Why Are Companies Choosing Permanent Hires Over IT Contract Recruitment?

In recent years, the IT contract recruitment market in the UK has remained strong, even as IR35 rules have made contracting less financially appealing for IT professionals. However, with the latest reports indicating the UK’s economy entering a recession, a significant change in the demand for IT Contractors seems imminent.

Large and small companies in the UK are increasingly likely to favour the stability and long-term investment of permanent recruitment over the flexibility of IT contract recruitment. This trend in recruitment is not just a knee-jerk reaction to economic pressures. It means a strategic realignment towards more sustainable growth and development within the tech sector.

Factors Reducing IT Contract Recruitment in 2024

In an economic downturn, some organisations reduce their permanent and/or contract roles to control costs. However, IT contractor roles seem a less risky option for business. Let’s look into the main factors likely to make IT contract recruitment less attractive in 2024:

1. Economic uncertainty: Recession fears prompt tech companies to minimise risk, leading to a preference for permanent hires over IT contractors. Permanent hires are seen as long-term investments over contractors, who are often viewed as short-term solutions.
2. Cost management: The implementation of IR35 in the UK has increased the tax liability for contractors, making them a less cost-effective solution for companies trying to manage tight budgets in uncertain times.
3. Long-term strategic planning: Companies are focusing more on long-term strategic goals, which often require the continuity and commitment that permanent staff can provide, as opposed to the project-based or temporary nature of contract work.
4. Talent retention: There’s a growing recognition of the value of retaining talent within the company, fostering team cohesion, and building a strong company culture, which is more feasible with a permanent workforce.
5. Regulatory compliance: The complexities associated with managing contract employees, especially with IR35 considerations, have made permanent hiring a more straightforward option from a compliance perspective.

In this context, companies need to leverage the cost of hiring experienced IT contractors with highly on-demand niche skills to work on large projects that last for a long period of time. Consequently, companies must work with their recruitment partners to review the company-specific hiring strategy, evaluating the economic factors shaping the recruitment market.

When Will The Demand for IT Consultants Remain High?

Despite the shift towards permanent recruitment, there are specific factors making IT contractors an attractive option for companies:

• Urgent project needs
• The requirement for niche skills on a short-term basis
• The flexibility to scale IT capabilities up or down quickly without the overheads of permanent staff

Five Reasons Why Permanent Hiring is an Alternative to Contracting in 2024

1. Cost control: Hiring permanent full-time employees instead of IT contractors saves money in the long run and allows for better budget planning, especially during economic downturns.
2. Project management efficiency: Permanent teams offer improved project continuity, reducing project ramp-up time and increasing efficiency, which is particularly valuable in complex or long-term IT projects.
3. Talent development: Investing in the continuous learning and development of permanent staff members can enhance skills internally, reducing the need to source external contractors for specialist roles.
4. Employee loyalty: Permanent employment encourages a sense of loyalty and belonging, leading to lower turnover rates and a more engaged workforce committed to the company’s success.
5. Strategic alignment: Permanent employees are more likely to be fully aligned with the company’s vision, goals, and practices, streamlining strategic implementation and operational alignment.

A trusted recruitment consultant should be able to help your company estimate when it is a good idea to hire an IT professional to temporarily join your team as a contractor and when a new permanent hire seems the most suitable option.

The IT Recruitment Market is Still Growing

Despite the move towards permanent hiring, the IT recruitment sector in the UK continues to experience growth. The ongoing digital transformation across industries and the rapid evolution of technology ensure that the demand for highly skilled IT professionals remains high.

The Fine Balance between the Flexibility of IT Contractors and the Stability of Permanent Hires

The IT sector is always changing, and businesses need IT contractors to help meet their evolving needs in specific situations. As companies in the UK reassess their recruitment strategies in the face of economic uncertainties, we forecast a shift towards permanent hires over IT contract recruitment. The need for cost control, strategic planning, and a focus on long-term stability and growth drive this transition.

Contracting and permanent recruitment have their pros and cons. So, the challenge for hiring managers and talent managers in 204 will be to strike the right balance between the flexibility of hiring IT contractors and the stability of permanent IT hires to navigate the current economic landscape effectively.

Contact our expert team if you’re looking for an experienced recruitment partner. We can help you reshape your talent attraction strategy to meet current and future needs in line with your company’s long-term goals.