By Simon Curry, Chief Executive, SJD Accountancy
As the financial crisis stung many workers in the financial services sector faced redundancy. But as layoffs and hiring freezes have continued growing numbers are now re-entering the market as contractors. Far from being a temporary solution and a route to a permanent role, contracting is increasingly seen as a career choice. This is partly due to the levels of pay on offer to contractors, but also a consequence of the erosion of job security and other benefits which had traditionally made permanent employment attractive.
Our research shows that the proportion of financial services contractors earning more than £750 per day has nearly doubled in the past year, from 6.3% to 11.6%, as demand for contract skills in financial institutions has surged. This is at a time when many banks continue to trim permanent headcounts. In many cases, financial institutions also cut contractor rates during the recession – and some continue to do so – but the market for contractors is improving and twice as many contractors saw rate rises in the last quarter than rate cuts (click here for full research results).
The growth in demand for contractors in financial services is partly a response to ongoing hesitancy among employers to create permanent jobs. In fact, with many global banks in the London market still making rounds of redundancies overall headcounts remain on a downward trajectory. At the same time, however, financial institutions are under pressure to hire in niche areas, and are bringing in regulation, compliance and financial reporting specialists. Rather than boost permanent headcounts, they are sourcing expertise on a contract basis to deal with spikes in workload. It is often said that contractors are the first into and the first out of a recession. End users typically turn first to temporary skills to address short-term capacity issues before bolstering in-house teams.
Interestingly, many of the specialists in demand in financial institutions are accountants. For example, the new UKGAAP financial reporting standard, which came into effect in January this year, has created strong demand for accountants specialising in derivatives. Banks are also bringing in accountancy skills on a contract basis to ensure compliance with the new IFRS 9 accounting standard. Demand for finance skills has surpassed pre-crisis levels, but the supply of qualified professionals is static, so upward pressure on pay is building.
One of the most fascinating statistics thrown up by our research is that one in four contractors in financial services has been doing so for less than a year, compared to around one in six last year, so there has clearly been significant movement of talent from permanent roles. This is clear evidence of a structural change in the market, as contracting broadens its appeal post-crisis. With employment rights and benefits having been eroded over the last few years, contracting is being perceived as less risky. The decline in bonuses is another important factor pushing people towards the contracting lifestyle. Before the crisis, a significant component of most finance workers’ pay would have been variable, which is fine during the boom years, but much less appealing in the new financial order that emerged since.
Proportion of financial services contractors earning £750 per day or more, 2014-15
Other indicators from our research point to strengthening demand for contractors in financial services. Joblessness among contractors in the financial services sector continues to fall. 94.6% are currently in work, up from 93.2% in Q2 2014. Contract lengths are also increasing. Just 5.8% of contracts are for three months or less, compared with 8.8% the same time last year.
The increase in the average contract length is a positive indicator that hirers are becoming more confident about their medium-term requirement for skills. Contractors are increasingly in a position to negotiate a pay increase or move to a competitor once a contract finishes, so a longer term contract is a good way for hirers to hedge against skills shortages and control costs by locking contractors in. At the same time, contractors with the right skills sets are increasingly receiving multiple offers, so buybacks – where end users make a counteroffer to ensure they retain contractors – are becoming more frequent.
In many respects it’s never been a better time to be a contractor. Not because daily rates are at their highest – the land of milk and honey that was 2007 still seems like a distant memory for many – but because a range of factors have come together at this moment in time to make permanent employment less appealing on the one hand, and contracting more attractive on the other. In some areas, rates are climbing strongly but, as our research indicates, pay is only one of the reasons why people become contractors.