Introduction
This article explains the differences between an employment agency, or recruitment agency and an employment business. It also clarifies the status of the employees who work for each. It will be important reading to any employer who uses an employment or recruitment agency to find their staff, the workers of those agencies and businesses as well as the agencies and employment businesses themselves.
The background
Employment agencies in England, Scotland and Wales must comply with the Employment Agencies Act 1973 and regulations.
The Employment Agencies Act 1973 applies to any organisation offering the service of providing workers, whether for profit or not, whatever the legal status of the worker and even if the provision of the worker is made only by supplying information (such as contact details). This covers recruitment agencies, au pair agencies, modelling agencies, executive search and "temping", whether the temp is under the control of the recipient or the agency.
Employment agency or employment business?
The Conduct of Employment Agencies and Employment Businesses Regulations 2003 supplement the 1973 Act. The regulations apply from 6 April 2004 and define two types of agency.
An "employment agency" is one that provides staff who are then employed by the ‘client employer’.
An "employment business" on the other hand, provides staff who do not become employed by the Hirer but who are seconded or supplied to a ‘client employer’.
So an employment business pays their staff directly, whereas an employment agency simply finds staff and passes them onto an employer who deals solely with their remuneration.
Neither type of agency can charge workers for placing them or require them to use other services for a fee. There are exceptions, namely for modelling agencies or similar jobs where there is usually a ‘manager’. Neither type of agency can attempt to prevent the worker themselves from working for anyone else or expose them to any detriment for leaving the agency unless a refusal to complete agreed work causes loss.
Temporary staff
The most significant regulation may turn out to be the prohibition on payment of temporary staff by the agency unless it engages the worker directly. For technical reasons this could lead to an increase in VAT paid by the Hirer. Alternatively the Hirer can employ the workers but this undermines part of the reason for using agency staff. The implications of this change could be far reaching on the industry - and incidentally greatly reduce litigation on the employment status of agency workers.
Additionally, an "employment business":
- cannot supply a worker to perform the duties of someone taking part in an official strike;
- is subject to restrictions on charging fees to Hirers when the temp goes to work directly for the Hirer or where the temp works for the Hirer but is supplied by another agency;
- must pay the worker whether or not the agency has been paid and even if there is no signed time-sheet;
- cannot deduct payment for a period actually worked because of a failure to work in a different period.
Contractual obligations: the contract
Both forms of agency must provide workers and client employers notice of various contractual terms and they must also record those terms and any amendments in a single document. The terms to be set out for temporary staff include the nature of the relationship, pay rates, holiday and notice periods. This can easily be dealt with using a ‘statement of particulars’ document which is available here.
Both forms of agency are required to take and record certain details of their instructions in specified documents. Finally, both are generally responsible for carrying out pre-employment checks on staff and maintaining confidentiality save in specified circumstances.
Sex discrimination
It as been estimated that there are some 17,000 employment agencies in Great Britain supplying many hundreds of thousands of workers a year into temporary or permanent jobs. The sex discrimination legislation can be a particular problem for employment agencies and they must be careful to ensure that they do not discriminate against either sex by reserving some jobs for men and other jobs for women.
A worker who is supplied to a client employer by an employment agency remains an employee of the agency for the purposes of the anti-discrimination legislation. So even though the worker is not technically an employee of the client employer, he (or she) will have rights against a client employer who is guilty of unlawful discrimination against him (or her).
Employment agencies themselves are covered by Sex Discrimination Act 1975 s.15 and Race Relations Act 1976 s.14 which make it unlawful for an agency to discriminate against a person in the terms on which the agency offers to provide any of its services, or by refusing or deliberately omitting to provide any of its services, or in the way it provides any of its services.
Working Time Regulations
The 1998 Working Time Regulations specifically apply to agency staff. They include a special definition of agency worker and the provisions concerning minimum paid holiday and obligatory rest breaks as well as the maximum working hours provisions apply to agency workers as to others.
The effect is that either the agency or the principal to whom the agency has supplied the worker will be responsible for ensuring compliance with the regulations and/or Act, depending on which of them is responsible for paying the agency worker. If this is not specified the one who actually pays is made responsible.
Treatment of temporary workers
The main purpose of the forthcoming Temporary and Agency Workers (Equal Treatment) Bill is to ensure that an agency worker has the right not be treated (by the employment business or employment agency through which his services are provided, or by the end user), less favourably in respect of his basic working and employment conditions than a comparable direct worker is or would be treated. | 
