Employment agency or employment business: the difference that decides everything

6 minute read · Updated 2026-09-09

People use "agency" for both, and the Conduct Regulations do not. Almost every question a new agency asks has a different answer depending on which one you are, so it is worth five minutes.

An employment agency: permanent work

You introduce a candidate. The client employs them directly. You invoice a fee, usually a percentage of the first year's salary or a fixed sum, and your involvement ends.

You never pay the worker, so there is no payroll, no holiday pay, no pension and no statutory sick pay.
No key information document is required.
The Agency Workers Regulations do not apply.
You still owe the candidate written terms, suitability checks and a privacy notice, and you still cannot charge them anything.
Your money is a lump sum, thirty days after somebody starts. Your risk is that they leave in week three and you owe a rebate.

An employment business: temporary work

You supply a worker to work under somebody else's control while remaining your worker. This is the heavier of the two by a distance.

You pay them. Weekly, usually, while the client pays you in thirty days. That gap is the single reason temporary agencies run out of money.
A key information document before they agree terms, every time.
Assignment details in writing before each assignment, under regulation 18.
Holiday pay, statutory sick pay, and pension auto enrolment.
Employer's liability insurance, compulsory.
The Agency Workers Regulations 2010: after twelve weeks in the same role the worker is entitled to the same basic pay and conditions as if the client had hired them directly.
You cannot withhold pay because a timesheet is unsigned. Regulation 12 is explicit about it, and it is one of the most common complaints the regulator sees.

The cash problem, and the usual answer

The gap between paying a worker on Friday and being paid by the client in thirty days is what kills temporary agencies, and it gets worse as you grow: a good month means a bigger hole, not a smaller one.

The usual answer is invoice finance, sometimes sold as payroll finance or recruitment finance. A funder advances most of the value of your invoice as soon as you raise it, often eighty to ninety per cent, and takes their fee when the client pays. Some will also run the payroll and the credit control for you, which for a one person agency is worth more than the money.

Read the terms before you sign anything. What matters is the total cost as a percentage of what you invoice rather than the headline rate, whether it is with recourse (you carry the risk if the client never pays) or without, whether you are tied in for a minimum term, and what happens if you want to leave. Get quotes from more than one, and ask each of them the same three questions in writing.

Which to start with

Permanent, unless you have money behind you. Not because temporary is worse: it produces recurring revenue, it builds a client relationship weekly rather than annually, and it is where most agencies make their living. It simply costs money to start, and the compliance load is several times heavier.

A sensible first year: permanent placements only, one clean set of terms, and every fee reinvested. In year two, with cash in the bank and an accountant who runs weekly payroll, add temporary.

If you do both

Keep them visibly separate. Different terms of business, different terms with the worker, and a clear statement in every advert of whether the role is permanent or temporary, which regulation 27 requires anyway. A client who thinks they are getting a permanent hire and receives a temp is a dispute you will lose.

Who is watching

Since 7 April 2026 the Fair Work Agency has taken over the work of the Employment Agency Standards Inspectorate along with gangmaster licensing and several other enforcement functions. One body now looks at agency conduct, minimum wage, holiday pay and licensing together, which means an inspection about one of them can become an inspection about all of them.

Before you rely on this

This is a guide, not legal advice, and it is free because the law behind it is free. Every source we used is linked in the text so you can read it yourself rather than take our word for it. Where a decision turns on your own circumstances, and two of them below do, pay a solicitor once. It is cheaper than the alternative.

We are a UK job board and we are building a recruitment arm of our own, so we are working through this list ourselves. If you spot something out of date, tell us and we will fix it and say when.