In brief. You can start a recruitment agency in the UK without a licence in most sectors, and you are regulated from the first day. The moment you find work for people or supply them to a client you are an employment agency or an employment business under the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003, and since 7 April 2026 the Fair Work Agency enforces those rules in England, Wales and Scotland. The compliance you cannot skip is short and specific. Decide which of the two you are, because the duties differ. Put written terms in front of every work-seeker before you look for work for them, and give every agency worker a Key Information Document before terms are agreed. Never charge a work-seeker for finding them work. Advertise only real vacancies, under your full name. Pay every temporary worker for every hour worked whether or not the client has paid you. Check the right to work of everyone you place, with the date. Keep the records the regulations require for at least a year and be able to produce them within two business days. Carry employers' liability insurance of at least £5 million from the day you employ anyone. Register for PAYE, protect candidates' data under the UK GDPR, and if you use umbrella companies, know that since 6 April 2026 their unpaid PAYE can become your debt. Everything below has its government source.
Key facts, each with its source
- Two kinds of business, two sets of duties. An employment agency finds work for work-seekers who are then employed and paid by the hirer (permanent recruitment); an employment business engages work-seekers under a contract and supplies them to work under a hirer's supervision, and pays them itself (temporary recruitment). A business that does both follows both sets of rules (gov.uk, Employment agencies and businesses).
- No licence in most sectors. There is no general licence to run a recruitment agency. A licence from the Fair Work Agency (the scheme formerly run by the Gangmasters and Labour Abuse Authority) is needed to supply workers in agriculture, horticulture, shellfish gathering and food processing and packaging (gov.uk, Licences for employment agencies).
- The rules that apply to everyone. You cannot charge a work-seeker for work-finding services, stop someone working elsewhere, withhold pay that is due, or make unlawful deductions. You must give every work-seeker written terms of engagement, and every agency worker a Key Information Document, before you start looking for work for them, and an employment business must pay a temporary worker for all the hours worked even if the hirer has not paid or has not authorised the timesheet (gov.uk, Employment agencies and businesses).
- Adverts. Every advertisement must carry the full name of the agency or employment business and say whether the services are those of an agency or an employment business, and you may only advertise a vacancy you have the hirer's authority to fill; where a rate of pay is given the advert states the nature of the work, the location and the experience, training or qualifications needed to earn it (regulation 27 of the Conduct Regulations 2003).
- Records and inspections. Records of applications from work-seekers and hirers are kept for at least a year from the last service provided to them, and when a Fair Work Agency inspector asks for records they must be provided by the end of the second business day after the request; inspectors can issue warnings, recommend prosecution or seek a prohibition order through an employment tribunal (gov.uk, Record keeping for employment agencies and businesses).
- The regulator. The Fair Work Agency launched on 7 April 2026 and took over the Employment Agency Standards Inspectorate's regulation of agencies and employment businesses, alongside minimum wage enforcement and gangmaster licensing (business.gov.uk, Fair Work Agency).
- Right to work. You must check that a person is allowed to work in the UK before they start, by share code, original documents or an identity service provider, keep copies for two years after they stop working for you, record the date, and repeat the check where permission is time-limited; the civil penalty is up to £60,000 for each illegal worker where no correct check was made (gov.uk, Checking a job applicant's right to work; Penalties for employing illegal workers).
- Insurance. Employers' liability insurance of at least £5 million from an authorised insurer as soon as you become an employer, the certificate displayed where employees can see it; the fine is £2,500 for every day without it (gov.uk, Employers' liability insurance).
- Umbrella companies. Since 6 April 2026 the agency that holds the client contract is jointly and severally liable with an umbrella company for the PAYE on the umbrella workers it supplies, for money paid on or after that date, in new and existing chains (HMRC, PAYE rules for labour supply chains that include umbrella companies from 6 April 2026).
- Data protection. A recruitment agency processes personal data from its first CV, so the UK GDPR and the Data Protection Act 2018 apply from day one, with a privacy notice for candidates and the data protection fee payable to the Information Commissioner's Office unless an exemption applies (ICO, the data protection fee; gov.uk, Data protection and your business).
- The dates already set. Since 1 October 2026 a worker has six months, not three, to bring most employment tribunal claims; from 30 October 2026 employers must take all reasonable steps to prevent sexual harassment and must not permit harassment of their employees by third parties; from 1 January 2027 the unfair dismissal qualifying period falls to six months for your own staff; umbrella regulation and the right to guaranteed hours sit in the 2027 list (gov.uk, Plan to Make Work Pay and Employment Rights Act timeline update, 25 September 2026).
