The introduction of the GST could force companies to choose between employing permanent and contract staff, an industry analyst has warned.
Jim Morrison, tax partner of the technology group at Deloitte Touche Tohmatsu, told Computerworld: "Although companies will be able to claim credit for GST in most cases, they will be managing two different administration systems for permanent and contract staff.
"Companies may be forced to narrow their staffing policy to include only one kind of labour."
For those organisations that do continue to use contract labour, Morrison highlighted productivity problems, security issues and pay disparities as key challenges they will face.
Morrison warned companies are placing themselves at risk from a productivity and security point of view, as organisations have "no legal right" to restrict the activities of their contractors.
"This can result in a contractor working for two or three companies at the same time, which lends itself to security and performance issues," he said.
However, John Rawlinson, managing director of Morgan & Banks, argued that by properly managing their contract staff, companies can improve productivity.
"Contract labour personnel tends to be more accountable for their time," he commented.
Rawlinson said organisations can also derive great benefit from the flexibility of contract labour and having the right skills mix on tap.
"IT has historically been the largest users of contract labour, as the industry lends itself to discrete project work where IT departments need to gear up for large, one-off projects such as Y2K, GST or e-commerce," Rawlinson said.
Alluding to the fact that these projects typically demand highly specialised skills, he added "no organisation can afford to have the full skills complement on staff".
Instead, Rawlinson claimed the greatest challenge to organisations, where permanent and contract staff are concurrently employed, is managing pay disparities.
"The high rates of pay for contract staff used to be offset by lack of job security and long-term tenure," he said.
"But the recent unprecedented demand for IT skills means contractors have very little difficulty in getting continuous work."
Over-resourcing a project can also be a danger, with contractors retained at high rates following project completion where lower levels of maintenance would be adequate, according to Rawlinson.
But he added: "Companies must also avoid under-resourcing a project with insufficient numbers or calibre of staff."
Morrison claimed the major justification for contract labour is simple economics.
"From the contractors' point of view, they are in a better tax position," he said.
"From the companies' point of view, there are no superannuation payments, no administration of pay-as-you-earn (PAYE) tax, reduction on payroll tax liability and a reduction in workers' compensation liability.
"From a human resource standpoint, contractors are also easier to recruit and dismiss when no longer needed."