IR35 status key concern as IT contractor job market dips

The IR35 status remains a significant concern for IT contractors as the sector faces a challenging job market, according to new data from the Contractor Census 2024 by Sapphire.

The census revealed that 31% of IT contractors have cited IR35 as a top priority, more than double the figure reported across other sectors. This highlights the persistent impact of IR35 considerations on the decisions of those in the IT contracting field.

IT contractors, many of whom operate through personal service companies, face particular scrutiny under IR35 regulations. Being classified as inside IR35 can reduce a contractor's take-home pay by up to 25%. This is a significant concern in an industry that heavily relies on competitive contract rates and long-term project work that may closely resemble traditional employment arrangements.

Alex Moore, Business Development Director at Sapphire, said, "While many industries have adapted to IR35, it remains a prominent factor for IT contractors, whose project-based work often leaves them exposed. The financial impact of being classified inside IR35 is significant, so it's important for contractors to stay informed."

The ongoing demand for IT contractors has shown little indication of growth since August 2023, according to data from the Recruitment & Employment Confederation. Although there was a slight easing in the rate of decline in July 2024, a sharp fall in demand was recorded in June 2024, reaching the lowest point since July 2020.

This prolonged downturn in the job market has left many IT contractors concerned, with 30% of those surveyed by Sapphire citing a lack of job opportunities as their primary worry. This figure is nearly double the average concern rate of 16% reported in other sectors. Confidence within the IT contractor job market has also decreased, with only 56% expressing a confidence level of 7 out of 10 or higher, compared to 70% in other industries.

Though IR35 remains a primary concern, other factors such as pay rates and job location play crucial roles in decision-making, with 89% of IT contractors prioritising pay and 72% considering location when choosing roles.

Alex Moore added, "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."

The Contractor Census 2024 provides valuable insights into the evolving preferences and market dynamics affecting IT contractors. This information can help recruiters and employers better adapt to the changing needs of the contemporary workforce.