Ask a contractor and a main contractor's HR director the same question, "should this role be permanent or contract?", and you'll often get very different answers. That tension isn't new in construction. But 2026 has thrown enough regulatory change and market uncertainty into the mix that the balance is genuinely shifting, and not always in the direction people expect.
A market that's harder to read than the headlines suggest.
On the surface, the data looks like demand is cooling. Advertised vacancies have weakened, some employers are cautious about recruitment, and CITB expects output to dip slightly during 2026 before recovering from 2027. Taken at face value, that points to less hiring activity all round.
But construction rarely behaves like a straightforward vacancy chart. A falling number of advertised roles doesn't necessarily mean the industry has enough people, it can just as easily mean businesses are delaying decisions, leaning on subcontractors instead of growing headcount, or waiting for greater project certainty before committing to a permanent hire. Much of the workforce sits outside standard employment altogether, self-employed, agency-supplied, or engaged through layers of subcontracting, so vacancy data only ever tells part of the story.
Underneath that caution, the underlying need for people hasn't gone away. CITB's Construction Workforce Outlook 2026–2030 still puts the figure at 41,200 extra workers needed every year to keep pace with demand. Retirement, career changes and people leaving the workforce don't pause just because tender pipelines are quieter, replacement demand keeps ticking over regardless of the wider economic mood.
Why contract engagement is under the microscope.
What's really moving the needle in 2026 isn't just appetite, it's regulation. Two significant changes to contractor taxation took effect on 6 April, and they pull in opposite directions.
First, the small company thresholds for IR35's off-payroll working rules increased substantially, turnover from £10.2m to £15m, balance sheet from £5.1m to £7.5m. HMRC estimates around 14,000 companies have been reclassified as "small" as a result. For contractors working with those newly small clients, responsibility for determining IR35 status shifts back to their own personal service company, rather than sitting with the end client, potentially making genuine "outside IR35" contracting more accessible again for a meaningful slice of the market.
Second, and pulling the other way, new Joint & Several Liability rules now make the top agency in a labour supply chain liable for any PAYE and National Insurance an umbrella company fails to pay over. Unlike IR35's reasonable care defence, there's no equivalent protection here, agencies are exposed regardless of how much due diligence they've carried out. For businesses that had defaulted to umbrella arrangements as the "safe" option since the 2021 reforms, that assumption no longer holds.
The likely knock-on effects are already being discussed across the recruitment industry: tighter panels of accredited, larger umbrella providers, more use of Statement of Work and project-based engagement models, and in some cases, agencies and clients bringing payroll in-house rather than routing it through a third party at all.
What this means in practice.
For employers, the calculation is becoming more deliberate. Rather than defaulting to "permanent because it's simpler" or "contract because it's flexible," the sharper question is what a role actually needs: is the requirement temporary and project-tied, or is it a long-term capability the business wants to build in-house? A quantity surveyor brought in to see a single scheme through completion is a different proposition to a quantity surveyor a business wants developing into a future commercial lead, even if the day-to-day work looks similar.
Compliance now sits right at the centre of that decision in a way it didn't five years ago. Getting worker classification wrong, or engaging an umbrella provider without proper due diligence, carries real financial exposure that didn't exist in the same form before April 2026. That's pushing some employers toward permanent hires simply to reduce compliance risk, while pushing others toward more structured, statement-of-work-based contracting that sits more clearly outside the areas of greatest exposure.
For candidates and contractors, the picture is similarly mixed. Genuine outside-IR35 opportunities may open up again with newly reclassified small clients, but the umbrella market contractors have relied on for flexibility is consolidating around fewer, larger, more heavily vetted providers. Anyone weighing up contract versus permanent right now needs a clearer-eyed view of take-home pay, continuity of work, and compliance exposure than the "which pays more" comparison that used to be the whole conversation.
Where the market is likely heading.
Don't expect a clean swing in either direction. What's more likely is greater polarisation, more permanent hiring for roles businesses see as core and long-term, more structured project-based contracting for clearly defined, time-limited work, and a shrinking middle ground of loosely defined, umbrella-engaged contracting that no longer fits comfortably into either compliance model.
At Caval, we help both sides navigate that decision, structuring engagements that fit the reality of the work, not just the path of least resistance. Whichever way a specific hire ultimately swings, getting the classification, compliance and structure right at the outset matters more in 2026 than it has in years.