How contractors can thrive in a recession

A new generation of STEM professionals are turning their backs on permanent positions as contracting becomes more popular, and they are in demand in today’s difficult economy.

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Contractors can do well through the economic downturn if they secure contracts in resilient sectors and focus on projects that are strategically important. That shouldn’t be challenging because global megatrends ranging from digital transformation, decarbonisation, research-led healthcare, generational shifts and a changing working world are continuing to drive demand for STEM skills.

Huge amounts of money continue to be invested across all sectors to meet the demands of these macroeconomic changes despite the general commercial gloom. Software developers have always been in demand, for example, and the rapid growth of e-commerce and mobile technology during the pandemic has seen a growing need for their skills. Other areas that continue to defy the economic conditions include big data, data warehousing, business information and medical device technology.

Emphasise your wider skills

Contracting is generally more accepted and growing in popularity in today's society. These changes in perception have fueled changes in the skills contractors are now expected to have. For example, in the past, if you were contracting in IT, you were brought in for your specific skill set and did your part before moving on. Nowadays, IT contractors are expected to have strong communications skills with a greater awareness of business operations and an understanding of the broader impact that their role has on a project.

The same is true in engineering where traditional engineering skills may need to be supplemented with the technological know-how because tech is now embedded into so much of what is created. Engineers with these skills should find it relatively easy to protect themselves from the impacts of the difficult economy by switching between industries. We see many contractors with experience in the oil and gas industry, for example, move to the rapidly growing wind energy sector.

Nowadays, IT contractors are expected to have strong communications skills with a greater awareness of business operations and an understanding of the broader impact that their role has on a project.

For engineers who find opportunities limited in certain manufacturing industries, having this combination of skills should make it easier to switch to other, more secure sectors. The automotive sector, for example, tends to struggle in a downturn because vehicles are generally considered luxury purchases. If you have the right skills, however, you should be able to switch seamlessly into areas such as food and beverage or pharmaceuticals, which are necessities and therefore likely to suffer less in a recession.

When clients bring in contractors for projects it's because they want to hit the ground running with the project, meet planned deadlines and avoid scope creep, which adds costs to a project.

Don’t focus on money alone

You should also choose your contracts carefully because simply aiming for the highest rate may not be the most profitable option in the long run. Choosing interesting projects in sectors where the latest tools and technologies are being used can equip you with essential skills that will be in high demand in the future and attract a higher rate even if the downturn is prolonged.

It’s also important to consider which employment model is most appropriate. At SThree we help independent contractors who have their own limited companies find positions. We also operate an employed contractor model (ECM) under which the contractor is employed by us for the duration of the project. In a variation of ECM, some contractors are employed by SThree full-time and are then sub-contracted to the client.

Choosing interesting projects in sectors where the latest tools and technologies are being used can equip you with essential skills that will be in high demand in the future and attract a higher rate even if the downturn is prolonged.

It's important to think hard about which model is most appropriate for your circumstances. There are benefits to having your own limited company because you can pay yourself dividends and there tend to be tax efficiencies, which can be very helpful in tough times. However, the ECM model provides employment rights that are similar to those enjoyed by permanent staff and can provide more security.

Understand employment legislation and cultural differences

Choosing the right engagement model may depend largely on legislation and cultural preferences. In many countries, it’s leading to the growing popularity of the ECM model. Off-payroll working (IR35) in the UK is a good example of this. As clients are required to decide the tax status of the assignments if they get this wrong the liability sits with them not the contractor. As a result, we have seen a significant increase in the number of assignments determined where the contractor would be required to operate under an employed solution. This has grown from circa 10% in 2016 to 40% now. Charlie Cox, SThree Commercial Director, says companies across STEM industries have a higher administrative burden and are more exposed to risk if they don’t understand the legislation.

Charlie Cox - Commercial Director - UK&I Region
“In an already competitive labour market, IR35 can make it harder to attract talent, and potentially more expensive but that doesn’t need to be the case.” Charlie Cox, Commercial Director - UK, SThree

Staffing companies with in-depth knowledge in this area and the ability to provide employed solutions as part of a suite of services remove risk from the customer and further increase the value of the services they provide.

Another example of this kind of legislation can be found in the US where the misclassification of contractors is a high priority for the regulator. As a result, many choose to work as W2 contractors, accepting a comparable set-up to a permanent employee but on a temporary basis. Consequently, in the US a large proportion of our engineering contractors operate under the ECM model.

This isn’t true of every country. In Japan, permanent jobs tend to be viewed more positively and as a sign of success. As a result, contractors are often paid less than their permanent peers.

Contracting during a recession can be a secure option. Not only are many companies taking on contractors for key projects rather than permanent staff, but contractors also tend to be paid more in many countries. That means if you do go through a period of, say, six months with no work it evens out so that you ultimately earn a similar amount as your permanent colleagues.

Contracting during a recession can be a secure option. Not only are many companies taking on contractors for key projects rather than permanent staff, but contractors also tend to be paid more in many countries.

Contractors are also better prepared for the difficulties of a downturn. They know that their contracts are going to end so they are naturally more resilient to change and more experienced in interviewing and finding new work than their permanent peers. Overall, contracting in STEM is a good place to be when in a difficult economy.

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