Hiring the right talent is no walk in the park. While candidates are readily available in the job market, matching a job seeker to an ideal job profile can be challenging. That’s where an employment agency comes in, facilitating collaboration with employers and job seekers for a successful match. An employment agency can also help in the recruitment of local and foreign candidates, so they certainly play an integral role in the United Kingdom’s economic success.
If you’re interested in creating your own employment agency in the UK, you’ll need to incorporate your company first. Read our article for everything you need to know.
What Is An Employment Agency?
According to the UK government, the official definition of an employment agency is a company that sources jobs on behalf of job seekers, who will then be employed and remunerated by employers. This is often referred to as ‘permanent employment’, since the worker will be considered a permanent employee of the company they begin working for. This basically means employment agencies are responsible for matching job seekers with job positions, not for paying a job seeker after you’ve successfully introduced them to the hiring company.
How Is It Different From An Employment Business?
An employment business is slightly different because they temporarily supply or provide workers on secondment to hiring companies. This means that the employment business pays their workers directly the amount depending on employee data characteristics while an employment agency simply recruits workers and passes them to the hirer, who is then responsible for their remuneration.
What’s The Outlook For Employment Agencies?
The UK’s buoyant job market means recruitment is a growing industry. According to Companies House, recruitment finance provider Sonovate analysed data and revealed that there were 8,456 recruitment businesses registered in 2019 -- a whopping increase from 2,556 in 2010.
With the end of Brexit, a future in the recruitment industry looks bright. In fact, the Recruitment & Employment Confederation (REC) predicts that the recruitment industry will grow by 5.9% in 2021/22.
Ok, I’m Convinced. Where Do I Start?
Choose your business structure and register with HMRC and Companies House
When you start your own recruitment agency business, you can either incorporate as a sole trader or a limited company. Each company structure comes with its own set of advantages and disadvantages.
This is the simplest form of business you can register, with a low barrier to entry since you can start with minimal finances. Operating as a sole trader also means minimal setup and paperwork, so it’s a common choice for new businesses.
You’ll be considered a self-employed sole trader working for yourself and while you won’t need to register at Companies House, you must notify Her Majesty's Revenue and Customs (HMRC).
Let’s look at the advantages and disadvantages of both.
The business will be entirely run by you, with fewer regulations and filing requirements. Being a sole trader means your decisions can be implemented instantly without having support from colleagues or board members, or having competitors steal the first-mover advantage.
You’re entitled to keep all your profits as income, but you’ll need to pay national insurance and tax through a Self Assessment Tax Return form. There’s no maximum amount you can yield, although it can become less tax efficient in the higher income tiers.
You also have executive control over the decision to hire employees as long as you abide by the rules of recruiting an individual as a sole trader.
While the position of a sole trader can be independent and efficient, the journey can also be an exposed and lonely one, with no one to offer validation and support.
Since the business is not a legal entity on its own, the company's owner is liable for all its debts and legal actions. This includes all your personal assets, including those jointly-owned with another individual. In the case of the owner's death, the company usually will not see subsequent succession.
Stephanie creates her own employment agency in the United Kingdom and registers as a sole trader. Everything was going well until the global pandemic affected her business. Under such circumstances, she was saddled with debt and had to sell her car to repay the money.
Limited Company (Ltd)
This business model is privately managed, owned by shareholders and run by directors. You need to register a limited company or Ltd. at Companies House, which adds business credibility. This business model can make it easier to raise funds, and shareholders’ liability is limited to their initial investment.
The application comes with a fee, and you’ll need to submit the following documents:
- The company's name and registered address
- At least one director over the age of 16
- At least one shareholder
- Information on the company's shares
- Guidelines on how to the company is run, also known as 'articles of association'
Limited companies are one of the United Kingdom's most popular business structures thanks to its operational simplicity, potential tax advantages, and limited liability. With limited liability, the exposure to financial risk is reduced because your personal assets are separate from the company assets, so personal circumstances are better protected.
In the UK, the tax regime is more favourable for a registered company than for a sole trader. Limited companies pay Corporation Tax on profits, with company directors taxed as employees. Any other profits generated after paying Corporation Tax are kept by the business. These profits can then be distributed to shareholders through dividends. Limited companies can be limited either by shares or by guarantee, which allows the controlling shareholder to decide the remuneration packages at their discretion, protect the brand and claim expenses on the company.
