How agency pay works

Working through a recruitment agency is one of the quickest ways into a job, but the way you get paid is different from a permanent role, and the differences trip people up. Who actually pays you, how holiday pay is handled, what the margin is and why your first payment can be delayed are all worth understanding before you start. Here is how agency pay really works.

Who pays you

The key thing to grasp is the three way relationship. You do the work for the hirer, the business where you turn up, but the agency pays your wages, and the hirer pays the agency. So although you might feel like you work for the company on the shop floor, your pay, payslip and holiday come from the agency. That is why any pay query goes to the agency, not the hirer.

Weekly pay and a week in hand

Most agencies run weekly payroll, which is a genuine advantage if your budget runs week to week. Typically you submit or have approved a timesheet, and you are paid a few days later, often the following Friday for the previous week's work. Many agencies also operate a "week in hand", meaning your very first payment comes a week later than you might expect, because they hold back a week. It catches people out, so ask about it before you start so you can plan.

Margins and the rate you are quoted

The agency makes its money from a margin, the difference between what the hirer pays the agency and what you receive. This is normal and how agencies fund their service. What matters is that the rate you are quoted is the rate you are paid for your hours. Be alert to the difference between a straightforward PAYE rate, where the agency pays you directly, and an umbrella arrangement, where a separate company runs your payroll for a fee that comes out of your pay.

Holiday pay on agency work

You build up paid holiday from your first day, based on the hours you work, at the statutory 5.6 weeks a year pro rata. Agencies handle this in one of two ways:

• Accrued and paid when you take leave, where your holiday builds up and you request it, or
• Rolled up, where an amount for holiday is added to each payslip and shown separately.

Either way, holiday pay should be clearly identified on your payslip. If you cannot see it, ask, because it is money you are entitled to.

The Key Information Document

Before you start with an agency, they must give you a Key Information Document. It sets out, in one place, who pays you, your rate, how and when you are paid, any deductions or fees, and your holiday entitlement. Read it carefully, because a headline rate that looks high can shrink once you see the margins and deductions. The document tells you the real figure before you commit.

Reading your agency payslip

• Gross pay: your hours multiplied by your rate, before deductions.
• Holiday pay: shown separately if it is rolled up, or paid when you book leave.
• Tax and National Insurance: deducted under PAYE.
• Pension: deducted if you have been auto-enrolled.
• Any umbrella margin or fees: if you are paid through an umbrella rather than agency PAYE.

Check your hours match your timesheet and query anything you do not recognise.

The 12-week rule is worth remembering

Under the Agency Workers Regulations, after 12 continuous weeks in the same role for the same hirer, you become entitled to the same basic pay and conditions as a directly employed worker doing that job. That can mean a pay rise, so keep a simple record of your start date and the weeks you work. Agency pay is straightforward once you know the moving parts. Understand who pays you, watch for a week in hand, make sure holiday pay shows on your payslip, and read your Key Information Document, and you will always know exactly what you are owed.