IT contractors facing pay cuts

Self-employed workers have been warned that some companies are lowering their contractor rates, leading to fears of cuts across the whole IT sector.

Shout99, a news Web site for contract workers, has reported that both Credit Suisse First Boston and Hewlett-Packard have cut contractors' rates by ten percent. It is thought the changes will come into place by August. Both companies are expected to release more details sometime this week.

Many experts are surprised by the cuts, which follows a High Court decision not to overturn the IR35 tax legislation. Under IR35 some contractors are treated as employees by the Inland Revenue, forcing them to pay national insurance and a higher rate of tax.

It was widely expected that contract workers would have to be paid more, not less, to make up for being taxed more under IR35. However, Steve Barrie, chief analyst at Bloor Research, told Shout99 that the government's enthusiasm to encourage overseas IT workers to move to the UK could be a factor. Barrie warns that this move might not benefit UK companies. "There is no evidence that these foreign workers will have any better skills than those already available," he warned.

Nick Wells of jobstats.co.uk has warned that the demand for IT skills peaked last summer. He believes there has been a big drop in demand for all types of contractors this year, which has had a knock-on effect on the rates that a company must pay to get temporary staff in.

There are concerns that as the tech sector slump eats into IT budgets, some managers may cut the amount of consultancy work they pay for.

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