COVID-19 sees contractor earnings drop 25% during lockdown

Contractor earnings fall dramatically, but confidence grows albeit marginally  

In a week where the Office of National Statistics revealed that the UK’s self-employed population decreased by a record 238,000 in Q2 of 2020, trade association IPSE broke similarly concerning news - that freelancers and contractors on average earned 25% less during the months of lockdown.

This is the steepest fall in income since IPSE began its quarterly Freelancer Confidence Index and is a trend directly linked to the COVID-19 pandemic. On average, the 748 independent professionals who participated in the study went a record five and a half weeks without work between March and June. Combined with the 3% fall in rates experienced last quarter, income fell on average from £20,821 in Q1 2020 to £15,709 in Q2.

In addition to these startling headline figures, IPSE’s report brought to light a number of other important points, which we’ll explore in this article.

‘Technical freelancers’ fare slightly better

It should be pointed out that not all freelancer groups were impacted equally by COVID-19. For example, independent professionals working in technical fields were not hit quite as badly, experiencing a 16% income decrease in Q2. However, in contrast, IPSE said self-employed managers saw their earnings drop significantly more, by 35%.

Freelancer confidence improves marginally

Unsurprisingly, freelancers’ confidence in the economy and in the performance of their own businesses fell to the lowest level on record in Q1. In Q2, despite still sitting at their second-lowest level on record, the findings hint at a recovery, with both indicators improving.

Contractors also said they are more concerned about what the coming year holds rather than the next three months, suggesting they are focusing on the introduction of IR35 reform in the private sector in April 2021 and perhaps even a possible second wave of the virus.

While such low levels of confidence are a clear concern, IPSE attributed this to the uncertainty surrounding COVID-19, stating: “Plainly, people cannot be confident in the economy or their businesses if they don’t know what is coming next.”

Also important to factor in when focusing on confidence is the lack of support provided by the Government to limited company contractors, explained Inna Yordanova, Senior Researcher at IPSE:

“With such a financial cliff-edge and limited Government support, it is not surprising freelancers’ confidence in their businesses over the next 12 months is drastically low – or that so many are leaving self-employment.”

Reputation and innovation key

In what was another challenging quarter, the largest group of freelancers and contractors (59%) is of the view that reputation in the market was the most important factor enhancing their business performance. Having the ability to offer clients innovative services was second (57%), while offering organisations flexible working practices was third (49%).

COVID-19 is standout concern

It’s of little surprise that COVID-19 was pinpointed as the biggest contributor towards poor business performance in Q2, with 81% of freelancers rating this as detrimental. This was closely followed by the state of the economy, which contracted at the biggest rate on record (20.4%) in April, as a result of the lockdown.

That’s not to say issues such as IR35 were far from the minds of contractors, though. 61% said the Government’s tax policy relating to freelancing negatively impacted their business in Q2, which could be down to firms banning contractors or blanket-placing them inside IR35 in preparation for next year’s reform.

Fears grow over further rates fall

As touched upon earlier, freelancers reported a 3% drop in rates in Q2. And despite confidence having marginally improved, these independent professionals expect rates to fall even further, by 10.6% over the course of the next 12 months. Meanwhile, 61% of contractors predict that the costs associated with running a business will increase in the same time period.

However, reason for cautious optimism 

While there’s no glossing over the economic challenges created by COVID-19 and the subsequent impact on freelancers and contractors, IPSE at least believes there is “some cause for optimism”, as the report states:

“Economic recessions generally lead to a surge in freelancing and surge in opportunities for freelancers. The government is now pivoting its agenda on how to stimulate the economy after the coronavirus crisis. In every green job, in every aspect of their levelling-up agenda and in every regional infrastructure project, freelancers can provide their expertise, knowledge and passion to get Britain’s economy up and moving once again.”