Our Evolving IT Workforce: Why putting off contractors right now should be treated with caution

“At least 20% of New Zealand’s workforce is made up of individuals who earn an income outside of permanent or fixed-term employment. These workers, known as ‘independent earners’, can be contractors, sole traders, freelancers, gig workers and independent consultants.”

The Future of Independent Earning – Dynamic Resourcing, Portfolio Careers, and Individual Wellbeing

As the country entered economic uncertainty due to the COVID lockdown and the consequences of shutting down large swathes of the economy, contractors have been in the firing line as companies offload resource and politicians use the issue as a political football in an election year.

I am going to use the word “contractors” in this post to cover contractors, sole traders, freelancers, gig workers, and independent consultants, though, I acknowledge, each is subtly different.

The whitepaper quoted above was released recently by Hnry, a company that provides support for the contractor. To be clear, I have no affiliation to them, nor am I benefitting writing this article, Hnry sent me the whitepaper recently, and I found it fascinating.

Fascinating because it disproves several common myths about contractors and provides some interesting insights into the area. So let’s have a look at what they discovered.

Companies and agencies that use a mixture of permanent and contract staff will find themselves more productive, able to respond to challenges more quickly, take advantages of opportunities faster, increase efficiency, and without additional cost.

And the government and private industry are going to need that fast uptake and dynamic style in the coming months because while significant work pipelines have been closed down, they can’t stay in stasis forever. Not restarting them, in some form, is likely to cause substantial technical debt and increasingly risky programmes to catch up.

In the coming months, many organisations will begin to seek a path to recovery from the impacts of the COVID-19 pandemic, and as part of that will look to use contingent staff as a way of gradually recovering without the risk of having to hire a full complement of permanent staff. We are therefore expecting a significant acceleration of the trend towards organisations using more ‘dynamic’ resourcing models – rapidly achieving the level of adoption of such concepts that was previously predicted to be several years away.

Another grand fallacy, usually perpetrated by politicians and almost always in an election year, is that contractors and consultants are more expensive to an agency costing the taxpayer and unreasonable amount of money. This is a time-honoured tradition from any political party in opposition and incredibly destabilising not just to contractors but also to agencies that spend a significant amount of time trying to justify why they need a dynamic workforce.

The fact is that on average, this is not true. Contractors cost a tiny margin more in the grand scheme of things if you have good procurement processes and you are managing them well while giving significant benefit, that you won’t always get from a static workforce. The numbers that Hnry analysed were very conservative, and they concluded that it is likely an employee will probably cost you more than a contractor.

The most successful businesses and government agencies have realised that responding to political dog whistles is unwise. They have also realised that a mixture of permanent employees and contractors gives them considerable flexibility that others do not have.

“…this results in organisations retaining a base of permanent staff – roughly 65% of their overall resources. The remaining resources are made up of a trusted and validated pool of contingent workers, available on demand.”

That ratio is very interesting because it is further validated by other industry research in the area that shows that before COVID the general ration of employees to contractors in New Zealand was nearing a very similar level across the board.

There is one assertion that I would challenge Hnry on. They say that;

“With the expected rise in contracting and self-employment, the government is taking steps to enshrine support for, and encourage the independent earner economy.”

I see zero evidence of that as I’ve noted above, the reverse seems to be evident with many agencies shedding contractors because of central government pressure. Current central government dogma leans far away from contractors.

I’m going to leave the Hnry report now. However, I encourage you to read it along with Absolute IT’s periodic analysis (again, I have no affiliation to Absolute), because it paints a factually based view of the world with extensive surveying.

I’m going to look a little bit at this issue over the next few days. One of the things that companies do poorly, usually, is procuring, and managing contractors.

There are reasons why a contractor can be more expensive. I want to look at those as well.

For example, the procurement process around contractor services that can layer massive margins on to actual rates unnecessarily.

Often we see what I call “plausible brand deniability”, that is, hiring consultants and contractors at a considerable margin from international brand companies so that if your programme fails, you can say “I hired the best in the world, it wasn’t my fault.” Interestingly, those brand companies tend to simply body shop contractors in from the local market.

I want to give contractors some advice on what’s coming. I don’t know everything, but I do know that the days of six month plus contracts that are endlessly extended are over. We also know that contractors will be doing more pieces of work over shorter periods that are potentially fixed price, or time & materials. I also understand that the entire world is looking for contract resource and is actively recruiting in New Zealand for remote workers. The demand is coming. 

I want to examine the risk to “clamping down on contractors” as we know that that market was driven by high immigration numbers previously. Numbers that are now near zero. With international demand for local IT talent being able to work remotely, there will be a shortage of experienced practitioners in the market. Our top end resources are now nearing retirement and we still do not have enough new blood coming through. Companies and agencies in New Zealand will be competing on a global scale for talent in a booming recovery market.

As always, I’d love to know your thoughts. I’ve been doing this for a long time, but I don’t know everything, and I am frequently wrong and happy for you to debate me critically. I see a dynamic shift in the IT workforce coming and some severe risk, and opportunity, to New Zealand as a result.

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