Blessed are the Geeks, for they shall internet the earth

Gonna be a Long Hard Winter And Spring Does Not Look Much Better!
by Graham Parks

Just recently I have read a couple of stories online about UK contractors who have had just a few weeks work in the last eighteen months. A worrying read if, like me, you are a UK contractor. I have been working as a freelance contractor for almost four years and in that time have seen the job market getting worse and worse. I myself have been fortunate; I have not had a period without work of longer than five weeks until this summer.

I finished my last major contract at the beginning of June. This suited me fine. It seemed the ideal time to take an extended break. I had only one proper holiday since starting contracting and last year worked a ten-month contract with only one, very short, break. Over the next three months I had a few weeks working for a friend of mine sorting out a very neglected network that he had recently taken over, spent lots of time out in the sun, read lots of books (work and leisure) and generally had a good rest. In all, a very enjoyable summer. At the end of August I started job hunting in earnest again. I’m still hunting.

My skills lie in networking and mainly MS products. I have good NT/2000/98/95, TCP/IP, MS Office, Anti Virus etc. skills. These skills are still pretty near the top of the chart in what companies are requiring. I have worked finance, government, health and extensively in telecommunications sectors. I ought to be in a good position, but I am not getting results at present. So what is going on?

I do not think there the finger of blame can be pointed at any one thing. There are some obvious reasons. The lack of business confidence and the very uncertain state of the stock markets are undoubtedly linked and having a major effect. I think that another part of the problem is that we are still getting over the effects of Y2K. Many large companies spent huge sums of money replacing computers and associated equipment. Common sense says that with that huge number of PCs being replaced there would be fewer projects around for upgrading and replacing for the next few years. That was three years ago. Often businesses replace on a three-year cycle, so things ought to be starting to move again. But they are not. I think this is mainly due to the business climate but there are other factors to consider.


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In the last ten years business has been obsessed with cost cutting and downsizing. In that time there has also been a major change in desktop computers. You simply do not need to replace PCs every three years. Let me explain.

It is early 1995 and you have just bought a new PC, 75Mhz, 8Mb RAM, 512Mb hard disk, 2x CD-ROM running DOS/Windows 3.1.

Move forward three years. You upgraded to Windows 95/Office 95, increased the RAM to 24Mb or even 32Mb, doubled disk capacity and it still runs like a dog. You really need that shiny new PII 400 you saw in the shop window. So you buy it. 64Mb Ram, 8Gb Disk. It flies! Move forward another three years. You have now upgraded to Windows 2000/Office 2000. You have upgraded the RAM to a more sensible 128Mb but apart from that nothing. How does it perform? Pretty well actually! So why upgrade it? For a business desktop PC three years old there is really not much reason to replace it. An extra RAM chip is a good idea, and cheap. When money is tight, why not run a PC for five years instead of three, or even longer. I’ve seen this happening more and more. I have regularly seen PCs over five years old in use. So, in my opinion, longer equipment life and tight business spending controls mean less work. But unfortunately, the doom and gloom does not end there. Even if you are finding work, life is not at sweet as it used to be.

Rates of pay are dropping. Eight years ago I had a permanent job in a company that was contracting in Novell administrators, CNE qualified, and paying them £25 per hour. Now the average rate for contract NT/2000 administrators and support is £20 per hour. Last week I saw an advert for a contractor with strong NT/2000 and proficient in Exchange, SMS, 98/95 paying just £10 per hour. I have seen one or two similar jobs as low as £7 per hour. This problem is not just affecting new contracts; people are being affected when contracts are extended as well. I had an experience where I was offered a three-month extension with an 18% pay cut. Barclays Bank recently announced that when current contracts expire contractors would be offered an extension at %20 less than they are currently being paid. Barclays also announced that they did not care if this meant all their 800 contractors leaving. See the story here.

A further huge problem for contractors is IR35. I can feel UK contractors shudder at the very mention of this. IR35 is a tax law that came into being to counter what was seen as tax avoidance. Companies were downsizing and in some cases people were being made redundant on a Friday and coming back to do the same job on the following Monday as a self employed contractor. The government did not like this because as a contractor working for your own limited company there are ways to pay yourself, which are more tax efficient than if you were permanently employed. So you pay less tax. All this is completely legal. But the government decided to deal with these “disguised employees” as they called them. Major hypocrisy here, in my opinion, who has ever heard of a millionaire who does not have some of their wealth in off shore tax havens to avoid tax in their home country? Obviously paying yourself in a tax efficient way is alright for the big boys. Rant mode off.


