From 1 October 2026, agencies who have not checked that an agency worker has the right to work in the UK could be liable for significant penalties. The new law applies to most supply arrangements including agency workers, umbrella company staff, subcontractors, personal service companies (‘PSCs’) and platform-engaged workers. Read more…
The new law exposes you to a significant penalty if any worker you are using is an illegal worker, namely one who does not have the right to work in the UK.
Historically, you would only have faced liability for a penalty if you actually employed an illegal worker. Now the rule extends liability to any engagement of an illegal worker, so extending the risk to engagements under PAYE, umbrella and other types of contractor contracts.
Whilst the Agency Conduct Regulations have always required certain checks to be carried out to ensure suitability of a worker, there has been no specific obligation on supply businesses to undertake right to work checks (‘RTW check’). In the context of recruitment supply this has left a gap that the new law has plugged. The law still applies to all employers, but the much wider gap, applicable to all businesses, has now been filled.
This guide explains the change, exactly who is newly in scope, and the practical steps recruitment agencies should take now to avoid civil penalties of up to £60,000 per worker. However, bear in mind that there is no statutory obligation to undertake an RTW check, but taking the RTW check and other steps referred to in this article sets up a defence against a penalty claim should a worker not have the right to work at all times during an assignment.
Key takeaways
In all cases, it is those defined as ‘employers’ that have primary liability. The definition of “employer” for right to work purposes is now expanded to include a business that:
Many agencies use PAYE only contracts. These will now be in scope. Individual self-employed contracts are also likely to be in scope. Recruitment agencies supplying workers in these circumstances will be regarded as the ‘employer’. Primary liability in the event of the engagement and supply of an illegal worker therefore will rest with such agencies.
Recruitment agencies supplying workers who are engaged under other types of contracts e.g. umbrella or PSC engagements, may also be liable for penalties under extended penalty rules that can apply up a chain of supply. This is because umbrella companies and PSCs have always been liable as employers. Liability now exists wherever a supplied worker has no right to work. This means there is potential exposure to risk for agencies in all cases.
Undertaking a suitable RTW check which validates the right to work is a complete defence and an obvious step to take before supplying an individual or a contractor, or using such an individual yourself. Provided the check is undertaken correctly in line with government guidance, you should not face risk.
However, if you are not the ‘employer’ as such you are still potentially at risk if the individual you use to perform your services is an illegal worker under the extended penalty rules. If the Home Office cannot easily establish who the ‘employer’ is, or the agency has not taken prescribed steps to ensure compliance by the third party, the penalty could be imposed on the agency.
The prescribed steps are set out on page 24 of the Home Office related code of conduct. In short, the agency should ensure that its terms with the other ‘employer’ comprehensively address ensuring that RTW checks are undertaken, with evidence supplied before work commences and the evidence then being retained. In many cases compliance should be easy to validate, but particular care should be taken if the ‘employer’ is allowed to substitute one worker for another. For example, this may exist in the context of an IR35 friendly contract.
There should be strict controls to prohibit substitution to any individual in respect of whom there is no valid RTW check with all supporting evidence having first been provided.
Recent government guidance on RTW checks indicates that the risk of penalty under the extended liability provisions in the case of employment by a third party will not likely apply if the agency is not liable to perform the work for the client. Most agencies only supply a worker rather than are contracted to do the work themselves. These agencies are likely to be outside risk in most circumstances. However, if the agency provides a managed service, an outsourced function to its client or takes responsibility for any service delivery, it could well be in the firing line. It is therefore essential to ensure the scope of services required under a contract is set out so that the responsibility is not ambiguous. This is especially so where working to client or third party drafted terms, which may not be entirely clear on the point. Undertake a review of your own, or third party, terms is recommended wherever you are in doubt.
