Brexit, IR35 and Covid-19 are dealing a tough hand for business. Here's what you need to know

It feels like UK business can’t catch a break. After Brexit dominating headlines for almost four years, tech talent was thrown into uncertainty over the impending rollout of the ‘off payroll working regulations’ (IR35) reform, originally set for April 2020. Then, in March, we were hit by a global pandemic that has left the economy in tatters. Even as we’re slowly recovering, there’s still a feeling that we aren’t out of the woods yet. 2021 is going to be a landmark year for change in business, as the knock-on effects of all three of these things come to light. Where and how we source talent is about to change – here’s what you need to know.

Candidate sentiments and expectations are going to change

Covid-19 has flipped the recruitment market on its head. Pre-Covid-19, candidates had the pick of roles, with more opportunities than available talent. Just three months later, and a ravaged economy has seen candidates flooding the market just as employers are clamping down on expenditure. Even though tech recruitment is steadily on the rise, it’s still a distance away from where it was. 

A more competitive job market for candidates will change two things: loyalty and flexibility. People that are lucky enough to still have a job over this period are more likely to stay, at least for the short to medium term. This means that employee retention should be up, and most people joining businesses will be value-creators rather than simple replacements. 

Candidates may be more flexible to new openings and more willing to consider different opportunities. Lockdown has shifted candidates’ expectations around work-life balance and benefits packages, meaning companies now need more than a lucrative salary to tempt talent.

The implementation of IR35 is also likely to shake-up the talent pool. The IR35 “off-payroll” working regulations is designed to crack down on disguised employees by ensuring that those who work through a personal service company (“PSC”) who act as an employee, pay broadly the same employment tax as if they were employed – with the onus for determination falling on the client.

Even though Covid-19 has set the proposed tax reform back a year, to April 2021, IR35 still has the potential to change the recruitment landscape. Many businesses were ill-prepared for the reforms, issuing blanket bans on in-scope contracts, reducing contractor populations or turning to alternative sourcing routes. Many contractors were also changing their habits – requesting rate inflations for in-scope contracts, or refusing them altogether. There were speculations about whether the reform might also trigger contractors into early retirement or drive more people into permanent employment. 

The combination of IR35 and Covid-19 will change the fluidity of the tech talent pool. People in permanent positions will value job stability and will have different values when it comes to job seeking. Contractors on the other hand may be more particular about the roles they engage with, but they also may be more flexible than they were last year when IR35 was announced – Covid-19 has hit both contract and perm job markets.

Finding tech talent will be harder in the long run

On 13 July the government published further details on the new points-based immigration system that will come into place after freedom of moment ends. Under the new legislation, from 1st January 2020, anyone from outside the UK and Ireland will need a visa if they want to work in the UK, and employers will need to hold a sponsor license to bring overseas workers in (they have until January 2021 to apply for one). 

This restriction of talent flow will be a concern for many organisations that employ a large volume of tech talent. Nearly 180,000 EU nationals work in the tech sector in the UK, so the new restrictions will require a significant mental shift for businesses to plug skill shortages. This is compounded by the rising role of tech in the UK – in the last two years tech employment has risen by 40% - not to mention the fact that Covid-19 will likely act as a catalyst for tech adoption. If more contractors decide to exit the market due to IR35 this will also add another layer to skill shortages.

Even though the new legislation will remove some barriers for acquiring external talent, such as lowering the skill and minimum salary threshold for the Skilled Worker (Tier 2) visa, removing the cap on the number of visas that can be granted and relaxing the ‘cooling off’ rules for Intra-Company Transfer (ICT) (Tier 2) visa, the time and cost associated with sponsorship may still put many off looking overseas for tech talent. For full and up-to-date information, please visit the government website.

In the short-term, the impact of less EU talent flow may not be immediately apparent as Covid-19 has meant less hiring activity. However, the long-term view means a very short tech talent supply, and businesses will need to ramp up how they attract tech talent. A strong EVP and brand message will be pivotal, as will the ability to locate and network with hidden communities of tech specialists. Companies will also need to invest in their compensation and benefits package. Building pipelines of tech talent, forecasting talent gaps and maximising resources will become success factors for businesses that want to thrive in 2021.

Cost reduction will be key – and workforce management is the best way to do this

Thanks to a triple shockwave of changes to the people economy, the market is about to become more complex. Many businesses that have struggled under Covid-19 will be looking for ways to consolidate costs and drive savings. 

One of the best ways to do this is by taking a holistic look at your workforce mix and finding the best use of resources. There’s a broad mix of ways to recruit talent beyond just permanent or contract (Statement of Work, for example), and finding the right combination can be key for both agility and cost savings. Using technology to optimise processes, placing people where they can add the most value, and drawing on specialist niche skills for high priority work can create a much leaner, and more efficient, organisation. 

It can also unearth new routes for talent and help to streamline strategy. For example, a roadmap of emerging skillsets might inform a graduate programme that can be rolled out now, while talent is prime. It might identify pools of contract talent that should be converted to perm, or opportunities to redeploy or upskill existing talent for future projects. 

You can do this yourself, or you can partner with an RPO and MSP provider like Lorien to support you. RPO/MSP models are also great vehicles for cost management and containment, driving efficiency, transparency and control into the process, and improving quality of resources. Check out some of our work for more information or request a case study at solutions@lorienglobal.com. 

The future of the UK labour market may feel unsteady at times, but there are certain things that will never change: talent will always be drawn to the businesses that are pointing ahead. Whether the market is awash with talent, or caught short; whether budgets are tight or loosened to capture the best candidates on the market; whether candidates are flexible or inflexible – being aware of these changes and positioning your strategy around them will always put you in the best possible position for the future.