When does having a team make you an employment agency?
You think you’ve got a freelance team, but you may be surprised to find out that the law and the tax man might disagree.
If you supply people to work for your clients — even if they are self-employed — you can fall within employment agency rules. And most freelancers don’t realise where that line is until they’ve already crossed it.
Under the Conduct of Employment Agencies and Employment Businesses Regulations 2003, an “employment business” is not about what you call your team. It’s about what actually happens in practice.
If your setup brings you within scope, you take on a completely different level of responsibility — and restriction.
Quick reality check
You may be closer to this than you think if:
You may be closer to this than you think if:
- Your client directs your freelancer’s day-to-day work
- Your freelancer reports directly to the client
- You are supplying people, rather than delivering a defined outcome
If that sounds familiar, keep reading.
If you are an agency, then it is your job to handle certain elements of IR35 status assessments and administration depending on the size and structure of your client’s business. The fact that your business may be below the threshold does not get you out of this. So you end up with ‘big business admin’ with a ‘small business’ mindset!
What this means for paying your team?
If you fall within employment agency rules, this isn’t just a technical issue. It directly affects how and when you pay your freelancers. And this is where most people get caught out.
If you are operating as an employment business, you don’t just “run a team” — you take on obligations that change how your business works.
You may find that you:
- Need to provide detailed terms equivalent to employee-style documentation
- Lose the ability to restrict your team from working with other clients
- Be unable to require your team to buy services from you
- Have to pay your freelancer even if your client doesn’t pay you
That last one is the problem most people don’t see coming.
Many freelance business owners rely on “we’ll pay you when we get paid” clauses. If you fall within the regulations, that approach can fail.
Where IR35 fits into this
You might think IR35 has nothing to do with you — especially if your freelancers don’t work through limited companies.
But if your setup starts to look like supplying people rather than delivering a service, more rules can apply — and IR35 can be one of them.
That means:
- someone has to assess status
- someone has to handle the paperwork
- and someone carries the risk if it’s wrong
In practice, that can end up being you.
What actually makes you an employment agency?
If you are supplying people to work who are under the control of your client, you are in the danger zone.
It doesn’t matter if:
- your team are freelancers
- they invoice you
- you call them “associates”
Those labels don’t override reality.
Where things are usually safer:
- you take the brief from the client
- you stay in control of how the work is delivered
- your team works to you, not directly to the client
- you deliver an outcome, not a person
Where things start to get risky:
- the client directs the work
- the freelancer becomes part of the client’s team
- you are effectively introducing and supplying labour
That’s when you start to look like an employment business.
Agency worker rights (and why this matters more now)
If you fall within scope, the Agency Workers Regulations 2010 can apply.
That brings rights such as:
- Paid holiday
- Minimum wage protections
- After 12 weeks, parity with comparable employees in the client’s organisation
The direction of travel in UK law is towards more protection for workers in flexible arrangements. You can expect changes on this towards the end of 2026 or early 2027.
So this isn’t a shrinking risk — it’s a growing one.
Can you avoid being regulated as an employment agency?
You need to structure your business so that:
- Your freelancer is not controlled by your client
- You are delivering outcomes, not supplying people
- Your freelancer operates as an independent business
- You remain responsible for how the work is done
In practice, that means:
- Clear boundaries in your contracts
- Clear boundaries in how the work is managed
- Consistency between what you say and what you actually do
If those drift apart, the risk builds quickly.
Not sure where you sit?
Most people aren’t.
This is one of those areas where small differences in how you work can completely change your position.
If you’re building a team — or already have one — it’s worth getting clear on:
-
whether you are delivering a service
-
or supplying people
Because the legal and financial consequences are very different. It’s OK to have an agency set up as long as you know and plan for all that goes with it.
Contracts for the way you work today
If you want to build a team around you without stepping into employment agency territory, you need contracts that reflect how you actually work — not how you hope it works.
You can explore our team hiring options here:
Agency status is one of many issues from data privacy and confidentiality to the use of AI that your contracts and practises need to take care of.
