Change is on it’s way … HST’s Affect on the Contract Industry?

There has been much debate over the decision in Ontario and British Columbia to implement a harmonized sales tax (HST) in July of this year. Some say that over time it will reduce consumer costs, but I have my doubts.

Specifically I am interested in how this new HST is going to affect staffing, both for companies as well as for professional contractors.

As you likely know, contractors currently are required to charge GST for their services. In 2010, that 5% cost will be increased to 13% here in Ontario and 12% in BC.

Many contractors have already taken significant cuts in the past couple of years, thanks to the declining economy either due to a lack of stable work or by outright rate reductions required by their clients.

Looking into my crystal ball, I would expect companies to ask their contractors to again reduce their rates in order to offset the immediate 7-8% hike to their staffing budgets. With the economy not yet stable, contractors may find that they have to accept such a reduction at least in the short term.

And then there is the question of how to handle the HST itself. For contractors who are registered sole proprietors or corporations, more complex accounting and tax filings may require education for contractors on how the change impacts them, and potentially greater costs for accounting services.

While the HST supposedly promises to allow better tax credits for small- and mid-sized businesses, the tax advantage is unlikely to find its way back to the contractor and recruiting budget. With human capital being the single largest ongoing expenditure for most companies, an 8% increase overnight is going to hurt. Will companies slash their use of contractors, and encourage the use of full time workers instead? Will the economy lag just enough going in to the transition that contractors will accept the rate reductions? Will the agencies be likely to eat into their margins that are already under pressure? Only time will tell, but a smattering of all of these options is my bet.

I’m interested to hear from all sides of the business to see what expectations are for how the change to the HST will be handled. Personal politics aside, I don’t see much good coming from it. I hope I’m wrong.

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