How a big collapse in recruitment agencies is key to protect against

It’s difficult to think of a worse time to look at imposing legislation to make recruitment agencies liable to HMRC for any PAYE and NIC shortfall from their umbrella company partners.

Why? Well, on top of this potentially costly ‘JSL’ legislation for agencies, there’s a lot of doom and gloom in recruitment right now -- and unfortunately, it’s not all hype, writes Natalie Bowers, founder of staffing specialists Bowers Partnership.

When your contractor recruitment agency vanishes overnight

Agencies are laying off staff. A few agencies are even quietly vanishing altogether.

Two long-standing recruitment businesses in my niche, where IT contractors are (still) placed, have gone under in the last month.

One’s website disappeared overnight.

The other still has its website live, but its end-clients have told me they’re now stepping in to pay the agency’s contractors directly -- which is never a great sign.

And be in no doubt: if the client’s already paid the agency, they’re not paying you -- the contractor -- again. They just won’t, and legally, they don’t have to.

What the law says when agencies don’t pay contractors

So if your agency disappears with your hard-earned cash, that’s very often it. You’re very often just left out-of-pocket. I say this aware that technically, and if you’re a contractor who has opted in to the Conduct Regs, it’s unlawful for an agency to withhold payment, regardless of whether they claim to have been paid by the end-client.This supposed ‘safety net’ is all thanks to Regulation 12A, and there’s also legal advice available if you’re unpaid by an agency but have opted out of the regulations.

However, I’ve been doing this job for 25+ years and run Bowers Partnership, a recruitment firm that works with investment managers, wealth managers, and asset owners. Too often in that time, I've seen bust agencies equate to broke contractors.

Did you know 120 recruitment firms have failed in just six months?

In those two-plus decades, I’m also supposed to have seen it all. Agencies rising, folding, getting bought, rebranding overnight.

However, a late April 2025 analysis of UK insolvency figures reportedly shows that in the six months beforehand, some 120 recruitment firms went to the wall. And dear reader, none of that’s a misprint; one hundred and twenty failed staffing firms in just two quarters. It represents the highest number of employment businesses on the scrap heap since the financial crisis. It also represents a jump of 17% annually.

What’s never changed? It's the fact that, in the eyes of contractors, getting paid on time isn’t a favour -- it’s the bare minimum.

This isn’t about scaring people.

Indeed, I acknowledge that a business shutting its doors does not necessarily mean liquidation is inevitable! But I do want it to be about contractors being as smart as possible.

Contractors, always the last to know (or so it feels)

I believe that if your agency folds and you’ve not done your homework, you’ll be the last to know.

Lawyers advised ContractorUK readers of this back in 2010 (“You won't usually know with any certainty, before the agency wants you to, that the business is heading for administration.”) 

Fifteen years later, it’s still true today, and if you’re the last to know, you’ll very often be the last to get paid!

I had one disbelieving contractor tell me only the other day. “You do the work, and then silence -- nothing hits your account.”

The summer 2025 recruitment slump, according to REC, BDO, and Robert Walters

Just be aware (and even if your contract looks good), the current recruitment downturn kicking recruitment agencies isn’t being imagined.

• The Recruitment & Employment Confederation’s latest report shows IT contractor demand in June 2025 as being down again, and deeper in the red.
• BDO describes the overall outlook for the labour market in June as “stagnant.”According to BDO’s Business Trend Report, the jobs market is now stuck at a 10-year low, with employers holding back on recruitment, largely due to cost pressures exacerbated by the employer NICs increase.
• Oh, and please don’t think none of this affects you if you’re contracting via a big name. Robert Walters just cut 77 more roles.

Therefore, as a fellow recruiter, Matt Collingwood of technology staffing company VIQU, has rightly warned, “don’t be dazzled by a household name.”

And in turn, don’t think that my 'top 10 hacks to survive staffing firms shutting down' - below - are for someone else; they are from me to you!

