“Always on the wrong side?” How UK Recruitment Agencies Keep Breaching the Employment Agencies Act

The UK’s recruitment sector is huge, fast-moving—and, according to its own regulator’s data, riddled with repeat non-compliance. Each year, the Employment Agency Standards (EAS) Inspectorate logs thousands of complaints and uncovers wide-ranging breaches of the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“the Conduct Regulations”). While most agencies try to play by the rules, infringements aren’t rare blips; they remain a persistent feature of the market.

The legal baseline (and why it matters)

• Employment Agencies Act 1973 (framework).
• Conduct Regulations 2003 (day-to-day rules).

Among the core protections:

• No charging workers for finding them work (save narrow entertainment/model exceptions).
• No withholding pay on spurious grounds (e.g., unsigned timesheets).
• Terms agreed up front and, since April 2020, a Key Information Document (KID) before terms are agreed—especially important where umbrellas are involved.

What the regulator keeps finding

In 2022/23 EAS recorded 2,300 complaints, ran 267 targeted inspections, logged 1,571 infringements, issued 385 warning letters and recovered £200,507 for workers. A “high proportion” of breaches related to KIDs.

PSLs and “forced umbrellas”: why this breaches the rules

The rule

Regulation 5 of the Conduct Regulations says an agency must not make work-finding services conditional on a work-seeker using other goods or services, whether supplied by the agency or by someone connected to it. An umbrella company’s paid payroll service is an “additional service,” so making access to a role depend on joining a particular umbrella (or any umbrella) is caught.

The government’s own EAS guidance makes this crystal clear: “work-seekers cannot be forced to work through or be paid by umbrella companies.” If an employment business only pays via umbrella as a matter of business model, it must say so up-front so the worker can choose whether to engage with that business at all—very different from making a specific umbrella a condition of a role.

The Low Incomes Tax Reform Group echoes this: an agency can’t insist you use an umbrella; if umbrella-only is the only route they use to pay workers, they must be transparent so you can decide whether to proceed.

Bottom line: Conditioning a booking on “you must use our PSL umbrella X or Y” risks a Regulation 5 breach because it ties work-finding to a paid third-party service.

Opt-outs don’t save it

Some contractors (PSCs) opt out of parts of the Conduct Regulations under Regulation 32. Even then, an agency cannot make work-finding conditional on opting out (Reg 32(13)). So “opt-out or no gig” is unlawful in itself.

Evidence of the practice

• The TUC reports workers are often compelled to sign with a particular umbrella (typically from an agency PSL) and urges proactive enforcement of Reg 5.
• Personnel Today quoted a specialist lawyer: “candidates pushed to umbrellas on preferred supplier lists as a condition of work… is a breach of the Conduct Regulations.”
• HMRC Spotlight 64 warns agencies that some umbrellas use agencies to promote tax-avoidance schemes—part of a wider crackdown on agency–umbrella incentives and “kickbacks” often linked to PSLs.
• The Loan Charge APPG and TUC have documented PSL-linked incentives (“kickbacks”), reinforcing why tying roles to specific umbrellas is problematic.

Practical reading for agencies: Even where you run a restricted PSL for due-diligence reasons, you cannot compel an opted-in worker to use a particular umbrella as a condition of work. If your model is umbrella-only, you must say so before engagement so the worker can make an informed choice. The REC’s own materials stress up-front transparency and KIDs.

The most common ways agencies break the rules (recap)

1. Charging workers—directly or indirectly—for work-finding (unlawful fees).

2. Withholding/docking wages (e.g., unsigned timesheets).

3. Missing or non-compliant KIDs (especially with umbrellas).

4. No clear written terms before placement.

5. Poor vetting/record-keeping.

Why breaches persist

Opaque supply chains (umbrellas, sub-agencies), small regulator resources vs a very large market, and financial incentives around PSLs all contribute. Recent government plans will bring umbrellas into the regulatory regime and increase liability up the chain, reflecting the scale of non-compliance seen.

What to do next

• Workers: if you’re told “use this umbrella or no job,” point to Reg 5 and the EAS guide; ask for your KID; and complain to EAS if necessary.
• Hirers: audit agencies’ PSLs and insist any umbrella use is choice-based for opted-in workers, with compliant KIDs and no incentives that distort worker choice.

Sources & further reading

• Regulation 5 (restriction on requiring additional services).
• EAS brief guide (official: “work-seekers cannot be forced to… umbrella companies”).
• LITRG guidance for workers and agencies (choice, PSLs, and transparency).
• TUC: evidence of PSL pressure and call to enforce Reg 5.
• REC: umbrella factsheet (transparency if you only use PAYE/specific umbrellas; KIDs).
• HMRC Spotlight 64 (agency–umbrella schemes warning).