How the UK Contract Recruitment market changed in 2023 and what that means for 2024

2023 was a challenging year for recruitment in general and with the impact of higher interest rates & IR35 really hitting home, the contract market seemed to have a tougher time than the permanent sector. Will 2024 be a year of recovery or was 2023 the beginning of a new normal for the UK’s contract recruitment market?

Here, Ben, our Contract Delivery Manager shares his take:

More Applicants – (So Many More)

During 2022 we noticed a steady rise in applicants and by Q4 we were averaging 100 applicants per contract role. In 2023 we have been looking at 500 – 1000 applicants for a single role on numerous occasions. It has been a little overwhelming at times and we would like to thank all our applicants, for bearing with us this year.

Quality and Quantity

Surprisingly, despite the fivefold increase in applicants – the overall quality of applicants also increased. In 2023 we were usually able to provide our clients with 5 high quality contract CVs within 48 hours for each contract role. Typically, this would include 1 or 2 candidates that had already contracted via ADLIB – so it was a good time to be a contract hiring manager, but it was often challenging for the candidates.

Part Time Contracts – the Rise of “Fractional”

Perhaps to stretch budgets, clients have been briefing us for part-time roles more than ever before. Not quite “fractional”, in the sense that seems to be growing in popularity in certain circles (especially in the US) but somewhere between 2 and 4 days per week.

Remote, Hybrid or Back to the Office

Whilst some clients offer genuine remote working and reap some benefits of that, including potentially lower day rates – the push for a return to the office gathered momentum in 2023. 2 – 3 days per week in the office is the general hybrid model but some clients are pondering a mandatory return to 5 days in 2024. There are contractors that have lost clients, that they picked up during the pandemic, because of the push to return to an office.

IR35

The 2021 changes to IR35 legislation, meant that clients had concerns about hiring “Outside IR35” due to potential tax bills/fines etc. That led to a high number of contract roles being deemed to be “Inside IR35” with candidates asked to operate via an umbrella company. Contractors, left with a choice between an “Inside” role and a permanent job – have in many cases, opted for the latter. However, as companies get accustomed to the changes & with the looming end to the double taxation issue, we might see a rise in “Outside” roles in 2024.

Perm Redundancies & the Wage Spiral

The post-covid wage spiral started to unravel in 2022 and this continued in 2023. Clients, having often hired contractors on high salaries or broken salary brackets to secure perm talent– soon saw an unmanageable wage bill in front of them and had to act. Not benefitting from the flexibility of the contract model – clients have been forced to make redundancies. Those contractors that had taken a perm job and were subsequently made redundant, have found themselves in a challenging market and may feel a bit directionless, as we head into 2024.

How can the Contract Market Recover?

There are reasons to be optimistic about contract recruitment in 2024. The first is that in the traditional economic model – after a year of large-scale redundancies, companies usually scale back up with contractors. There are circumstances where clients can’t hire back into a role that they’ve made redundant, and Finance Directors will be concerned over a rising wage bill. There will also be a change in the double taxation issue with IR35. From April 2024, in the event of an HMRC claim against a client – they will be able to offset the tax already paid by the contractor. This tweak to the legislation effectively reduces the potential penalties of a wrong decision significantly. The reduction in risk to clients, should result in an increased appetite to use contractors “Outside IR35”.

In summary, 2024 could be another challenging one or it could be ‘the year of the contractor’. An end to the double taxation issue with IR35, plus a traditional cycle of contractor boom after perm redundancies – could lead to increased demand and a return to a buoyant UK contract market.