Contract IT Workforce Increasing for Some Firms

April, 2008

Managing a contract workforce has become an increasingly important task for IT organizations. Staffing agencies, Internet job sites, and vendor management systems are making the job easier, but IT managers still need to determine the proper balance between full-time employees and temporary help. Today, a few organizations are making aggressive use of contractors–some IT workforces are composed of up to 50% temporary employees–while others make little or no use of them at all. In the typical IT shop today, about 5% of the IT staff is composed of temporary contract workers.

This Research Byte is a summary of our full report, Current Trends in Use of IT Contract Workers.

Although there has been a recent increase in the use of temporary help, it is perhaps not as substantial as some may suspect. Companies that already make aggressive use of contractors appear to be increasing their use, but most organizations have maintained a relatively steady balance between full-time employees and contract workers over the past four years. While growth in contract workforces is expected during economic upswings, it remains to be seen whether this trend will continue during a downswing.

Few Companies Make Aggressive Use of Contract Workers
As shown in Figure 1, the typical IT organization estimates that on an annualized, full-time-equivalent basis, 5% of its workforce is composed of contract or temporary workers, according to our annual survey of approximately 200 IT executives and managers. These estimates range from 1% at the 25th percentile to 15% at the 75th percentile. This data is in line with the observation that a small percentage of companies are making aggressive use of contractors, as evidenced by the large increase at the 75th percentile level.

ContractWorkers Fig1 - Contract IT Workforce Increasing for Some Firms

The full version of this report examines the use of contract workers by organization size and sector. We also examine the four-year trend between 2004 and 2007 to discover how the use of contract labor has changed over time. Furthermore, we examine how the aggressive use of temporary employees relates to staff growth and turnover rates. The report concludes with our view on current and future trends in contract labor use.

Computer Economics Viewpoint
Traditional wisdom states that staffing agencies are good leading indicators of the economic cycle. At the start of an upswing, companies tend to bring on temporary employees to meet needs until they are certain the new business is sustainable. When an upswing appears sustainable, organizations are then likely to hire contract workers as full-time employees. At the start of the downturn, contractors are likely to be among the first to go as organizations attempt to postpone laying off permanent personnel.

On the other hand, there also appears to be a long-term trend toward an increasing number of IT professionals becoming independent agents. In such a scenario, there could be a long-term increase in the contingent labor force, and organizations would continually need to reassess the proper balance between hiring employees and engaging contract workers. We believe both cyclical and long-term trends are at work, but that long-term growth will be modest.

The four-year data analyzed in the full report indicates that among large organizations, there has been a rise in the use of contract workers. This is expected during times of relative growth, as well as relative uncertainty about the sustainability of that growth. That trend is likely to reverse itself during any sustained downturn in technology spending.

We anticipate that contract worker usage will continue to rise and fall with the economic cycle. While some organizations will turn aggressive use of a contingent labor force into a strategic advantage, most IT organizations require stability. IT managers often find that contract workers cost more, are less loyal, and increase turnover rates. When they leave, they take institutional knowledge with them. For such reasons, typical IT organizations will continue to place a limit on the use of contract workers. There may be some long-term increase in the use of the size of contingency workforce, but that increase will probably be modest and confined to a relatively few organizations.

This Research Byte is a brief overview of our report on this subject, Current Trends in Use of IT Contract Workers. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website at (click for pricing).