The recruitment industry crisis
The UK recruitment industry is experiencing a sharp rise in insolvencies, with hundreds of agencies reportedly going under in 2025, meaning our services are very much in vogue, writes Gareth Wilcox, partner at Opus Restructuring LLP.
For contractors, this upward trend in agency insolvencies is more than a headline; it's a direct threat to income, stability, and financial security.
And it highlights one of the few but key disadvantages of contracting rather than being an employee.
The middle year collapse: what caused agency flops as of H2 2025?
From what we're seeing as insolvency practitioners, several forces are converging to destabilise the contractor recruitment sector:
- Drop in IT Contractor Demand: The tech industry, once a reliable source of contract work, has seen a dramatic downturn. Aside from an ongoing drop in IT contractor demand, over 70,000 tech roles have been lost in the last two years, driven by automation, AI, and cost-cutting. Staffing agencies that relied heavily on tech placements have had their 'bread and butter' dramatically scaled back.
- Employer NICs Increase: The April 2025 increase in employer National Insurance Contributions (from 13.8% to 15%) has hit recruiters hard. Agencies now face higher payroll costs, especially for temporary and lower-paid staff. Many agencies can't absorb the increase or pass it on to clients without losing business.
- Economic Uncertainty: A 17% drop in net fee income across the sector (Hays) reflects broader caution in hiring. Clients are freezing budgets, delaying projects, and pulling back on contractor engagement.
Are recruiters to blame?
Not entirely. While some staffing companies may have overextended themselves when the sun was shining, or more recently failed to adapt, the employer NICs increase and tech sector-wide drop in demand have created a perfect storm.
We see even well-run IT staffing agencies finding it hard to stay afloat.
What happens to contractors when their recruitment agency fails?
Unlike employees, who have significant protections and rights in the event of redundancy and/or insolvency, contractors are typically unsecured creditors.
Being an unsecured creditor means you're last in line when an agency goes bust — a situation made even worse since the introduction of secondary preferential status for certain HMRC liabilities in 2020. Understanding how creditors' meetings work can help you navigate this challenging process.
The Decline Curve: contractor recovery prospects at 5 stages of insolvency
Here's how different stages of insolvency (we refer to it internally as 'the decline curve') may affect your chances of getting paid:
- Distress: If your agency is showing signs of distress — late payments, poor communication, evasiveness when you ask related questions, act fast. Chase invoices, escalate internally, and consider contacting the end-client directly.
- Cessation: If the agency closes its doors, your options narrow. You may be able to negotiate direct payment or engagement with the client, but this depends on contract terms and client willingness. It is often a precursor to a formal insolvency process.
- Administration: At stage 3, a formal insolvency process begins. Unpaid contractors will need to submit a 'proof of debt' to the administrators (on request) for any outstanding invoices. Recovery of arrears is uncertain and often minimal, in line with the statutory order of priority; however, if trading is continuing under the supervision of an administrator, any post-administration costs may be payable as an expense of the administration — so contact them quickly and ascertain the position.
- Company Voluntary Agreement (CVA) or pre-pack administration: In some cases, the agency may restructure or sell parts of the business. These arrangements can preserve operations, but arrears will be unsecured claims in either scenario, frozen at the date of insolvency and often with low recovery prospects. Where your support is sought post-insolvency, however, you may be able to negotiate enhanced terms going forward to compensate for prior losses, if your services are critical to the business. We call these 'ransom' creditors, but don't get put off by the name — it can be an effective tool in the contractors' arsenal.
- Liquidation: At the fifth and final stage, the agency's assets are sold off, usually on a piecemeal basis and without a successor business replacing the old one. Unsecured creditors rarely see full repayment, and contractors are often left out of pocket entirely.
Owed cash by a recruitment agency? Our 4 recommendations as insolvency experts
- Act early: As contractors were advised earlier this month, don't wait for a formal insolvency event. Escalate overdue invoices quickly and consider withdrawing supply of services to force payment. You can use a formal payment request template to demand payment professionally. Remember, you are your own business and not a charity!
- Contact the IP if one is appointed: If the agency enters administration or liquidation, or a CVA is proposed, reach out to the appointed insolvency practitioner with a formal claim and to ascertain the position on the ground.
- Avoid recovery scams: Be wary of firms promising to chase directors personally since these firms are often predatory. If you have concerns about the conduct of the directors where an IP is appointed, share them with the IP and provide as much information as you can. An IP has a duty to investigate, and ordinarily there will be no need for the creditor to reach into their pocket.
- Legal action: If the agency is still trading, consider County Court proceedings or a winding-up petition. These are risky and can be costly, but may be viable in some cases.
Final thought: do it yesterday if you're out of pocket from an insolvent recruiter…
The recruitment sector's current crisis is a wake-up call for contractors. Stay vigilant, know your legal rights in insolvency, and act quickly if payments stall. Insolvency practitioners can help, but only if you're proactive.
The Expert was Gareth Wilcox, partner at Opus Restructuring LLP.
