UK regulations that businesses need to know about temporary staff, freelancers and contingent workers

There has recently been growing scrutiny around the treatment of freelance and temporary workers in the UK. Issues such as companies charging freelance staff fees for expedited wage payments, failing to provide fundamental worker protections, or misclassifying employees have highlighted significant concerns. 

For businesses relying on temporary, freelance, and contingent workers, failing to comply with employment laws poses a major risk. Incorrect classification of workers, not providing appropriate benefits, or failing to meet National Insurance (NI) obligations can lead to legal disputes, financial penalties, and reputational damage. 

With new regulatory changes coming into effect in April 2025, businesses must take proactive steps to ensure compliance. 

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The risks of non-compliance: What businesses stand to lose 

Ignoring or misunderstanding employment regulations can have serious consequences. Non-compliant businesses may face: 

1. Legal action and financial penalties 

• Misclassification of workers: Businesses that incorrectly classify staff as freelancers or contractors (when they should be employees or workers) can face employment tribunals and be forced to pay backdated holiday pay, pensions, and other entitlements. 
• Failure to provide statutory benefits: If a company does not offer required entitlements (such as holiday pay, rest breaks, or fair wages), workers can take legal action, leading to costly settlements. 
• National Insurance errors: If a business underpays employer NI contributions due to incorrect worker classification, HMRC can issue fines and demand back payments with interest. 

2. Reputational damage 

• Growing public scrutiny of unethical employment practices has led to severe backlash in high-profile cases, with businesses losing customers, partners, and talent due to poor treatment of workers. 
• In the digital age, negative press or online reviews about unfair worker treatment can significantly damage an employer's brand. 

3. Disruptions to business operations 

• Worker disputes and resignations: Non-compliance often leads to discontent among staff, resulting in low morale, absenteeism, or mass resignations. 
• Inability to attract talent: Skilled temporary workers are less likely to choose a company that is known for non-compliance or unfair treatment.

Key legal regulations for freelancers, temporary staff, and flexible workers  

Worker rights and classifications 

UK law distinguishes between employees, workers, and self-employed contractors. Businesses must correctly classify their staff, as each category has different rights: 

• Employees (permanent staff): Entitled to full employment rights, including sick pay, maternity leave, pensions, and unfair dismissal protection. Employees need to be registered on PAYE and are not allowed to subcontract 
• Workers (including temps and agency workers): Entitled to statutory holiday pay, National Minimum Wage, and rest breaks but have fewer protections than employees. 
• Self-employed contractors: Have the fewest rights and must handle their own tax and NI contributions.  

Based on the number of hours worked, nearly all workers in each category are entitled to at least 5.6 weeks of annual leave - this is known as statutory leave entitlement. This applies to temporary and flexible staff who work with agencies from the beginning of their employment.  

The 12-week rule for agency workers 

After 12 weeks of working with a single company, agency staff become entitled to many of the same or equivalent rights to the hiring organisation’s permanent staff, including the same pay, same holiday entitlement, and the same working patterns and rest breaks. Businesses that fail to comply risk legal action. 

Upcoming National Insurance changes (April 2025) 

From 6 April 2025, there will be several significant changes to the National Insurance regulations for businesses, two of the most important changes being:  

• The rate at which employers must pay National Insurance contributions (NICs) will increase from 13.8% to 15% 
• The Secondary Threshold, which is the level of earnings at which a worker’s employer must pay secondary Class 1 NICs, will be reduced from £9,100 to £5,000 per year 

Flexible and temporary staff will not be exempt, meaning that businesses that employ any type of worker need to be aware of this change.

While these changes may add costs to businesses, there are also changes that may make things easier for businesses too. The Employment Allowance is like a discount on the National Insurance bill for eligible businesses. Right now, businesses can reduce their NI payments by up to £5,000 per year, but from April 2025, this will increase to £10,500. 

This means that if a small business owes £9,000 in employer National Insurance, it will now pay £0, as the full amount is covered by the allowance. If its NI bill is £12,000, it will only need to pay £1,500. 

However, agency worker pay is not included in this allowance, leaving the whole of it for internal staff.  

