the ongoing cost-of-living crisis.

Has government’s flip-flopping on IR35 reforms had any lasting impact on demand for IT contractors in 2023?

One of the standout moments for IT contractors of former prime minister Liz Truss’s short-lived premiership, which ran from 6 September 2022 to 25 October 2022, was the news of her government’s plan to repeal the IR35 reforms from April 2023.

The news was one of a number of announcements made during the first and final fiscal statement made by then chancellor Kwasi Kwarteng on 23 September 2022, only for the decision to be repealed several days after Kwarteng stepped down on 14 October 2022.

While the repeal itself was not due to come into effect until spring 2023, the confusion created by the government’s U-turn on this matter did have some short-lived, negative impacts on the IT contractor community and their end-hirers, said Dave Chaplin, CEO of IR35 Shield.

“Until the latest Finance Bill reached Royal Assent on 10 January 2023, many firms still held out hope that a repeal could happen. The reality now dictates that firms must engage with the off-payroll regime if they want to hire in-demand contractors – and they are. We are seeing an increasing number of firms lift their blanket bans on contractors,” he said.

“Another trend we are seeing is firms taking a more considered view about who they work with, after having perhaps rushed their choice as they sought to prepare for the roll-out [of the private sector reforms] for April 2021.”

“Contractors have been up against it recently, but with [the Qdos research showing] 80% [were] able to secure a role outside IR35 last year, independent workers can look ahead with some confidence – for the first time in what feels like a long time,” Qdos CEO Seb Maley told Computer Weekly.

“The economic uncertainty, while concerning for many businesses, could – in my opinion – be a catalyst for contractor demand.”

Speaking to Computer Weekly, Matt Collingwood, managing director of IT recruitment consultancy VIQU, said while headlines about mass layoffs might indicate the IT market is in the doldrums, demand both for contractors and permanent staff remains buoyant.

“Big tech companies normally pay ridiculously high salaries... When you carry these expensive staff, it’s only natural that some will have to be cut when there are global uncertainties and upheaval”
Matt Collingwood, VIQU

“Yes, some high-profile big tech companies have been making layoffs, but I don’t think you can take this as a fair indicator of the IT market as a whole. Big tech companies normally pay ridiculously high salaries – [and] I’ve spoken to engineers who have been on triple or quadruple the salary or rate that an average professional with their skillset would be on,” he said.

“When you carry these expensive staff, it’s only natural that some will have to be cut when there are global uncertainties and upheaval.”

He added: “It might be unwanted disruption, but these professionals being laid off are not leaving these companies without a new job or contract to go to.”

To back this point, Collingwood cited the job-seeking experience of one ex-Meta staffer who he claims is still in the throes of working his redundancy period but has already secured five job offers.

Terry Payne, global managing director at digital-focused recruitment firm Aspire, said it was also worth noting that during periods of economic instability, demand for IT contractors usually increases.

“Increasingly, businesses wanting to remain competitive realise that their technological capabilities are critical to operating with greater efficiency and seizing new opportunities,” he told Computer Weekly.

“There’s an abundance of highly skilled workers available and, as previous recessions have taught us, freelancers and contractors provide vital support to businesses and the economy during difficult periods.”

Dave Chaplin, CEO and founder of contractor compliance firm IR35 Shield, backs this view: “Generally, large firms do not want large numbers of permanent employees because they bring huge ongoing cost. In the current economic climate, with no certainty, firms would prefer to hire contractors on an ‘as needed’ basis without those ongoing costs.

“Firms will always want and need contractors. The peaks and troughs of the economy just dictate how much they will need to pay to access the best freelance talent. Typically, a contractor can demand twice as much at the peak of an economic boom compared to the trough in a recession.”  

Time to rethink expectations

For this reason, IT contractors may also need to consider revising down their day rates in the current economic climate, advised Juliet Eccleston, CEO and founder of professional networking and job referrals hub AnyGood?

“We’re seeing continued investment in strategic programmes [including tech-related ones] across large organisations – many of which have made redundancies – which is fuelling contractor demand. There is, however, increased tension in the desire for higher rates due to the cost of living, challenged by rising business costs,” she said.

For this reason, she said, it’s important for IT contractors to be “mindful” of the economic environment they are offering their services in.

“Rates need to be fair, but I’m not seeing organisations agreeing to high rates just to secure people. Rate discussions need to be considered with all aspects of the contract on offer. In particular, the opportunity to secure a long-term contract on a large programme may be a better business decision in the long run, given the continued economic outlook,” she said.

“I believe IT contractors who have in-demand skills – in the UK at least – can feel optimistic, and for those feeling unsure, my advice would be to invest in development of high-demand skills to stay competitive.”

Meanwhile, Collingwood added that IT contractors might need to be open to accepting shorter contracts than they might have previously, as the economic situation means many hiring firms are taking a much shorter-term view on IT project planning.

“Previously, clients were talking openly to me about their project plans for the next six to 12 months and the resource they require. Typically, now they are choosing to only reveal their immediate plans or needs for the next three months,” said Collingwood.

“Yes, there is some uncertainty that is impacting long-term planning, but this isn’t impacting the need for permanent members of staff. I would just say that companies are looking for more confidence in the people they employ than in 2021 and 2022.

“Previously, they were just grabbing any resource they could, but now clients are looking for more reassurance that they are making the right hiring decisions. Therefore, the lead time from engagement to placement has slowed for both contract and permanent hires.”

Learn new skills to stay relevant

Collingwood, Payne and Eccleston’s upbeat take on the market is also echoed in the findings of the Winter 2023 Europe labour market report by contingent workforce management software provider, Magnit.

The 16-page report states that the economic turmoil the UK market, specifically, has found itself in means demand for temporary IT workers is likely to remain high because employers will need to “increase agility under these circumstances”.

“The skills that will survive AI tools are ones associated with strategic thinking and planning about what to build, rather than how to build it”
Dave Chaplin, IR35 Shield

According to Magnit’s findings, data analysts, cloud computing engineers, artificial intelligence (AI) architects and managed services-related expertise are likely to be the contractors in highest demand in the UK.

“The threat to any contractor is their skills becoming obsolete,” said IR35 Shield’s Chaplin. “Unlike a firm, which pays to train its staff, a contractor has to invest in their own self-development in their spare time just to stay current.”

And with tools emerging that can write code for themselves, such as the pre-trained chatbot ChatGPT, it is important that IT contractors give some serious thought to developing skills that will ensure they remain in high demand, even if parts of the work they do are now being done by AI.

“The skills that will survive AI tools are ones associated with strategic thinking and planning about what to build, rather than how to build it,” continued Chaplin. “The graveyard of software systems plays host to an abundance of software products that never made it properly into production, simply because the requirements were wrong.”

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