So I rendered out a poster in SFM with Spy in this pose with a greenscreen behind him. I think opened it up in Photoshop, got rid of the keyframe, and proceeded to Magic Wand each piece of him to what I wanted. I then went ahead and took the default colors of taunts images and applied them to the parts by magic wanding his gun/suit/tie/shirt/face/mask/collar/hand individually, taking a good amount of time.

Next I opened up another photoshop file, made a 512x512 canvas, added an alpha channel on top of RGB, made a white box in the center of the alpha channel, made a new layer and threw the spy image I recolored with the above technique into that layer, shrunk him down to fit 512x328 in the center of the image, and then copied his outline onto the alpha channel, thus surrounding him so that everything was black around the Spy.
Here's the process for the second part that I followed this tutorial for the 512x512 canvas, took me three tries to get it right: https://www.youtube.com/watch?v=wJ6j7DJBO9c

Overall, the amount of time I spent making the icon was roughly 3 hours, as I know the basics in photoshop and experiment to try and test theories and ideas of making the process faster for myself.

Hope this helped!

Thanks :o