Employment agency or employment business?

Article reference: UK-IA-EMP32
Last updated: December 2020 | 5 min read

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.

Employment agencies in England, Scotland and Wales must comply with the Employment Agencies Act 1973 and other regulations.

The Act applies to any organisation that provides 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). It 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.

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 is then employed by the client employer.

An employment business on the other hand, provides staffs 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.

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

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.

Contractual obligations

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 includes the nature of the relationship, pay rates, holiday and notice periods. This can easily be dealt with using a statement of particulars document.

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 (such as checking rights to work in the UK) 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 equal opportunities law such as The Equality Act, the Sex Discrimination Act 1975, the Employment Equality (Religion or Belief) Regulations, and the 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.


Net Lawman offers contracts for employment businesses and agreements for recruitment agencies. These have been written to take into account matters raised in this article.

© 2000 - 2024 Net Lawman Limited.
All rights reserved