Recruitment payroll starts with who employs and pays the worker
“Agency payroll” can describe several arrangements: employees of an agency, temporary workers engaged through different legal models, PAYE services, a separately operated umbrella company or administrative support for client invoicing. These are not interchangeable. Choosing software or a processor before identifying the legal employer and payment route is a preventable source of compliance risk.
This page addresses the operational questions a UK recruitment agency should settle; it does not advertise an unverified umbrella, employment intermediary or tax-status determination service.
Begin with an employment and payment map
| Question | Why it changes the payroll brief |
|---|---|
| Who is the legal employer or fee payer? | Determines responsibility for PAYE, payslips and worker communications |
| Who authorises each assignment and rate? | Prevents disputes between timesheets, contracts and billing data |
| How are approved hours supplied? | Controls duplicate or late submissions across clients |
| When do workers get paid? | Drives bank deadlines, payroll frequency and cash-flow controls |
| Are expenses or deductions permitted? | Requires correct contractual and statutory treatment |
| Is an umbrella or third party involved? | Needs separate due diligence on legal and tax responsibilities |
Important 2026 regulatory change: from 6 April 2026, new rules introduced joint and several PAYE liability for certain recruitment agencies or end clients within qualifying umbrella-company labour supply chains. The precise liable party depends on the chain; the umbrella company remains responsible for its employer obligations, and this cannot be treated as a generic “the umbrella handles the tax” situation. Review HMRC's current labour-supply-chain guidance and obtain specialist advice on your specific structure before onboarding.
A hypothetical weekly temporary-worker cycle
Monday: a client approves the previous week's timesheets. Tuesday: the recruitment agency reconciles hours and rate changes to assignments. Wednesday: a processor calculates draft pay and flags missing approvals, duplicate worker identifiers or exceptional deductions. Thursday: an authorised agency contact signs off totals and payment release according to agreed banking deadlines. Friday: workers are paid and records are retained.
This is an illustration, not an advertised service-level commitment. The exact schedule depends on pay date, banking arrangements and employer instructions.
The exception log that prevents avoidable disputes
At minimum, capture missing timesheet approval, changed contract rate, duplicate worker number, changed bank details, worker leaver, statutory deduction query and a client-billing/payroll variance. Each record needs an owner, supporting evidence and a decision before the agreed cut-off.
If the agency combines payroll and invoicing, check whether the payroll provider is contracted to reconcile billed and paid hours, or whether that remains the agency's finance responsibility. A service that only calculates gross-to-net pay will not necessarily detect commercial margin leakage.
A sensible supplier specification
Give prospective providers your number of workers paid per week, expected peaks, distinct PAYE schemes, the legal engagement structures, source of approved timesheets, payroll platform, reporting requirements and a sample anonymised exception list.
Ask for the supported scope, excluded employment models, handling of late timesheets, data-sharing roles, security contract and how year-to-date employee records are transferred. See our migration checklist, managed payroll model and data protection guide.
Request a preliminary scope without worker names, bank information or timesheet exports.