The new ultimatum for contractors in financial services
The past 12 months have not been a good time to work as a contractor in financial services. Demand has been muted while pay has been cut by 10-15% across the board. Now, as firms continue to look for ways to cut costs, contractors are being faced with an ultimatum – take a full-time position or move on.
“Investment banks, insurance firms and smaller financial services organisations are rolling out large scale contractor to permanent conversion programmes,” says Martin Rennison, head of investment banking at recruiters JM Group. “Some contractors have been within the same organisation for years, working on business as usual projects and are regarded as full-time employees. Firms are no longer willing to pay expensive day rates and are encouraging them to take full-time positions.”
Sources tell us that Royal Bank of Scotland and Lloyds Banking Group are among the banks rolling out these contract to permanent conversion programmes on a large scale. Both banks declined to comment because the information is regarded as commercially sensitive. HSBC also limits the time a contractor can spend in the organisation to two years, according to recruiters.
Insurance firms are taking the tactic of pressuring contractors to take full-time positions too – Direct Line, in particular, according to our sources.
“Every bank is looking at their contractor headcount with an eye to cutting costs, and these means converting some people to permanent roles,” adds Justin Willis, director of recruiters Bright Purple. “Every case is different, but the aim is to drive down salary costs; if you’re a contractor earning £120k a year, banks are offering around £80-85k on a permanent basis.”
Banks and insurance firms have dual motivations for trimming contractors. On the one hand, they are taking charge of significant transformation initiatives and companies want to ensure this intellectual property doesn’t leave the door. On the other, as we pointed to previously, insurers are trying to minimise costs related to Solvency II programmes, and cutting down on expensive contractors is a method of doing this.
“Some actuaries working on a contract basis on Solvency II are being let go, while others not considered critical to the project are being transferred into business as usual roles on a permanent basis,” says Paul Walsh, CEO of actuarial recruiters Acumen Resources.
What if you want to remain as a contractor, rather than being pressed into a permanent role? One IT contractor who’s been working within the same investment bank for three years, tells us the key is to be adaptable.
“If you’re a contractor, you’re offered no benefits or promotion opportunities, so there’s no real upside to taking a permanent position because your earning potential is diminished,” he says. “You need to prove your value to a bank, and this means having a depth of expertise, excellent product knowledge and an adaptability to work on a range of different projects.”
Ben Cowan, director of recruiters Astbury Marsden, says that contractors are vulnerable if they’ve been with the organisation for more than two years, but not everyone is accepting the full-time positions: “We’re seeing more movement in the contract market than at any point during the year and the best contractors will always find work at different organisations.”
Basic salaries are not the only consideration for contractors – if they set themselves up as a limited company, and pass the requirements of IR35, it’s possible for them to earn more on a net basis than paying regular income tax. For example, a contractor earning £500 a day clears £99k annually as a limited company under IR35, £75k as an umbrella company and £69k under PAYE. You can find more information via this online calculator.
An equivalent full-time position for a mid-level developer at an investment bank would pay £60-70k, according to recruiters.