Top 10 hacks for contractors to survive staffing firms shutting down

1. Get your mindset right

Why this matters is that your agency is your middleman as a contractor.

And that’s why contractors should make no bones about looking into the recruitment agency’s financial affairs. If your recruitment partner has money issues, even payments the client has made can vanish.

You’ll likely be left chasing your tail – and your cash.

2. Watch out for dodgy payment terms, aka ‘pay when paid’ clauses

“Paid on paid” is the worst payment term of the bad bunch. It means, ‘we’ll pay you if we get paid.’ That’s not how it should work. That’s their risk -- not yours.

And 45 or 60-day payment terms? No thank you. If you’re billing at the end of the month, you’re already two months deep before you see a penny. You’re basically financing someone else’s business.

3. Red flags you’re shown

Late payments. Excuses. A hastily cobbled together email auto reply that the “finance team are on leave.” Your own agent who got you the contract ghosting you. Emails full of fluff.

It’s not hard to spot good agencies from bad agencies -- you just have to pay attention.

4. Red flags you’re not shown

Heard whispers ‘all’s not well’? Even if you haven’t, and your agency appears to be going great guns, check out the staffing company online. Try Companies House. Endole. CreditSafe. A few clicks online can often save you a lot of grief.

5. Look out for Lenders of Last Resort

When a well-established recruitment agency suddenly takes on a loan or loans, particularly with little-known lenders, then brace yourself. Nine times out of ten, it’s ‘invoice finance’ -- and not the good kind. These are what I call “lenders of last resort.” They’re expensive for the agency, and only used when proper banks won’t touch the debt. That’s a massive red flag. It means they’ve probably been turned down elsewhere -- and that puts your pay at risk.

6. Don’t work in a silo or bubble

Are contractors suddenly not getting paid on time? Know a few consultancy guys who have downed tools? Heard that a disgruntled few agents are thinking of leaving? If you’re one of a group of contractors on a project -- talk to each other. You’ll pick up on things faster together.

7. Ask for (a human) payment reference

If you do detect something untoward at a potential agency partner, and there’s a risk that could soon be you, ask for a reference. Get a name of someone they’re paying right now, and ask that person how it’s going. If the person hesitates or dodges the question, that tells you everything.

8. Be straight talking to both the agency and the client

Relationships matter in the ‘small world’ of contracting and IT, so polite professionalism can get you a long way. But ‘due diligence’ need not be dressed up or softened. So ask straight questions -- of both your agency and the end-client.

A solid agency won’t mind. Quietly check in with the client. Take the temperature of both parties in an unabashed way.

9. All eggs in one basket is for the birds

Always have a ‘backup agency’ as a contractor. Take notice if three of your fellow freelance coders who were in via your agency are suddenly contracting via a different agency. Never bet your income on one agency forever.

10. Be a kleptomaniac contractor

Keep everything. Timesheets, approvals, emails, deliverables. If it hits the fan, your paper trail is your best defence. Told that you’ll not need to retain a copy by an agency on the ropes? Take a copy and probably take a screenshot or photo of the copy.

And finally…

Since compiling my ‘Top 10 hacks to survive staffing firms shutting down,’ I can probably add an eleventh hack because, unfortunately, I am now assisting a few contractors and an end client whose agency has also gone bust.

And my 11th hack to protect against the collapse of recruitment agencies is:

Don’t let personal relationships do the talking

I’ve seen plenty of end-clients stick with agencies because they “get on well” with the consultant, or they’re offering bargain basement rates. But when that agency collapses mid-contract, the project grinds to a halt, and no one’s laughing.

The same goes for contractors. Just because your recruiter’s nice doesn’t mean the agency isn’t on the brink. Don’t confuse a good chat with financial stability. Ask the hard questions. Get the facts.

Because when it goes wrong, no one’s refunding your time -- or, potentially, your thousands of pounds in invoices.