UK recruitment firms face record closures: here’s how contractors and temps can protect themselves

Worrying new figures reveal that recruitment firms are going bust at the fastest rate in 15 years, with 120 businesses entering liquidation in the last six months alone, according to a City AM analysis of UK government insolvency filings.

This analysis points to mounting economic pressures and a slowdown in companies hiring new staff. So, what does this mean for you if you’re on the hunt for a new job or working as a contractor or temp employee, and how can you avoid becoming a victim of an insolvent recruitment agency?

We explain why more agencies are struggling and what steps you can take now to ensure you understand your rights and how to get paid if your agency closes up shop.

Why are recruitment firms going bust?

Several factors are squeezing recruitment agencies. The City AM analysis highlights recent increases in employer National Insurance contributions (NICs) and a lowering of the threshold for paying them, putting extra financial strain on businesses.

At the same time, the Office for Budget Responsibility has reported the economic and fiscal outlook has become more challenging since the Autumn Budget. Domestic output stagnated in the second half of 2024 and business and consumer confidence have trended lower recently. 

The OBR said in an April 2025 report, “We now expect real GDP growth of 1.0 per cent this year, half the rate in our October forecast, before it recovers to average around 1¾ per cent over the rest of the decade.”

Unemployment is also expected to rise to 4.5%. Earlier this month, major recruitment firms, including Hays reported net fees decreased by 9% on a like-for-like basis in their fiscal third quarter, suggesting a challenging market ahead. Similarly, PageGroup also reported gross profit fell, while Robert Walters also recently reported a decline in net fee income.

Samantha Hurley, UK Managing Director at the Association of Professional Staffing Companies (APSCo), described the situation to City AM “[These are] hugely concerning statistics and should serve as a warning to the Government that some of its harsher reforms are causing more damage than good”. She argued that recruitment firms are vital for the economy, helping businesses find the right people amidst skills shortages.

Hurley also echoed concerns from other business bodies about the Employment Rights Bill, suggesting that rushing through changes without proper consideration could create further problems. She noted that some professional staffing companies are even looking to international markets to navigate the UK’s uncertainty.

Hurley said,

Professional staffing companies have been turning to international markets such as the US and Germany to mitigate against the uncertainty in the UK over the last six months, however, given the headwinds of the Trump tariffs and international slowdown as evidenced by the IMF, these markets are also less buoyant.

The strength of the UK’s recruitment market needs to be reinforced and continuing on the same trajectory simply won’t have that impact.

Before you sign with a recruitment agency…

It is smart for job seekers and contractors to be savvy about the recruitment agencies they work with. Here’s what you can do to minimise your risk:

• Before registering with an agency, take some time to look them up online. Check for recent news or reviews that might indicate financial difficulties. A sudden drop in online activity or negative feedback could be red flags. While there isn’t a specific government source for real-time agency financial health, Companies House provides information on a company’s status, including if they have entered insolvency, although this is often a lagging indicator.

• Don’t be afraid to ask the agency about their financial stability and how long they’ve been operating. You can mention news reports you have read, including this one, to back up your concerns. While they might not disclose everything, their response and demeanour can offer clues. Professional bodies like APSCo have members who adhere to a code of conduct, which might offer some reassurance.

• Keep an eye on industry news and be aware of any major recruitment firms that are reported to be struggling. Publications like Recruiter Magazine often report on industry trends and challenges.

• Don’t rely solely on one or two recruitment agencies. Explore multiple avenues for finding work, including online job boards, direct applications to companies, and networking. Websites like GOV.UK Find a job and professional networking platforms such as LinkedIn can be valuable resources. However, contractors can approach companies directly if they are aware that they hire independent professionals. There are also outfits such as Gigged.AI who have a growing international presence.

• Trust Your Gut. If something feels off about an agency, it’s best to proceed with caution or look elsewhere.

Your rights to get paid as an agency or umbrella worker

One of the biggest worries for workers and contractors when a recruitment agency faces insolvency is getting paid. The laws surrounding this depend on your employment status and who pays you directly.  What people may not realise is that payments are capped. Redundancy payments, for example are capped at £719 a week (£700 if you were made redundant before 6 April 2025).

