Starting a recruitment agency in the UK

Recruitment is one of the easiest regulated trades to enter in Great Britain and one of the easiest to get wrong. There is no application form, no deposit and no waiting period for most sectors. The obligations arrive with your first candidate, and the law treats a one-person start-up the same way as a national agency.

The two laws that matter are the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003, usually called the Conduct Regulations. They apply whether you run the agency for profit or not, and whatever the employment status of the candidate, including contractors who work through their own limited company.

Agency or employment business

The law separates two models, and many firms run both.

An employment agency is not responsible for paying a candidate once the hirer takes them on. An employment business is. You must pay temporary workers for every hour they work, even if the client has not paid you and even if the client has not signed the timesheet. That cash flow risk is the main difference between the two models and should shape your choice at the start.

Agencies based in Northern Ireland follow their own rules and answer to the Employment Agency Inspectorate there.

When you do need a licence

If you supply workers to agriculture, horticulture, shellfish gathering or the processing and packaging of food, you act as a gangmaster. That needs a licence from the Fair Work Agency under the Gangmasters (Licensing) Act 2004. Acting as a gangmaster without one is a criminal offence, and so is using an unlicensed gangmaster. Outside those sectors no licence applies, though entertainment and modelling agencies follow different rules on fees.

What you may never do

The Conduct Regulations set firm limits. You cannot:

• charge a candidate a fee for finding them work, outside entertainment and modelling
• stop a worker from working elsewhere or from ending their contract with you
• make a worker tell you the name of a future employer
• withhold pay that is due, or make unlawful deductions
• supply a temporary worker to replace someone taking part in industrial action
• charge for a uniform without telling the worker in advance

Your temporary workers must also be paid for all their work, receive paid holiday, not be forced to work more than 48 hours a week, earn at least the minimum wage and be protected by health and safety law. The National Living Wage is £12.71 an hour and rises to £13.21 from April 2027. Statutory holiday is 5.6 weeks a year.

Paperwork before the first placement

Before you start looking for work for a candidate, you agree written terms with them, often simply called the contract. A temporary worker also receives a key information document, a short page that sets out who will pay them, how, and what deductions apply. Official guidance includes example documents for workers paid through PAYE, through an umbrella company and through a personal service company. When the worker starts, they receive a written statement of their terms, and that applies to limited company contractors as well.

When you offer an assignment you send a booking confirmation with the details of the work, by email, text or a messaging system. Hirers also sign terms with you before you introduce or supply anyone.

Umbrella companies and PAYE

Many temporary workers are paid through an umbrella company that employs them and runs their payroll. From 6 April 2026 the recruitment agency is accountable for PAYE on payments to workers supplied this way. If several agencies sit in the chain, the rule lands on the one with the direct contract with the end client. If there is no agency, it lands on the client.

In practice, every umbrella company you work with becomes a tax risk on your own books. Check them before you use them, keep evidence of that check and review it regularly.

Equal treatment after 12 weeks

After 12 weeks in the same job, an agency worker qualifies for the same basic rights as someone employed directly, including the same pay as a permanent colleague doing the same job, automatic pension enrolment and paid annual leave. The clock starts on the first day at work. Breaks of six weeks or less pause it rather than reset it, and so do sick leave and annual leave. A new workplace, a break of more than six weeks or a substantively different role starts the count again.

Track each worker's weeks per client from day one. Your client needs to know when pay must change, and you need to bill the new rate.

Records you must keep

The Conduct Regulations require you to keep records for at least one year, counted from when they were made or from the last date you provided services to that person. A custom CRM keeps candidates, clients, terms and placements linked, so an inspection is a search instead of a hunt. Staff scheduling software and a time tracking app turn approved hours into pay and invoices.

You also hold CVs, references and identity documents. Most agencies pay the ICO data protection fee of £52 or £78 a year. Read UK GDPR vs EU GDPR and do I need a privacy policy before you collect your first CV.

Cash flow in temporary supply

Temporary supply looks profitable on paper and drains cash in practice. You pay workers weekly, while clients often pay invoices thirty days or more later. Each worker on £12.71 an hour for a 40-hour week costs you £508.40 in gross pay alone, before holiday pay, employer National Insurance and pension. With ten temps out for a month before the first client pays, you are funding several thousand pounds of wages a week from your own account.

Plan for that gap from the start. Agree payment terms with each client before the first placement, invoice weekly from approved timesheets and keep a buffer that covers at least one full payroll cycle. That is a good reason to weigh starting with permanent placements, where the hirer pays the worker and you invoice a fee, and to add temporary supply once the cash is there.

The Fair Work Agency

On 7 April 2026 the Fair Work Agency took over from the Employment Agency Standards Inspectorate and several other enforcement bodies. It acts as the state regulator for agencies and employment businesses in England, Scotland and Wales and also runs gangmaster licensing. It investigates complaints from agency workers, runs targeted operations in risky sectors and can issue warning letters, undertakings, orders, prosecutions and prohibitions. Expect a complaint from a single unpaid temp to lead to a look at your whole file.

Your first month

1. Week 1. Register your company with Companies House for £100 online, open a business account and take out employers' liability insurance with at least £5 million cover once you employ anyone.
2. Week 1. Choose your model: permanent, temporary or both. Decide whether you will pay temps yourself through PAYE or allow umbrella companies.
3. Week 2. Draft candidate terms, hirer terms and your key information document. Have them checked.
4. Week 2 to 4. Set up your candidate database, timesheets and invoicing, then publish your first roles. VAT registration becomes compulsory once your taxable turnover over the last twelve months goes above £90,000, which a temp desk can reach quickly because the whole charge rate counts.

For temporary supply, set your markup so that wages, holiday pay, employer costs and your own margin all fit. The margin calculator and the break-even calculator help you check that before you quote.

Finding candidates and clients

An agency competes in two markets at once. Candidates find you through job boards, social media and search; a complete Google Business Profile for each office helps local candidates. Clients pick you for speed and reliability. Your employer branding matters more than in most trades, because to temps you are the employer. AI for HR shows how to screen CVs and write job ads faster.

A website from VBS starts from 1,500 euro; read more about our website design service. If clients want to see their temps, hours and invoices themselves, a client portal does that. From 1 April 2029 VAT invoices move to e-invoicing; the guide to e-invoicing in the UK explains what changes.

Next step

With terms, key information documents and records in place, you are ready to place your first candidate. After that, the agencies that grow are the ones that fill roles fastest. Our page for recruitment agencies shows how a jobs site, a candidate database and timesheets work together.