IT Contractors Being Hired Like It’s 1998

October, 2013

As a percentage of the IT staff, the use of contract workers has been rising in North America over the past two years amid the sputtering recovery, pending U.S. healthcare regulations, and other factors. For large organizations, which make the most use of contractors, the median ratio has jumped dramatically, exceeding pre-recession levels and hitting highs not seen since 1998.

Figure 5 from our study, Current Use of IT Contract Workers, shows a steep rise among large organizations in the contract labor ratio beginning in 2012. Contract workers rose from 6% of the IT staff of large organizations at the median to 17% in 2012 and remained at a high level in 2013, easing slightly to the current 15% rate. In this study, large IT organizations are those with IT operational budgets of at least $20 million.

ContractLabor Fig5 - IT Contractors Being Hired Like It’s 1998

IT operational spending has been rising faster among larger organizations than smaller organizations, and so has the use of contact labor. As such, the rise could be temporary, reflecting the need for developers to work on mobile applications, big data initiatives, and other projects, as investment in IT applications and infrastructure beings to recover. It may also be an indication that IT executives remain reluctant to hire permanent employees due to economic uncertainty.

In the U.S., another driver could be rising healthcare costs and Affordable Care Act requirements for paying benefits to employees who work more than 30 hours. To restrain healthcare costs, organizations could be making use of temporary contract workers in place of part-time and full-time permanent employees.

Whatever the cause, the median contract worker ratio for large companies is at the highest level since 1998, a time when companies were investing heavily in Y2K remediation and Web development efforts, according to our annual survey of 200 IT organizations, which have been conducted continuously since 1990.

The use of IT contract labor varies widely by size of organization and sector. In the full study, we show the range of contract labor use for IT organizations by size and sector. We also examine the five-year trend in the contract labor ratio for all organizations as well as large companies, and provide recommendations for the management of contract labor use.

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