In addition, the Limited Company’s annual accounts and financial reports have to be placed in the public domain, which ensures a high level of transparency and a significant advantage in conducting business.
Publicly available annual accounts and financial reports does mean more paperwork, but you can act as the sole shareholder, director and company secretary when it comes to admin work. Appointing a company secretary is no longer mandatory.
Aaron registers as a limited company. Due to the business's credibility, he was easily able to secure cash flow, which drove up his profit margins. His company has to pay Corporation Tax, while he is being taxed just like any other person working for the company. The remaining profits generated after offsetting Corporation Tax were kept by the company.
If anything ever caused Aaron to shut down his business, he would keep his personal assets including the house and the car, and only lose his initial investment in the business.
Stay up to date with the rules
The recruitment industry in the UK is heavily regulated, so it’s important to perform due diligence and keep up to date with the latest employment guidelines and legislation. If you’re new to the recruitment industry, you might want to brush up on your knowledge by completing a training course, for example with the Recruitment & Employment Confederation (REC).
Employment agencies in England, Wales and Scotland must comply with the Employment Agencies Act 1973 and other regulations. This is applicable to any organisation that provides employees, even those that simply supply information (such as contact details), which means recruitment agencies, modelling agencies, au pair agencies, executive search and temping are all included.
Find your niche
If your employment agency is newly established, consider a specialisation so you can more easily compete with bigger agencies. Also, make sure that your potential clients and job seekers know what sets you apart from your competitors.
Your game plan could be to become an authority in a key industry or industries. Here’s some ideas of sectors:
- real estate
- professional services
- financial services
- hospitality & leisure
- property & construction
- oil and gas
Decide if you prefer to work from home or on business premises
One of the advantages of running a recruitment agency is that it can be relatively inexpensive to start up, as it’s not essential to have business premises. You could even start an employment agency from home. However, if you eventually decide to establish an office, make sure you consider factors such as insurance.
Ensure your business insurance takes care of your needs
Regardless of the company structure you choose, don't neglect your insurance needs. While you might think no one will ever take legal action against you, it’s always better to err on the side of caution. To cover your business needs, consider the following:
- Professional indemnity insurance: in case you provide advice that results in a client’s financial loss.
- Public liability insurance: in case someone is injured or has their property damaged due to your business.
- Business premises insurance: covers repairs and rebuild costs should your business premises be harmed or even destroyed.
- Employers’ liability insurance: a legal requirement if you employ full time, part time, permanent or temporary staff, and covers costs arising from employees being injured or falling seriously ill due to working for you.
Decide on your pricing model
One of the key business decisions will be your pricing model. If you don’t have business premises, that’s one less overhead for you to factor in, which means you’re in a better position to offer competitive rates. Bear in mind that your pricing model will need to scale as your employment agency grows and your overheads increase.
You could choose to charge a flat rate, commission after a candidate’s successful placement, or even charge a percentage of the worker’s salary based on a sliding scale.
To gauge the best pricing, it’s best to decide on your target market first. Smaller scale companies may prefer a flat rate as they typically don’t have large amounts of cash readily available. On the other hand, larger companies may not have any issues with paying commission.
Invest in a website
As an employment agency, your website will be the primary source of acquiring business leads, as well as being the visual representation of your brand. You don’t have to be a web developer to create a brilliant website. If you want to keep costs down, you can do it yourself using a website builder. Read our guide to the best website builders to help get you started.
Set up a corporate bank account
While you’re not legally required to have a corporate bank account, opening one has various advantages, especially when it comes to keeping your accounts clean. It’s easy to open a corporate bank account, and there are many options for you to choose from. Make sure you consider your business needs before you decide on your corporate account.
Find out more in our detailed guide to opening your first business bank account in the UK.
Concentrate on your core business and leave the rest to us
It’s not always easy to stay on top of things with so much going on, but we’re here to help.
Leave the pesky paperwork to our dedicated and experienced accountants in the UK who will manage everything from filing deadlines to finding relief for your company, and organising documents. Chat with us today!