Contractors to win big as market recovers

Australian IT contract extensions have rebounded from an average low of 1.5 months between January and May to 5.25 months in June, and contractors could benefit more as the economy improves.

Entity Solutions said its monthly measure of average IT contract extension had almost recovered to the 5.5 month level of the past few years.

The company that handles contractors' back offices - payroll, workers' compensation and insurance - has more than 2000 contractors on its books, 85 per cent of which work in IT.

Uncertainty over the impact of the global financial crisis pushed the average contract renewal period down to 1.5 months for the first part of the year - and it appears they were the lucky ones.

"A lot of [contractors] were told to take extended leave," said Matthew Franceschini, chief executive officer of Entity Solutions.

"A lot of people's contracts weren't extended at all between February and April. It was more politically acceptable to not extend a contractor's term than to [make redundant] a permanent staffer and with a lot of uncertainty in this period many organisations played it safe with shorter contract renewals."

But June saw the average contract extension regain lost ground with an average of 5.25 months.

"We had a massive amount of 12 month extensions in June, quite a few six month extensions and still some shorter ones, but if one month is a trend, there seems to be more certainty in the market around the longevity of IT projects," Franceschini said.

He said the short-term opportunities for IT contractors could increase further.

"When the market picks up and companies realise that projects still need to be run, they'll hire contractors over permanent staff to balance lingering [economic] uncertainty," he said.

The mechanics of the IT contractor market in Australia have changed in recent years, most notably that many roles are secured with an employer through personal contacts or social networking sites such as LinkedIn rather than by a recruiter.

Employers that find their own independent contractors refer to them as ‘directs'.

The challenge directs face, Franceschini said, is they must either have a company structure or run under someone else's (traditionally a recruiter) to issue invoices.

In the past, employers paid recruiters $10 to $15 an hour to put directs on the agency's books for payroll and invoicing. But as employers cut agencies out of the loop, they have become reluctant to re-engage them for contractor-management purposes.

Instead, employers want more specialist firms such as Entity to manage their contractor engagement. About half of Entity's business comes from employers including AXA, Sensis, UXC and BHP Billiton.

"We saw a real need for a services organisation to allow a contractor to get the job they want and not worry about establishing a company structure and dealing with the rigmarole around insurance [and the like]," Franceschini said.

Entity's model is a margin-saver for employers and a relief for contractors, who don't have to deal with the ancillary responsibilities of having their own company structure, such as workers compensation, tax and industrial relations law, according to Franceschini.

It takes about 5 percent of the contractor's gross income as its fee but Franceschini said "it's tax deductible so effectively they pay 2.5 percent".

"Weigh that up against employing your own accountant and the costs of running your own company structure, workers' compensation and so on," he said.

"It adds up pretty quickly. In effect, the fee we charge is minimal compared to running their own company structure."

He said outsourcing the back office to a management company also provided contractors with the time to network and train to secure the most rewarding contract jobs