The allowance is designed to encourage businesses to hire more staff by offering relief on NICs, thus lowering the cost of employment. From April 2025, this allowance will increase, enabling more businesses to benefit from reduced NI costs. Additionally, the previous cap where businesses with secondary Class 1 NICs of £100,000 in the previous tax year were ineligible for Employment Allowance will be removed, allowing larger businesses to also access this benefit.  

Rufus Hood, General Manager UK at Coople, comments:   

“Employers that are eligible for Employment Allowance (EA) no longer have to pay their first £10,500 of National Insurance contributions. When a business hires temporary or flexible workers through an agency, it doesn’t directly pay their employer NICs—the staffing agency does. Since these NI contributions are handled by the agency, they do not count towards the business’s £10,500 allowance limit. 

This is important because some businesses may worry that hiring temporary staff through agencies means they will have to pay extra NI costs. However, because agency staff’s NICs aren’t included in the business’s NI bill, it doesn’t reduce the Employment Allowance they can claim. This ensures that businesses using agencies are not at a disadvantage compared to those hiring directly.” 

Best practices for businesses to stay compliant 

So, what can businesses do to make sure they remain compliant with these regulations? 

Businesses can protect themselves from legal and financial risks by implementing the following best practices: 

• Ensure correct worker classification: Regularly review contracts and employment status to avoid misclassification. 
• Ensure contracts are clear and comprehensive: Businesses should make sure that any contracts they draft are clear and understandable, unambiguously defining the terms of employment or engagement. 
• Train HR and management: Equip teams with up-to-date knowledge of employment law. 
• Audit payroll and benefits: Ensure workers receive the correct entitlements, including holiday pay, NI contributions, and equal pay after 12 weeks. 
• Seek expert advice: Work with employment lawyers or external HR consultants to stay ahead of legal changes. 

Businesses that work with freelancers, contractors and temporary or flexible agency workers should be aware of best practices for working with staff that fall into these categories. Companies can always fill gaps in their knowledge with professional advice from employment lawyers or external HR consultants. 

How Coople can help 

 At Coople, we are committed to fairness for all workers and take responsibility for ensuring that the treatment of our network of flexible staff is always ethical and compliant with legal regulations. 

Coople supports the organisations we work with by managing the entire hiring process, from sourcing and onboarding to payroll and offboarding. This means we take responsibility for ensuring that all contracts are compliant with the current regulations regarding workers of all categories. Outsourcing this responsibility to us also helps reduce costs for businesses.  

Rufus Hood adds:   

“Businesses who employ flexible staff need to ensure that they are treated ethically and staffing agencies like Coople are here to help with this, keeping the rates we recommend for workers in line with industry standards. Acting as their employer, agencies will also look after sick pay, absence management, and holiday entitlement for your flexible team members as well as handling payroll and National Insurance.”  

FAQ 

Are agency workers’ National Insurance (NI) contributions excluded in all cases? 

Yes, they are excluded in all cases from the Employment Allowance calculation because the staffing agency is the employer of record and is responsible for paying their employer NI contributions—not the client company. 

What about large companies with high NI bills? 
If a company sources a large number of temporary staff through a staffing agency and also has a directly employed workforce, its Employment Allowance eligibility depends on its direct employee NI bill, excluding agency staff. Here’s how it works: 

• If their direct NI bill is under £10,500, the company pays £0 in employer NI (fully covered by EA). 
• Agency staff’s NI contributions do not reduce this allowance, since the agency is responsible for paying them. 
• If their direct NI bill exceeds £10,500, the company must pay the NI contributions above this limit on its own employees. 
• Agency workers' NI still does not count toward this limit—so their Employment Allowance is applied only to their directly employed staff.  

Example scenario for a large company: 

• A company has £20,000 in employer NI contributions for its directly employed staff. 
• It also hires a large number of agency workers through Coople, and the agency handles all their NI. 
• The company gets the £10,500 EA applied to its direct employees’ NI but must pay the remaining £9,500. 
• The NI on agency workers remains separate and does not affect this calculation. 

Key takeaway: 

Agency workers' NI never counts toward Employment Allowance eligibility or limits. 

Even if a large company hires a high volume of temporary staff, its Employment Allowance applies only to its directly employed workforce’s NI contributions. 

Get in touch

Do you have questions or want to find out more about how Coople can help? Get in touch today!