If you run a business in London and you're short on staff, or you're a worker looking for shift-based or contract jobs, you've probably come across the term "labour supply company." These firms sit between businesses that need workers and people who want work, handling everything from recruitment to payroll and compliance.
This guide explains how labour supply companies actually operate in London, what they cost, how they're regulated, and how to choose a reliable one. It's written for two audiences: employers weighing up whether to use one, and workers trying to understand their rights when they're placed through one.
What Is a Labour Supply Company?
A labour supply company (also called a staffing agency, employment business, or workforce provider) recruits and places workers with client businesses on a temporary, contract, or sometimes permanent basis. The agency, not the client, is usually the legal employer or engager of the worker — meaning it handles payroll, National Insurance contributions, holiday pay, and pension auto-enrolment.
This differs from a traditional recruitment agency in one key way: a recruitment agency typically finds candidates for permanent roles and steps out once the placement is made, whereas a labour supply company keeps the worker on its own books and continues managing the employment relationship for as long as the assignment runs.
In London, labour supply companies are especially active in sectors with fluctuating demand:
- Construction and civil engineering
- Warehousing and logistics
- Hospitality and events
- Facilities management and cleaning
- Healthcare and social care
- Retail during peak trading periods
How Labour Supply Companies Work in Practice
The Placement Process
When a business needs workers, it contacts the agency with details: the role, required skills or certifications, shift patterns, and duration. The agency draws on its existing worker pool or recruits new candidates, checks their right to work, verifies any required qualifications (a CSCS card for construction sites, for example, or a food hygiene certificate for hospitality), and sends them to site.
Payroll Models
Most London labour supply companies use one of three payroll structures:
- PAYE through the agency — the agency employs the worker directly and deducts tax and National Insurance at source.
- Umbrella company arrangement — a third-party umbrella company employs the worker across multiple assignments, which can simplify continuous employment for the worker but adds a layer of fees.
- CIS payments — used in construction, where subcontractors are paid under the Construction Industry Scheme rather than as PAYE employees.
The right model depends on the sector, the worker's status, and current HMRC rules, particularly around IR35 and off-payroll working, which determine whether a worker should be taxed as an employee or as genuinely self-employed.
Charging Structure
Labour supply companies typically charge clients an hourly rate that covers the worker's wage plus a margin. That margin covers employer National Insurance, apprenticeship levy contributions, holiday pay accrual, insurance, and the agency's own overheads and profit. In London, margins commonly sit between 15% and 30% depending on sector, volume, and how specialised the role is. Always ask an agency for a full rate breakdown rather than a single blended figure — it makes it far easier to compare quotes fairly.
Legal and Compliance Considerations
This is where a genuinely reliable labour supply company separates itself from a risky one. Several pieces of UK legislation directly affect how agencies must operate:
- Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003 set out baseline conduct rules, including that agencies cannot charge work-seekers a fee for finding them work (with narrow exceptions such as entertainment and modelling).
- Agency Workers Regulations 2010 give temporary workers the right to the same basic working and employment conditions as permanent staff after 12 weeks in the same role.
- Working Time Regulations 1998 govern maximum working hours, rest breaks, and holiday entitlement.
- Gangmasters and Labour Abuse Authority (GLAA) licensing is a legal requirement for any business supplying workers into agriculture, horticulture, shellfish gathering, or associated food processing and packaging. Operating without a GLAA licence in these sectors is a criminal offence.
- Right-to-work checks under the Immigration Act 2016 are mandatory before any worker starts an assignment, and employers who fail to carry these out properly can face civil penalties.
If you're hiring through an agency, it's worth checking the Employment Agency Standards (EAS) Inspectorate register, which handles complaints against agencies operating outside these rules, and asking directly whether the agency holds a GLAA licence if your sector requires one.
