Forgive the long title, but these Regulations are important for Limited Company Contractors (or Personal Service Companies) and agency temps.
These regulations were introduced in April 2004 (2005 in Northern Ireland) and were updated in 2010, 2016 and again in 2020. They provide a framework of minimum standards that govern the conduct of the private recruitment industry in the UK (and supplement the Employment Agencies Act 1973).
Here we look at what they mean and why they’re important (for details of the separate Agency Workers Regulations, see our Guide).
They essentially provide protection for what is known as ‘work-seekers’ – those looking for either temporary or permanent employment. Any breach of the regulations by a recruitment company is a criminal offence. The regulations apply to any company providing ‘work-finding’ services.
They cover Employment Agencies and Employment Businesses which provide temporary and permanent staff to end-hiring companies - this doesn’t just cover traditional recruitment companies and temping agencies, it can include sports and entertainment agents, online CV libraries, phone apps for finding tradespeople and firms supplying highly skilled professional employees to work on client projects. Ultimately, only a Court can decide if the company is in scope of the Regulations.
Entertainment and modelling agencies/businesses have their own separate rules.
Local councils, certain educational institutions, trade unions, certain professional members’ bodies, charities, child-minding agencies, and services provided for ex-members of HM forces or for people released from prisons and other institutions are not covered by these Regulations).
Also, where a company is providing outsourced services to another Company - rather than labour - e.g.Cleaning services, IT support, catering services, they are not covered by these Regulations.
In October 2020 The UK High Court handed down an important judgement that will potentially affect businesses that operate as 'middlemen' introducing individuals to end-users on an 'arms-length' basis in which the worker often operates on a self-employed basis.
In Simply Learning Tutors Agency Ltd and others v Secretary of State for BEIS, the court made a declaration that a business which operated as a middleman by introducing tutors to parents, was within the Employment Agencies Act 1973 (EAA 1973). This meant it was subject to the provisions of the Conduct of Employment Agencies and Employment Business Regulations 2003. The tutoring agency had argued that it could not be an ‘employment agency or business’ because 'no one got employed', and the agency was a 'mere middleman' which simply introduced the tutors to parents and forwarded payments onto tutors. The court did not agree and said this argument was 'wholly unpersuasive'.
The EEA 1973 meaning of ‘employment’ was wide and did not just cover traditional employees and workers but may extend to the self-employed too. The Judge in this case said that the definition of employment in the Act included “all arrangements through which a business supplied people personally to perform work for third party, whether or not that was regarded as employment, professional engagement or self-employment under a contract for services”
Employment Agencies are defined as:
Companies that introduce work-seekers to Companies who then employ them and pay them directly – and they have permanent employment with the end company (or a fixed term PAYE contract). This includes Recruiters, Agents, Head-Hunters and sometimes Job-Boards.
Employment Businesses are defined as:
Companies that provide temps to organisations (a temping or staffing agency usually). The Employment business engages a work-seeker under a contract with them, and the temp then works under the supervision of someone else at a hiring organisation, for as long as they are needed. Temps are paid by the employment business, not the company they’re supplied to. See our new Guide, “Can an Agency worker ever become permanent” here.
Under the Regulations an Employment Agency or Business cannot:
- Charge a fee to a work-seeker to find them work. They can charge for non-work finding services like CV writing or transport to jobs, but the details of these services must be provided in a separate document and be given to the work-seeker before providing these services
- Make a work-seeker use these additional (charged-for) services as a condition of finding them work – including requiring the work-seeker to take training courses, that they need to pay for, to access work
- Prevent someone from working somewhere else or ending their employment with the agency/business or working directly with another person; or subject a work-seeker to a ‘detriment’ if they decide to take up work with someone else (although they can ask you to give notice to stop working with them)
- Withhold payments or wages due to temporary work-seekers (even if they haven’t been paid by the end hiring organisation or have no timesheet authorised by the hirer; this doesn’t apply to employment agencies who aren’t responsible for paying a work-seeker after they’ve been introduced to the permanent hirer)
- Supply a temporary worker to replace someone taking part in industrial action at the hiring company (this was changed by the Government on 21st July 2022, to much concern by many, including Unions, the TUC and also the Recruitment and Employment Confederation, so that temporary workers can be used to cover striking workers. However, in July 2023 the High Court, following a legal challenge by 13 trade unions, declared that these amendments were unlawful; so the existing regulations are re-applied - so Employers can no longer engage agency staff to cover striking workers; and employment agencies will commit a criminal offence if they supply staff to cover for striking workers. The Government can appeal this if they can persuade the Court of Appeal they have reasonable grounds to do so.
- Charge for a uniform without telling the worker in advance
- Make unlawful deductions from pay.
An Employment Business must make sure temporary workers are:
- Paid for all the work they do (even if they haven’t received payment from the end-hirer; even if the temp hasn’t got a timesheet authorised by the hirer; or the worker then leaves their employment)
- Paid holidays
- Not forced to work longer than 48 hours per week
- Paid at least the National Minimum Wage
- Protected under health and safety laws
- Given written terms of employment before they start to find work for them.
An Employment Business can delay payment to a work-seeker while it makes reasonable enquiries to verify the hours the temp has worked – but DTI guidance says this delay should only be for a few days.
