What is the Difference Between an Employment Business and an Employment Agency?
in Employers, Legal Profession

What is the Difference Between an Employment Business and an Employment Agency?

This is a direct reference to a statutory instrument that came out in 2003 – The Conduct of Employment Agencies and Employment Businesses Regulations 2003. It has been used ever since to determine the difference between a temp agency and a permanent recruitment agency.

The Simple Definition.

Business = Temp, Agency = Permanent

Very often the difference is very simple – if an agency employs staff via its own payroll then it is an employment business, but if it makes introductions only and does not employ any staff then it is an employment agency.

This distinction looks fairly clear cut until you get to the work of professional locums and permanent staff on a contract.

If you are working as a locum but submit your invoices directly to the client you are working for, then the agency who introduced you is an employment agency, not an employment business. If the agency collect your invoices and make payment to you on behalf of the client who then pays the agency, then the agency is working as an employment business.

The Longer Definition

According to the Employment Agencies Act 1973 (which is the act amended by regulations numerous times since):

“employment agency” means the business (whether or not carried on with a view to profit and whether or not carried on in conjunction with any other business) of providing services (whether by the provision of information or otherwise) for the purpose of finding employment with employers or of supplying employers with for employment by them.

“employment business” means the business (whether or not carried on with a view to profit and whether or not carried on in conjunction with any other business) of supplying persons in the employment of the person carrying on the business, to act for, and under the control of, other persons in any capacity.

Nightmare on IR35 Street

The difference is very important when it comes to IR35 regulations, because the employment business is classed as an intermediary and therefore sits in the chain involved in the whole assessment as to whether you are self employed or employed, and hence has to satisfy itself that it is not liable for any tax, which no doubt the client will try to pass on to it.

The employment agency on the other hand does not sit in the chain of employment at all, and therefore stays outside the limits of IR35 even if a client tries to pass the responsibility for the assessment of tax further down the chain.

Ten Percent Legal & Interim Lawyers – Recruitment Agency

Ten Percent Legal Recruitment and Interim Lawyers are not an employment business but work solely as an employment agency, making introductions and arranging fees entirely separate from the work of candidates we have introduced.

This means that for any IR35 determinations, our company falls outside the chain and is not an intermediary under the definition of the Act, and therefore usually no issues arise in relation to IR35 for our agency.

Clear as Mud

The distinction between an employment agency and an employment business often becomes clear to candidates working as a locum when it comes to payment and we often get new locums who are surprised that their payment does not come from us as an agency, but instead directly from the clients. This of course is the difference between the two types of recruitment consultancy and no doubt the other agencies the locums have worked through in the past have been operating as employment businesses and making payments to the locum on behalf of their clients.

This article is written as opinion only and not intended to be legal advice. If you need legal advice about any of the items included in the article please consult an independent solicitor.

Jonathan Fagan

Jonathan Fagan LLM FIRP is Managing Director of Ten-Percent Legal Recruitment. He has been recruiting solicitors and legal support staff for law firms and in house legal departments for over 17 years and handles roles from junior fee earners through to partners and law firm sales/purchases. A non-practising solicitor on the Roll since 2000, he is also the author of a number of legal career books, which are available at www.legalcareercoaching.co.uk. You can contact Jonathan at cv@ten-percent.co.uk