IR35 + Brexit: What happens to scalability and the UK skills gap when freelancers and contractors lose their independence?
With over a third of contractors (35%) having left self-employment since private sector IR35 changes came into effect in April 2021, the skills gap is widening in vital sectors, such as IT and healthcare. Startups are also leaving the UK as scalability gets constrained. What happens when contractors and freelancers become employees and lose their independence? The Freelance Informer reports.
It can be argued that contractors, regardless of sector-specialism, accumulate new and diverse skills faster than those that stay in the same role in a salaried position. This comes down to a contractor or freelancer’s ability to accumulate skills and experiences from multiple clients and projects over a shorter period of time.
Salaried workers often have to wait until a new position becomes available to gain even a percentage of those contractor skills and experiences. The added value that contractors and interim managers bring to hiring companies is becoming more apparent, as previously reported by the FI. But, what happens when contractors stop contracting?
Ex-contractors entering permanent roles could push employee wages up, according to Nick Woodward, fellow contractor and founder of recruitment tech company, ETZ Technologies.
“If contractors stop contracting then it’s likely that the wages of employees will rise as contractors are enticed into full-time employment,” says Woodward.
“At ETZ, our biggest challenge is finding full-time employees with the technical skills to perform the duties which we require of them. Salaries alone won’t attract the best talent either, work from home is usually mandated by good employees as a requisite condition,” he tells The Freelance Informer.
For some skills, it is a candidate-driven market. “We are now recruiting at the graduate level and providing in house training in the sought after skills. It’s really about investing in your talent and then keeping them happy and motivated in their job so that you don’t lose them,” says Woodard.
Skilled IT professionals, for example, have to upskill themselves continuously, and go deeper and deeper in a niche speciality, according to recruiter Square One Resources. The recruiter has also noted that Brexit also aggravated the situation as it has caused shifts in the tech market early on, which saw much of the unsure European talent travelling to other parts of Europe.
While the current situation has calmed considerably, the amount of EU IT talent is not where it was pre-Brexit.
“The impact the pound has also received has meant that fewer people are willing to risk taking new jobs with new employers. Likewise, fewer businesses are eager to invest in new employees that they would need to train up and upskill,” says Square One.
Brexit + IR35 = doom for scalability and sales growth
In the UK, Brexit alongside IR35 is already negatively impacting scalability for entrepreneurs by depriving them of talent and easy access to freelance talent in the UK and the European markets.
“Beyond the UK, the issues of size, scale, ambition and talent is a major concern in the VC community who also believe that European tech companies simply cannot compete with the US and China when it comes to these factors,” says Dr Lewis Z. Liu, co-founder and CEO of Eigen Technologies.
Liu has decided to relocate the UK business to New York. In a recent Sifted article, Liu said that Britain’s negative cultural attitude towards sales is a major inhibitor to building tech champions on the same scale as the US or China.
“In my thirteen years of working in the UK, I’ve learnt that in British culture sales and selling is viewed negatively. This leads to hesitancy and lack of aggression when it comes to sales, which inevitably impacts revenue generation,” says Liu.
He highlights in the report that sometimes the downfall for sales growth in the UK, notably for London, is employees are much too focused on “technological purity over commercial success”. That mindset is often “fatal” for startups, he says.
Such challenges mean that the UK needs to transform its cultural attitude to sales and equally consider bringing in independent sales agents that are highly motivated. For example, Bob Adams, a serial entrepreneur and founder of BusinessTown, was able to grow a business in excess of $40M with the help of an independent sales rep team.
Are hiring companies willing to boost training and salaries?
The economic promise of intelligent technologies is at risk if employers fail to prepare their workforces effectively, according to Diana Barea, managing director, Talent and Organization practice, at Accenture.
“As the pace of digital innovation accelerates, business leaders must ensure they take advantage of new learning techniques which will enable their employees to acquire the right skills to thrive in the future workplace.”
Diana Barea, Accenture
The IT skills gap alone is seriously impacting the UK economy. Accenture reported in 2018 that the skills gaps could cost the UK £141 billion in GDP growth by 2028. This does not take into account the aftermath of the pandemic, nor IR35 and the subsequent 35% drop in contractors, which one can only presume, the cumulative risk on the UK economy is now even higher.
In 2021, the number of candidates in IT is dropping, according to the latest real-time statistics from Broadbean Technology.
The research showed a 66% increase in demand for IT professionals between the third quarter of last year and Q3 2021, which is indicative of the continued pressure facing UK firms to digitise their businesses and workplaces in a hybrid working model.
However, application numbers fell 41% during this same period. This suggests that employers are already beginning to feel the impact of this gap in supply and demand, with average salaries for permanent IT roles increasing £2,607 in 2021 as firms turn to financial incentives to compete for talent.
“Contractors contribute hundreds of billions to the economy every year,” says Seb Maley, CEO of Qdoss Contractor, an IR35 insurance specialist.
“And so the impact of contractors stopping working this way would be huge, hitting all industries and sectors of the labour market – from IT and technology to transport and logistics and even the NHS,” he says.
Contractors hold the key to flexible working, enabling organisations to plug skills gaps rapidly and navigate through peaks and troughs in demand in a cost effective way. Lose this and the UK loses its most dynamic and agile workers, resulting in major staffing issues and a tremendous, unthinkable, hit to the economy.
Seb Maley, Qdos
Hiring post-IR35: recruitment agencies adjust their business models
Founder of recruitment firm Aspire, Paul Farrer, says, “There was always going to come a time when the financial and tax benefits of working as a contractor were going to change, so it’s no real surprise that many are now considering a move to permanent roles.”
Add to that the uncertainty that the pandemic brought, namely a loss of job security and those that chose to work on a freelance basis have been looking for greater stability, according to Farrer.
Yet there is unprecedented demand for freelance talent and the majority prefer to be masters of their own destiny, enjoy the variety of projects they work on and the flexibility that operating this way offers. With many added remote working opportunities available, the travel costs that were once claimed back as an expense are nullified. And of course, supply and demand factors are pushing up day and hourly rates, meaning that if anything, now is a great time to be a contractor.
Paul Farrer, Aspire
“Needless to say, contractors are also important to recruitment agencies, so the news that a significant percentage of self-employed workers are considering their future may come as a concern. However, agencies will ultimately respond to shifts in ways of working, adjusting their own business models to cater for any changes,” says Farrer.
Skills gap in healthcare: a midwife exodus
The skills gap is also widening in vital public sector healthcare services, such as maternity. Midwives are being driven out of the NHS by understaffing and fears they can’t deliver safe care to women in the current system, according to a new survey of its members by the Royal College of Midwives (RCM).
The College is warning of a ‘midwife exodus’ following the results of its annual member survey. Over half of midwives surveyed said they were considering leaving their job as a midwife with 57% saying they would leave the NHS in the next year.
A report published by NHS Digital in July revealed the number of NHS midwives working in England in May had fallen by almost 300 in just two months. This is the fastest fall for these two months for any of the years listed in the NHS report, which goes back to 20 years say the RCM.
On Sunday the latest March for Midwives movement took place across cities in the UK, including Birmingham, where hundreds of people gathered in Victoria Square in the city centre.
