Navigating Wage Growth with a Contract Workforce

The 2024 economy has behaved much like this year’s unpredictable weather, leaving us unsure whether it’s preparing to freeze us, drown us, or signal the green light for growth. With the release of the 2023 recession statistics, the ONS wage and job reports, and the recent Spring Budget, the UK Government appears committed to fostering a higher-wage, higher-skill economy—a move that could yield significant benefits.

However, many businesses in the UK are experiencing what can only be described as a ‘bumpy ride.’ The national wage increase has led to a rise in the wage bill, causing total overheads to grow faster than sales.

Contractors: A Silver Bullet?

Life as a contractor isn’t all roses. The pandemic showed us that contractors are often the first to be let go. Yet, a career as a contractor can be highly rewarding for all parties involved, offering a positive impact on both the wage bill and the organisation.

We’re not advocating for fewer employees; rather, seeing more of a shift in how permanent staff are utilized—increasing headcount during busy periods and reducing it when business slows. Correctly leveraging a contract workforce allows for these adjustments, with professionals who are prepared for short-term work as opposed to those seeking long-term employment.

Cost vs. Expertise

The story of the engineer and the hammer illustrates this point perfectly: the value lies in knowing where to strike, not in the duration of the effort. Professional contractors often bring the necessary expertise to make an immediate impact and tackle projects that would otherwise require extensive training for a permanent staff member. This expertise typically commands a higher hourly rate compared to that of an employee.

Assuming that expertise leads to faster outcomes, what are the financial implications, despite higher rates?     

Although scenarios vary, we can see a saving of over £15,000 annually assuming a cautious 3 month advantage a professional contractor brings to the table, without commitment of long-term overheads.

Beyond the Wage Bill

Looking past the financials, using contractors can result in significant time savings compared to the hiring, onboarding, and training processes associated with integrating a new employee into your business culture. While not applicable in every case, contractors often don’t count towards headcount and are categorized differently from employees in terms of financial accounting, which may be advantageous for finance, purchasing, or HR departments.

Is It All Upside?

Of course, it isn’t, investing in skills internally and retaining that talent has huge benefits to organisations. Contractors, rightly so, should be impactful to a business in a positive way, which means a negative when that set of skills exit.

Our take is that there’s a time and a place for contract hire, it takes a level of confidence when adding long-term overheads with a fluctuating economy, and the benefits can’t be overlooked.

For more information, click here to enquire about contract workers.