More than 20 per cent of IT contractors saw less income last year, but recruitment firm Hays IT believes “stabilising” rates promise a profitable new normal for skilled contractors that can match clients’ AI-driven IT strategies and flex to suit shorter contracts.
Remuneration for contractors dropped so much that 10 per cent of those surveyed in Hays IT’s newly released 2025 Contractor Rates Guide – the fifth in its annual series – said low returns had driven them to move on from their contracts over the past year.
Hays IT found two-thirds say they are neutral or not optimistic about employment opportunities.
While such initiatives reduced opportunities for contractors – as did similar rationalisation in the private sector – many contractors told Hays IT they had also moved on from work because the contract was not challenging enough.
Others blamed a poor relationship with their manager, suggesting many contractors have been taking well-paying work even if it isn’t well suited to their interests and skills.
That dynamic is changing in a climate of government cost-cutting with the federal government aiming to return $527 million worth of contractor work and agencies like Services Australia feeding a broader agenda to cut $4 billion of outsourcing spend.
State governments are following suit, with the NSW Government recently moving to prioritise in-house delivery of essential services to slash its $1 billion annual consultant bills, and Victoria working to cut its $11.1 billion contractor spend after a 2023 audit.
The strength of these and other industry dynamics reflect a “stabilisation” of contractor rates “rather than the dropping of them,” Peter Marinis, regional director of Hays Technology for ANZ, told Information Age.
Rates and skills demand are currently being shaped by a “perfect storm” of financial, political, and economic circumstances “that is ultimately impacting organisations’ confidence,” he said.
“The work is still there, but it’s all around – and it seems that everyone is waiting for that moment where they do start to really invest again in that technology space.”
Optimism in the face of change
The responses of surveyed employers explained much of the change, with around 30 per cent saying they had decreased spending last year or kept it the same – and just 18 per cent saying they will do the same over the next year.
About a fifth of IT contractors earned less last year. Photo: Shutterstock
In line with recent Gartner projections that Australian IT spending will increase by 8.9 per cent to reach $172.3 billion next year, more employers said they would increase their spending by between 2.5 per cent and 10 per cent next year than they did last year.
The results corroborate ManpowerGroup employment outlook figures both last year and this year, with nearly two-thirds of contractors in the latest Hays IT survey claiming to be optimistic about their earning potential over the next 12 months.
Yet this, the report notes, “points to a potential disconnect between expectations and market realities” – because increased spending by companies isn’t just about dialling up contractor spending in the same way as in the past.
With data centre systems and software driving that expenditure growth at rates over three times faster than that of IT services, contractors expecting long-term contracts should think twice – and carefully consider where they sit against current market rates.
AI is not a skills pipeline strategy
As the relative normalisation of IT contractor rates continues, Hays regional director of technology and technical Adam Shapley advised employers to take advantage of the “respite” by clarifying their AI strategies and focusing on “workforce planning”.
Companies with significant or niche AI ambitions may find contractors with the right combination of AI, industry and human skills irresistible – particularly since, as Marinis also noted, the lack of such workers is already creating problems.
Using AI to reduce graduate spend risks damaging skills pipelines, Marinis warned, “particularly with the AI disruption in the marketplace – which we’ve seen boosting productivity and opportunities for customers, but also impacting development roles.”
Junior roles were being affected the most, with companies already admitting they are hiring fewer graduates because it is more cost effective to invest in AI – and the more highly skilled engineers that specialise in it – instead.
Yet such a shift poses its own challenges, since failing to invest in junior engineers and in the short term will mean there are fewer senior specialist contractors to choose from in the near and long term.
“Those organisations moving fastest with AI are finding their plans restricted by the market’s ability to supply AI skills,” Shapley said, adding that “any contractor with strong experience in implementing AI projects won’t find themselves out of work for long.”