The first ninety days, in order
Form the company and register it for Corporation Tax, then register as an employer with HMRC before the first payday, because the consultants you hire and the temporary workers you employ are both payroll (gov.uk, Set up a business). Decide whether you are an agency, an employment business or both, and write it into your terms, because the Conduct Regulations ask you to tell every work-seeker which you are. Write the two sets of terms, for permanent candidates and for temporary workers, and the Key Information Document, and date every issue. Set up the right to work check as a step no placement can skip. Buy the employers' liability cover and display the certificate. Pay the data protection fee and publish the privacy notice. Open a file for every client with the written terms of business, the authority to advertise and any known health and safety risks at the site. If you will use umbrella companies, run due diligence on each one before the first placement and keep the evidence, because the PAYE liability is yours from April 2026. Then run the twelve-point check on the hub before your first quarter ends.
What catches new agencies
Four things, from the enforcement record rather than from theory. Charging a candidate for anything connected to finding work, which is unlawful however it is labelled. Adverts for roles that do not exist, kept live to gather CVs, which breach regulation 27. Holding a temp's pay back because the client has queried the invoice, which regulation 12 forbids. And a payroll chain nobody in the agency can draw, which since April 2026 is a tax liability as well as a reputational one. The regulator names minimum wage underpayers in public; its round of 3 September 2026 listed around 660 employers, including businesses that supply staff (gov.uk news, 3 September 2026).
Questions people ask
Do I need a licence to start a recruitment agency in the UK?
Not in most sectors. There is no general licence, but you are regulated from the first day under the Employment Agencies Act 1973 and the Conduct Regulations 2003, enforced since 7 April 2026 by the Fair Work Agency. A licence from the Fair Work Agency is required to supply workers in agriculture, horticulture, shellfish gathering and food processing and packaging.
What is the difference between an employment agency and an employment business?
An employment agency introduces work-seekers to a hirer who then employs and pays them, which is permanent recruitment. An employment business engages the worker itself and supplies them to work under the hirer's direction, paying the worker, which is temporary recruitment. The duties differ, and a business that does both follows both sets of rules. Source, gov.uk, Employment agencies and businesses.
Can a recruitment agency charge candidates a fee?
No. An agency or employment business cannot charge a work-seeker for work-finding services, and cannot make a work-seeker buy other goods or services as a condition of finding them work. Fees are charged to the hirer under written terms of business.
What documents must a new agency have before its first placement?
Written terms of engagement for the work-seeker, a Key Information Document for every agency worker before terms are agreed, a dated right to work check, the hirer's written terms of business with the authority to advertise, and the records the Conduct Regulations require, kept for at least a year and ready for an inspector within two business days.
What insurance does a recruitment agency need?
Employers' liability insurance of at least £5 million from the day you employ anyone, from an authorised insurer, with the certificate displayed; the fine is £2,500 for every day without it. Clients commonly also ask for public liability and professional indemnity cover, which are contractual rather than statutory. Source, gov.uk, Employers' liability insurance.
Sources
Employment agencies and businesses (gov.uk). Record keeping for employment agencies and businesses (gov.uk). The Conduct of Employment Agencies and Employment Businesses Regulations 2003 (legislation.gov.uk). Fair Work Agency (business.gov.uk). Checking a job applicant's right to work and Penalties for employing illegal workers (gov.uk). Employers' liability insurance (gov.uk). PAYE rules for labour supply chains that include umbrella companies from 6 April 2026 (HM Revenue and Customs). The data protection fee (Information Commissioner's Office). Set up a business (gov.uk). Plan to Make Work Pay and Employment Rights Act, timeline update (gov.uk, updated 25 September 2026).
This guide is general information, not legal advice. Have your own terms, documents and processes checked by your own solicitor and accountant before relying on them. BIOR accepts no responsibility for any loss arising from their use.
For a new agency
BIOR Agency Membership covers the business and everyone in it, and a new agency gets the documents in this guide ready-made in the member library, the Agency Compliance Pack with the terms of engagement templates, the Key Information Document template, the payroll chain due diligence log, the harassment clauses for client terms and the Fair Work Agency audit workbook, plus Ask BIOR for the question your first client raises. Membership includes the certification assessment. Pass it and you are certified for five years, with a live badge for your website and email signature and a verification page clients can check. See Agency Membership. The 12-point compliance check, the Key Information Document guide and the umbrella guide sit beside this page on the Employment Rights Hub. Check any recruiter at ior.org/certified.
Written by The BIOR Membership Team. Last reviewed 8 October 2026 against gov.uk, business.gov.uk, legislation.gov.uk and ico.org.uk.