Employees paid directly by the recruitment agency: If you are employed directly by the recruitment agency, you have certain rights under UK employment law if the agency becomes insolvent. You may be able to claim arrears of pay, holiday pay, and redundancy pay from the National Insurance Fund. You’ll typically need to make a claim to the Insolvency Service.

What you can get

What money you’re entitled to depends on:

• How long were you employed
• What was in your employment contract
• Your age

Redundancy pay

You’re normally entitled to redundancy pay if you:

• Have been made redundant
• Were an employee
• Were continuously employed by the insolvent business for 2 years or more

You’ll get:

• Half a week’s pay for each full year you were employed and under 22 years old
• One week’s pay for each full year you were employed and between 22 and 40 years old
• One and a half week’s pay for each full year you were employed and 41 or older
• You can get a payment for a maximum of 20 years that you were employed at the business

Calculate your redundancy pay.

Wages and other money you’re owed

• You can apply for unpaid wages and other money you’re owed by your employer, for example bonuses, overtime and commission.
• You’re only entitled to money that’s in your employment contract.
• You’ll get up to 8 weeks of money you’re owed. It counts as a week even if you’re only owed money for a few days.

Example

If you’re owed £30 of overtime per week for the last 10 weeks, you’ll get £240 (£30 x 8 weeks).

You pay income tax and National Insurance when you get unpaid wages and other money you’re owed. You might be able to claim a tax refund if you’ve paid too much, according to the government.

Holiday pay

You can get paid for:

• Holiday days owed that you did not take (‘holiday pay accrued’)
• Holiday days you took but were not paid for (‘holiday pay taken’)

You’re only paid for holidays you took or accrued in the 12 months before your employer became insolvent.

You’ll only get payments for up to 6 weeks of holiday days. Holiday pay is capped at £719 a week (£700 per week if your employer went insolvent before 6 April 2025).

You pay income tax and National Insurance on your holiday payment. You might be able to claim a tax refund if you’ve paid too much.

Statutory notice pay

You’re entitled to a paid notice period when you’re made redundant, even if it is not in your contract.

You can claim for statutory notice pay if you:

• Did not work a notice period
• Worked some of your notice period
• Worked an unpaid notice period

Your statutory notice pay is worked out as one week’s notice for every year you were employed, up to a maximum of twelve weeks.

Payments are capped at £719 a week (£700 if you were made redundant before 6 April 2025).

Pension contributions

Contact the insolvency practitioner or official receiver if you’re missing contributions to your pension.

Contractors paid through an umbrella company

Many contractors are paid through umbrella companies that the recruitment agency works with. In this scenario, the umbrella company is your employer. If the recruitment agency goes bust, your contract with them might end, but your employment and payment should still be managed by the umbrella company.

However, if the recruitment agency’s financial difficulties also impact the umbrella company, there could be delays or issues with payments. It’s crucial to ensure the umbrella company you work with is reputable and financially stable, too. You can check the umbrella company’s status on Companies House.

Agency Workers Regulations

The Agency Workers Regulations (AWR) give temporary agency workers broadly the same basic employment and working conditions as if they had been recruited directly by the hirer after a qualifying period.

However, these regulations primarily cover aspects like pay, holidays, and working hours, not necessarily the financial stability of the agency itself. Information on AWR can be found on the GOV.UK website.

What action can you take now?

If you are concerned about a recruitment agency you are working with:

• Keep records: Maintain thorough records of your timesheets, invoices, and any communication with the agency. This will be vital if you need to make a claim for unpaid wages.
• Seek advice: If you suspect your agency is in trouble or if they become insolvent, seek advice immediately from a trade union, a legal professional, or the Insolvency Service They can guide you on your rights and the steps you need to take.
• Communicate: If possible, try to communicate with the agency to understand the situation. However, be prepared that they may not be able to provide much information.

While recruitment agencies play a vital role in connecting people with jobs, it’s essential to be aware of the potential risks and take proactive measures to safeguard your interests. Many agencies are in survival mode, and you need to be too.

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