Agency and temporary workers in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Hiring agency or temporary workers can be a cost-effective way to meet variable demand, but the rules around their rights, pay and tax treatment are more complex than many employers assume.
Who counts as an agency or temporary worker?
The terms overlap but they are not identical.
An agency worker is someone supplied to you by a staffing agency — a third party. The agency is typically the employer for payroll and National Insurance purposes, not you. The worker carries out work for you (the "hirer"), but the contract sits between worker and agency.
A temporary worker is a broader category. It can include someone hired via an agency, but also someone on a fixed-term contract employed directly by your business, or a casual worker engaged as needed.
The distinction matters because different rules apply. Fixed-term employees hired directly by you have the same employment rights as permanent staff from day one. Agency workers have their own distinct set of protections.
Agency Workers Regulations and the 12-week rule
The Agency Workers Regulations 2010 are the main framework. After 12 weeks in the same role with the same hirer, an agency worker is entitled to the same basic working and employment conditions as a comparable permanent employee. This includes:
- Basic pay
- Working time (hours, rest breaks, night work limits)
- Annual leave — at least 5.6 weeks (28 days including bank holidays for a five-day week)
- Access to collective facilities such as canteens, childcare facilities and transport
The 12-week qualifying period resets if the worker moves to a substantively different role, or if there is a break of six weeks or more (with some exceptions for illness, jury service and similar absences).
From day one — before the 12-week mark — agency workers already have the right to access information about your internal job vacancies and to use shared facilities.
Pay, tax and National Insurance
Where an agency supplies a worker to you, the agency is generally responsible for operating PAYE, deducting income tax and paying employer National Insurance at 13.8% on earnings above the secondary threshold. The worker's personal allowance (£12,570 in 2026/27) and income tax bands apply in the usual way. You pay the agency an agreed rate; they handle payroll obligations and submit Real Time Information (RTI) to HMRC via a Full Payment Submission on or before each payday.
If the arrangement is structured differently — for example, the worker is engaged through their own limited company — the IR35 off-payroll working rules may apply. As the hirer, you would be responsible for determining the worker's employment status for tax purposes and issuing a Status Determination Statement. If the engagement falls inside IR35, the fee-payer (often the agency) must operate PAYE on the fees. This is a nuanced area; take specialist advice if you are unsure.
Employment rights and the Employment Rights Act 2025
The Employment Rights Act 2025 has extended and strengthened day-one rights. Fixed-term employees already have broad protections from the start of their contract. For agency workers, the key practical points are:
- Statutory Sick Pay applies from the first qualifying day, subject to normal eligibility rules — but the SSP obligation usually falls on the agency as employer, not on you.
- Statutory family leave rights (maternity, paternity, shared parental leave) sit with the employer of record, again normally the agency.
- You cannot use agency workers to cover the work of employees who are taking part in official industrial action indefinitely — there are rules that restrict this.
Understanding who the employer of record is matters when a dispute arises. Liability for unfair dismissal, redundancy pay and discrimination claims can sometimes rest with you rather than the agency, depending on the facts — particularly if the worker has worked with you long enough to establish continuity of employment.
Managing the relationship in practice
A clear written agreement with the agency is essential. It should set out the rate of pay, the scope of work, notice arrangements and who is responsible for which obligations — particularly around the 12-week qualifying period and pay parity.
Keep records of how long each agency worker has been in each role. The 12-week clock runs from the first day of the same role, not from the start of a new assignment. Gaps that do not break continuity — such as annual leave or a shutdown that affects everyone — do not reset the clock.
If you regularly use the same agency workers for the same roles over extended periods, consider whether a fixed-term or permanent contract might actually be simpler and lower-risk. A long-standing arrangement that looks like employment may be treated as employment by a tribunal, regardless of what the paperwork says.
Audit your agency contracts periodically. If your business qualifies as a medium or large employer under the off-payroll working rules, the responsibility for status determinations sits with you — and the penalties for getting it wrong fall on you too.
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