How to Choose a Labour Supply Company in London
Not all agencies operate to the same standard, and the difference matters — both for the quality of workers you receive and for your own legal exposure as a client. A few practical checks:
Ask about vetting procedures. A reliable agency should explain exactly how it checks identity, right to work, references, and relevant qualifications before placing anyone on your site.
Check insurance cover. The agency should hold employer's liability insurance and, depending on your sector, public liability cover too. Ask for certificates rather than taking a verbal assurance.
Look at sector specialism. A generalist agency can struggle to supply reliably for specialised roles like plant operators or qualified electricians. Sector-specific agencies tend to hold a stronger, pre-vetted worker pool.
Ask how quickly they can fill a booking. London's labour market moves fast, particularly in hospitality and events. Ask about typical turnaround times and what happens if a worker fails to show — a good agency has a backup process, not just an apology.
Review contract terms carefully. Look at cancellation notice periods, minimum booking hours, and whether there are extra charges for last-minute changes.
Comparison: Direct Hiring vs Using a Labour Supply Company
| Factor | Direct Hiring | Labour Supply Company |
|---|---|---|
| Speed to fill a role | Slower — weeks typically | Often same-day to a few days |
| Payroll administration | Managed in-house | Handled by the agency |
| Flexibility for short-term demand | Limited | High — scale up or down easily |
| Upfront cost | Lower hourly cost | Higher hourly cost (includes margin) |
| Legal employer status | Your business | Usually the agency |
| Worker vetting | Your responsibility | Agency's responsibility (verify this) |
| Best suited to | Long-term, stable roles | Seasonal, project-based, or fluctuating demand |
Key Takeaways
- A labour supply company handles recruitment, payroll, and compliance for temporary or contract staff, remaining the worker's legal employer throughout the assignment.
- London agencies commonly charge a margin of 15–30% on top of the worker's wage to cover employment costs and overheads.
- Legal frameworks including the Agency Workers Regulations 2010 and GLAA licensing (for specific sectors) protect both workers and clients — check compliance before signing a contract.
- Compare agencies on vetting standards, insurance, sector specialism, and turnaround speed rather than price alone.
- Workers should never be charged a fee for standard temporary placements.
Last Thoughts
Choosing the right labour supply company in London comes down to matching the agency's sector expertise and compliance standards to your actual staffing needs, rather than picking on price alone. For employers, the time saved on recruitment and payroll administration can be substantial, but only if the agency operates within the legal framework properly. For workers, understanding your rights around pay, holiday entitlement, and fees helps you spot a legitimate agency from one cutting corners.
Frequently Asked Questions
Q: Do labour supply companies charge workers a fee?
A: No, not for standard temporary work. UK law prohibits agencies from charging work-seekers for finding them a role, aside from a small number of exempt sectors like entertainment.
Q: What's the difference between an employment agency and an employment business?
A: An employment agency finds candidates for permanent jobs with the client. An employment business (the more accurate legal term for most "labour supply companies") supplies temporary workers who remain employed or engaged by the agency itself.
Q: How quickly can a London labour supply company provide workers?
A: For general labour, warehouse, or hospitality roles, many agencies can supply workers within 24 to 48 hours. Specialised or certified roles, such as licensed plant operators, may take longer depending on availability.
Q: Is it legal to use a labour supply company for construction work?
A: Yes, provided the agency correctly verifies CSCS cards, right-to-work status, and complies with CIS or PAYE rules as applicable. Always confirm the agency's compliance processes before booking.
Q: What happens if a worker supplied by an agency is injured on site?
A: Liability depends on the contract terms, but typically the client business (as the party controlling the working environment) holds primary responsibility for site safety under the Health and Safety at Work Act 1974, while the agency remains responsible for its duties as employer. This is why checking both parties' insurance coverage matters before work begins.
Q: Can a temporary worker become a permanent employee?
A: Yes. Many agency contracts include a "temp-to-perm" transfer clause, though it usually involves a transfer fee paid to the agency unless the worker has already completed a set number of weeks on assignment.
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