Regardless of the government guidance, which itself is not crystal clear, it would be prudent for employment businesses that supply workers, in any capacity, to ensure that they obtain the evidence of valid RTW check and supporting evidence in every case. They should also include relevant enforceable provisions in their ‘down the chain’ contracts. This would include PSC and umbrella contracts.
Provided the evidence is obtained and retained and the contract terms include the necessary requirements, taking those steps will be a complete defence in most circumstances.
Since all agencies will normally register the actual worker before a contract is entered into, the time to conduct a RTW check would sensibly be at registration.
If an assignment is already underway prior to 1st October, prudence dictates that if not already undertaken, the check should be done as soon as possible. If an existing assignment is under a contract with a third party, e.g. umbrella or PSC, it may be sensible to undertake a RTW check in readiness for the next assignment, again if that has not already been done. Where a contract contains a right of substitution, the contract should require a RTW check on the proposed substitute, and again it would be prudent for this to be done before the substitute is allowed to provide any work services. Existing contracts should be amended to require the check and provision of evidence.
In an ideal world, it may be sensible if all RTW checks are undertaken by the agency itself or by its suitable and properly appointed agent. There is always risk if this step is undertaken by an often unfamiliar third party ‘employer’. It is also easy for the step to be overlooked, particularly where there is pressure for a quick placement. A ‘must be done’ process as part of your standard operations would overcome the risk. RTW checks are common requirements of client drafted contracts and already considered as best practice by most agencies. Conducting your own RTW check also reduces risk where the identity of the employer is not clear, which in turn may not only lead to risk of a right to work penalty but expose you to potential tax and other non-compliance risks, as well as being potentially commercially damaging.
The core RTW check methods are unchanged: manual document checks, the Home Office online RTW checking service, and checks via a certified Identity Service Provider (IDSP). Checks via video call, unless you have the original documents, will not suffice as a statutory excuse.
Do RTW checks now apply to agency workers? Yes. Agency workers engaged under a worker’s contract fall within the expanded “employer” definition from 1 October 2026. Where an agency worker is working via a third party responsibility for carrying out the check needs to be clearly set out in contracts.
Do umbrella companies need to carry out RTW checks? Yes. Umbrella companies are commonly the employer in the supply chain but the obligation to provide checks should also be explicitly provided for in the umbrella’s contract. However, this should not deter an agency from its own RTW check. Should the individual transpire not to have the right to work in the UK the agency could face penalties.
Do PSCs need to carry out RTW checks? Yes. PSCs working through agencies may maintain that they are genuine businesses, possibly operating outside IR35, and therefore are not ‘employers’ for right to work purposes. However, this should not deter an agency from requiring an RTW check. Should the individual transpire not to have the right to work in the UK the agency could face penalties.
Does this apply to self-employed contractors? Yes, agencies supplying self-employed individuals should be checking RTW. Note that supplying self-employed individuals can present a tax risk for agencies, so should only be undertaken with specialist recruitment advice. The question of status becomes largely irrelevant for right to work purposes and agencies should make sure that its right to work requirements are met.
What is an “online matching service” under the new right to work rules? It refers to a business operating a platform that supplies the details of an individual service provider to potential clients or customers – broadly, gig-economy and digital labour-matching platforms. Some agencies may offer this kind of service. Agencies can be liable for a penalty if the platform is promoting illegal workers and it either itself offers the service or it charges for promoting such a service.
What are the penalties for non-compliance? Civil penalties can reach £45,000 per worker for a first breach and £60,000 per worker for a repeat breach (an increase from £15,000 and £20,000 respectively).
This article is provided by Lawspeed, the UK’s original recruitment and employment law specialist.
Lawspeed can help. Lawspeed’s agency and recruitment law specialists can help with any enquiry. Lawspeed provides contracts that address the RTW check issues for PSC and umbrella engagements. Lawspeed document and process review services cover right to work documents, policies and processes in addition to client terms of business and other types of recruitment related contracts.
Call us on 01273 236236 to discuss how we can support you.
