Does employing freelancers solve or create problems?

Contract staff are flexible, talented and the indispensable engine room for small companies working in the internet services industry. Or so the received wisdom says.

Contract staff are flexible, talented and the indispensable engine room for small companies working in the internet services industry. Or so the received wisdom says.

Torrington Interactive begs to differ. Joint managing director Anna Mellitt describes the period last year when contracting in the IT sector was at its height as "a nightmare". Forced by rapid expansion to take on 15 contractors, she came to realise that hiring people on a short-term basis was no solution to the shortage of suitably qualified personnel.

Not only were contractors "infinitely more expensive" than permanent staff, they could be as difficult to drop if there was no longer a need for them. They could also leave at short notice, creating new recruitment problems, and - perhaps most worrying - they turned out to be far more important than their employers first thought. In fact, they were "horrifically key" to the smooth running of the company.

Such strength of feeling can partly be put down to the fact that, at the time, the contract market had gone "out of control", in the words of Torrington's other joint MD, Philip Millo. It can also be attributed to the particular importance of IT specialists to a business such as Torrington. The consultancy, employing about 50 from a base in Shoreditch, east London, helps other companies to use the internet.

The Torrington story is only one side of the picture, however. Many companies and individuals are seeing the appeal of the contract approach.

Research published by Mori last week reveals a growing trend for skilled workers to reject corporate life in favour of becoming self-employed professionals. Alodis, an organisation recently created to serve the interests of this group, estimates that there are currently 1.6 million individuals working in this way in the UK. Within a decade, says Julia Hutchison, head of Alodis, the figure is expected to double to 3.2 million, or 12 per cent of the working population.

Nor does the introduction of the notorious Inland Revenue provision known as IR35 appear to have halted the rush to self-employment. Designed to curb the practice of workers who are effectively employees of a single firm saving themselves and the employer tax by offering their services through their own company, IR35 came into effect last April.

Jeff Grout, of the financial recruitment consultancy Robert Half International, has long advocated the use of temporary workers, particularly in the finance and IT fields. "It enables the business to be more flexible and quick-footed," he says. "It means it can avoid being over-encumbered by a large payroll."

Companies are starting to realise, too, that by employing contract staff, they can obtain on a part-time basis the sort of person they would probably not be able to afford as a full-time employee. As Mr Grout says, "a small organisation could get a £100,000 finance director for £60,000 by employing them three days a week".

Nor is it just the business that benefits. Mr Grout points out that many self-employed professionals are taking this route because they do not want to work full-time. For some, this means working two or three days a week instead of the usual five; for others, it means carrying out projects with time off in between.

Mr Grout believes that companies have so far been slow to adopt what management thinker Charles Handy has described as the "clover-leaf" organisation, where a business has a core group of workers, with specialists coming and going. But they are being given a helping hand by people like Elaine Howe, who two years ago set up Working Options, a recruitment company specialising in temporary staff.

Though she places professionals in a range of jobs in organisations of all sizes, Ms Howe says that growing businesses find it particularly helpful to be able to gain access to high-calibre staff on a part-time basis. "It makes business sense for them," she believes.

The truth seems to be that contracting suits different companies - and people - at different times. Ms Mellitt and Mr Millo suggest that in their industry many young people are happy to work as contractors to start with because they do not mind the long hours and they like the idea of being able to move between employers. But, after a while, they want a career, rather than a series of assignments.

At the same time, Ms Howe has plenty of people on her books whose careers are well established but who want more flexibility as they bring up a family or approach retirement.