Recruitment agency regulation: the Employment Agencies Act and the Conduct Regulations

The recruitment agencies that place most of the country's IT contractors are regulated under the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003. The regulations govern what an agency must tell a worker and a client, when it may charge fees, how it handles pay, and the restrictions it may place on a worker moving to a client directly. They were enforced by the Employment Agency Standards Inspectorate until April 2026 and by the Fair Work Agency since.

The 2003 regulations and the opt-out

The Conduct Regulations were redrawn in 2003 after a consultation that the archive covered from its first months in 2000. The contracting industry's concern was that regulations written for temporary workers would treat limited company contractors as agency workers, with restrictions on transfer fees and terms that did not suit a business-to-business relationship. The result was the opt-out: a contractor working through a limited company can, with the company's and the worker's agreement given before introduction to the client, opt out of the regulations altogether. Whether to opt out has been a live question for contractors ever since, because being inside the regulations brings protections on payment and restrictive terms, and being outside is often cited as evidence of being in business on one's own account.

Agency workers and the 2010 regulations

The Agency Workers Regulations 2010, implementing the European directive, gave agency workers equal treatment on pay and basic conditions after twelve weeks in a role. Limited company contractors are outside them where genuinely in business; umbrella employees are inside. The regulations' Swedish derogation, which allowed pay between assignments in exchange for giving up equal pay, was removed in April 2020.

Enforcement from 2026

The Fair Work Agency began work on 6 April 2026, combining the Employment Agency Standards Inspectorate, the National Minimum Wage enforcement team and the Gangmasters and Labour Abuse Authority. The Employment Rights Act 2025 extends the agencies legislation to umbrella companies from 2027 and gives the new body powers of investigation and penalty that the inspectorate never had. In the same month the tax rules made agencies jointly and severally liable for umbrella PAYE, and from October 2026 the right-to-work regime extends to the whole supply chain.

Reading the archive

The articles below run from the 2000 consultation on the Conduct Regulations, through the opt-out debates, the 2010 regulations and the reform proposals of 2013, to the 2026 enforcement regime. The two 2003 and 2004 analyses of the Employment Agencies Act regulations are among the most read pages on this site.