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So IR35 came into law, but it was so badly drafted that it also caught contractors working in I.T. and engineering. In some cases people had been running their own one-man companies for many years now got caught with this new tax. The government did make some concessions. 5% of earnings are allowed as business overhead and not included in this tax. This despite findings that %16 was a more accurate figure of overheads. So as a contractor you easily use up your 5% in various business costs. So if you now want, for example, a training course the money has to be found in after tax funds.

The Professional Contractors Group took the government to court over this and lost. There was an appeal as well, which shows that there was considerable doubt about the first result. Unfortunately the appeal was lost as well, although the Inland Revenue did come in for a fair amount of criticism from the judge.

I could go on forever here. Tax offices seemed not to understand it. I have talked to accountants who are confused by it despite having been on specialist training courses. If you want to know more go to www.shout99.com or www.pcgroup.org.uk and search these sites.

I’ll leave the final words about IR35 to one industry figure who said "If ever there was a poorly written piece of legislation then this is it.  In short it is ridiculous, unusable and unworkable."


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A side effect of IR35 is that if people paying IR35 are not, as the government say, real contractors but “disguised employees” then surely they are liable for sick pay and paid holidays from clients. This is causing some shouting as you can well imagine.

Just when you thought it could not get any worse, there are now draft changes being made to the regulations regarding employment agencies. This is not yet law, but if the proposed changes go through it will make it more likely that even more contractors will get caught by IR35. This is a complex area, if you want to know more, go to www.shout99.com and search for “eaa” (without quotes). There is also a good article here.

There is one glimmer of light however. Fast Track Visas have recently been stopped for I.T. workers. Fast Track Visas are a way for the government to get skilled foreign workers into the country to fill positions for which there is a lack of suitable candidates. On the face of it this is good for everyone and when this was introduced for I.T. workers there did seem to be a genuine shortfall of people in this country with the skills that employers wanted. The trouble is that as this situation changed, the rules did not. It has taken an awful long time for the government to wake up to the fact that they were still bringing in foreign workers while UK citizens were out of work. There were also suspicions that some agencies were allegedly using these visas to get in foreign workers at a cheaper rate than UK nationals. Anyway Fast Track Visas are currently no more for I.T. workers, so hopefully this will have a positive effect. Although no longer relevant, there is an interesting discussion piece posted here.

Of course, there are the usual problems with agencies. But now money is tight, some problems are getting worse. The number one problem, as always, is bad matching of contractor skills and client needs. Despite some agencies advertising themselves as I.T. specialists they appear to know next to nothing about I.T. Too often they seem to just look at a list of key skills and match them against a list supplied by the end client. My favourite example of this is the agency that called me for a potential placing, but was concerned that there was one key product skill that the client had stipulated missing from my CV (Resume). The missing product? Winzip. Hands up all those with Winzip listed as a key skill on your CV. Wait, stop laughing, it gets better. Once I had told the agency that I did know the product they then asked, how long had I been using the product, how long it was since I last used it and did I consider myself a beginner, competent or expert with it. Clueless!!!

Unfortunately, it does not end there. Some agencies take an excessive percentage as a fee. Be suspicious if they will not tell you what percentage they take. Be very suspicious if the contract states that you are not to discuss rates with the client. I had one like this once and the client let drop how much they were paying for me. That was how I discovered that the agency was taking 40%. An agent once told me that occasionally they take more than this.


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I recently heard of a contractor who, after two years at a company, asked for a pay rise. The client told him that they were not prepared to pay him another pay rise. The contractor asked them what they meant by “another pay rise”. And then the truth came out. In the two year period, the agency had increased the rate the client paid four times and had passed none of this on to the contractor.

There is also the problem of contracts that come to nothing, although this is nothing new. I recently secured a three month, well paid, contract. The work looked interesting and I was keen to start. The day before I was due to start the contract was cancelled. The agency told me that the reason was that the people who had put out the contract had not had funds for the project agreed within the company and when they did finally try to secure the funds, they were denied. To make matters worse, the day before the bad news arrived, I had turned down a weeks work elsewhere.

So there you have it. The few jobs that exist are paying increasing low rates. Out of this lower rate you are highly likely to pay more in tax than you used to and depending on the agency, you might well get ripped off as well.

For those of you that think I am a miserable pessimistic old fart (form an orderly queue please) let me leave you with this. Friends of my parents living in New Zealand recently contacted them and family news was swapped. The son of these friends works in I.T. in the UK. He has a wife and three children and they are all happy here. Because of the job situation here they are all moving back to New Zealand. Not a decision undertaken lightly. I wish them well.

Any feedback or comments welcome. Any job offers, even more welcome.

GrahamParks@thenetworkadministrator.com

 




 


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