These written terms and conditions of employment should cover:
- The type of work they will find or seek for the work-seeker
- If the work-seekers will be employed under a contract of service (employment with the Employment Business); an apprenticeship; or on a contract for service (LCC/PSC’s) – and what terms will apply
- The length of notice the work-seekers needs to give and is entitled to get for assignments
- The minimum rate of pay you expect to get for the work-seeker, how often and when the work-seeker will be paid
- The amount of holiday and holiday pay details. If the work-seeker is a limited company and aren’t opted out of the Regulations (see below) you must detail when they may be entitled to, and be paid for, time off.
Since 2010, Employment Agencies supplying permanent workers don’t legally need to agree terms with a work-seeker before seeking work for them, or agree terms with Clients before introducing them to the work-seeker.
The Employment Agency or Employment Business must also:
- Carry out suitability checks prior to employment for all ‘temporary’ work-seekers
- Carry out suitability checks on permanent work-seekers when the work that’s to be done with ‘vulnerable’ people. Vulnerable people are persons under 18 or those who by reason of their age, infirmity or other circumstances is in need of care
- Advertise any vacancy/position with full details and whether it’s a temporary or permanent position
- Provide terms and conditions to companies hiring temps – detailing the fees they need to pay and what procedures they have in place for unsatisfactory workers (how and when a hirer should tell them a worker is unsatisfactory; and what they will do about it – terminate the workers assignment, try to solve the problem or supply a different worker).
If you believe your Agency is charging you inappropriate fees, you can make a complaint to the Employment Agency Standards Inspectorate (EAS) here.
From 6th April 2020 all agency workers must be provided with a “Key Information Document” before they agree terms with the employment business (temp agency). This should contain information about the relationship between the temp, the agency and the hirer, so temps are clear about their pay (and pay intervals) and deductions. It must also give contact details for the Employment Agency Standards Inspectorate (EAS). The document must be no longer than 2 sides of A4 paper and must be written in a simple and clear style.
How do the Regulations affect Limited Company Contractors?
Limited Company Contractors (or Personal Service Companies) can choose to opt-out of all these Regulations – however the LCC must opt-out, and the end hirer must be told this, before the assignment starts (otherwise the opt-out will be invalid).
LCC’s who decide to opt-out can decide to opt-into the rules again, but only when they’ve finished working for the hirer they’ve opted-out with. However, LCC’s cannot opt-out if they’re going to be working with ‘vulnerable’ people (see above).
Employment Businesses mustn’t make opting-out a condition of providing work-finding services for the LCC.
Advantages & disadvantages of opting-out
- If you opt-out, there may be delays in payment (as the Employment Business can then wait to be paid by the end hirer or not pay you if they don’t have a signed timesheet)
- Regulation 10 limits the ability of an agency to validly restrict a work-seeker making direct arrangements for future services with the end-client/hirer. So if you opt-out this does not apply and it is common then to have a 6 or 12 month ‘restriction’ clauses (that stop you working directly with the client during this time). Where the regulations apply (you have not opted-out) the maximum effective period during which a restriction can prevent direct dealings with an end-client will be the longer of 14 weeks or 18 weeks (see explanation below)
- You cannot choose which bits to opt-out of – you have to opt-out of all the Regulations or none
- Would end-hirers prefer freelancers who have opted out? Most Employment Businesses generally prefer limited company freelancers to opt-out as it’s less administrative burden on them
- As with the Agency Workers Regulations, these Regulations were designed to apply to workers who are controlled by the client/end-hirer – the vast majority of contractors may not require the protection which the Regulations bring as they don’t wish to be ‘controlled’ for employment status/IR35 reasons
- There have been many discussions in various forums about whether opting out makes a LCC more IR35 negative, positive or neutral – with differing opinions about ‘accepting’ control, making effective business decisions and so on – so the decision should only be made by an LCC on an informed and individual basis.
Fees to Hiring Companies
An Employment Business (supplying temps) can charge “reasonable” transfer fees to end-hirers:
- When they’ve supplied a temporary worker who’s then taken on permanently by the hirer (temp-to-perm fees)
- If the hirer changes agency but wants to keep the same temporary worker, meaning the worker has to change agency (temp-to-temp fees)
- If the hirer introduces a temporary worker to another company that wants to temporarily offer them work (temp-to-third-party fees).
Temp-to-perm fees and temp-to-temp fees:
- These can be charged as long as the hirer has first had the option to have the worker supplied by the business for a set period of hire. After this the worker can transfer without a fee. There’s no time limit for the extended period of hire. The worker must be provided for all of the set period for hire, unless the Employment Business is prevented from doing this for reasons that aren’t their own fault.
- These can only be charged when the ‘transfer’ takes place within either 14 weeks of the start of the first assignment with the hirer or eight weeks of the end of any assignment (whichever is the later date). Otherwise the end-hirer doesn’t need to pay a transfer fee. If the worker has been on more than one assignment with a break of more than 42 days between assignment, the 14 week period starts again.
In 2015, the government consulted on proposed changes to the Conduct of Employment Agencies and Employment Businesses Regulations, including banning agencies from recruiting work-seekers solely from other EEA countries, without advertising the relevant vacancies in Great Britain. From 8th May 2016 the legislation was amended to:
- ban agencies recruiting solely from overseas EEA countries. Agencies must now advertise the relevant vacancies in English in Great Britain at the same time as advertising in the EEA (or advertising in English in Great Britain in the 28 day period before).
- Regulation 17 is removed so that employment businesses will no longer be required to obtain agreement to terms with hirers.
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.