ONS cuts IT contractor pay rates by 6%

The Office of National Statistics has issued its IT contractors with a pay ultimatum, stipulating they cut their rates by six per cent or face termination, ContractorUK has learnt.

Despite demand for IT contractors surging in this year’s first quarter to a 15-year high, those at the ONS must accept a 6% cut by this Friday, if they wish to avoid being cancelled.

But in a new dimension to such ‘take it or leave’ pay cuts, which were rife in the financial crisis of 2008-09, the ONS told IT contractors they can opt for a bigger cut in exchange for a longer notice period.

Designed to give IT contractors “additional security”, such extensions in return for a 7% or 8%  pay cut can be instead of the 6% cut, without which ONS would have to look at taking “more drastic measures”.      

These measures may include stopping IT projects altogether and terminating IT contractors outright, adds a memo the ONS sent to its IT recruitment agents, who will implement the reductions from April 1st.  

One IT recruiter unaffected by the reductions but who serves London’s public sector outfits was unsympathetic to an explanation by the ONS that it needs to make “efficiencies and savings.”

“It’s disappointing to hear that the ONS are opting to enforce compulsory reductions in IT contractor rates, given that the market is looking at moving closer to a recovery in 2014,” he said.

Another IT staffing supplier, ReThink Recruitment, warned that the market and contractors were unlikely to be the only disappointed parties, assuming that not every temporary IT worker at ONS accepts the cut.

“While this ‘take it or leave’ contractor pay cut approach might have been a viable option in 2008-9, in the current market it seems an unusual choice,” explained ReThink’s director Michael Bennett.

“With the demand for IT contractors currently high, enforcing flat rate reductions will result in contractor movement, and it’s highly likely that [the] organisation will struggle to replace these skills with rates below the market average.”

Both agents declined to say whether ONS’s downward revision to IT contractor pay might inspire other public clients to reduce their IT rates too, as a cut at one outfit often triggers its sector bedfellows to follow suit.

But a legal firm signalled that the apparent sweetener in the ONS’s pay ultimatum -- lengthening the notice period for contractors lowering rates by 7% or more -- wasn’t likely to be copied by other hirers if they are familiar with IR35.

“It is rather misleading of ONS to suggest that if contractors accept more than the 6% cut, such workers can benefit by having ‘additional security,’” said Egos. “What contractor with an eye on IR35 will be interested in a longer notice period?”

The firm’s Roger Sinclair, who keeps track of mid-IT-contract pay cuts, added: “I long for the day when a sufficient number of contractors, faced with such demands, simply say no, walk, and give the client a bloody nose -- metaphorically-speaking. “

Asked about the likely response from its IT contractors, a spokeswoman for ONS said: “We have asked our current contractors to let us know by Friday if they plan to accept this approach.  

“Until then we cannot speculate on the response, though other government departments who have made similar offers report high take-up rates.”

Rather than a flat downgrade to all IT contractors’ pay, ReThink says ONS could still have saved money if it had implemented a rate review, whereby skills get individually aligned with what they individually command.

“Assessing their current rates in comparison with commercial market averages and then making an informed decision [on a contractor-by-contractor basis] would have been more advisable,” said Mr Bennett.

“If clients are paying over the odds for an IT skill-set that is available at a lower rate, then absolutely address this. However…while we are in a cycle where some clients may look at replacing contractors with permanent staff, it can’t be overlooked that the particular skills in demand simply might not be available in a full-time capacity.”

If cost-saving is the sole objective, then Mr Sinclair preferred: “If the ONS couldn't afford the projects, as now seems to be the case, why on earth was public money wasted in starting them?  

“Surely it is the responsibility of those who commissioned the projects without first ensuring they had the necessary budget, so it seems it should be their pay that gets pared back, not the contractors’.”

The ONS spokeswoman said: "In common with most public sector organisations, ONS faces significant financial pressures and needs to make efficiency savings. We are achieving these in a variety of ways including reviewing our spending on all external contractors."

She added: "ONS has a responsibility to ensure best value for taxpayers’ money and we will continue to review spending and identify appropriate savings. The number and type of contractors we use fluctuates depending on business need."

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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