How to start a recruitment agency: the launch kit

You know how to recruit. You have a desk that bills, clients who trust you and a sector you understand. What you probably have not done is work out how to start a recruitment agency of your own: the company, the compliance, the terms, the systems and the brand that a larger agency handled for you.

This launch kit is for founders leaving a larger UK firm. It covers the decisions to make before you resign, the legal and compliance basics, the tools you need on day one and a 90-day plan to win your first clients. It is practical guidance, not legal advice, and the legal points below are worth checking with a solicitor.

Choose your niche and model

Start with the market you know. Founders who stay close to the sector, roles and locations they already recruit for can bill sooner because they already understand the market and the people in it.

Then choose how you will earn money. Each model changes your cash flow, compliance and systems.

Many founders start with permanent recruitment because it needs less funding, then add contract work once they have cash and processes in place.

Check your restrictive covenants first

Before you resign, read your employment contract carefully. Most agency contracts include post-termination restrictions such as non-compete, non-solicitation and non-dealing clauses covering clients and candidates you worked with.

UK courts generally ask whether a restriction protects a legitimate business interest and goes no further than reasonably necessary. Whether yours would be enforced depends on its wording and your circumstances, which is why you should take advice from an employment solicitor before you approach anyone. Breaching a covenant can lead to an injunction or a damages claim, which is a hard way to start a business.

How to start a recruitment agency: company setup

Most agencies trade as a private limited company. GOV.UK's guidance on setting up a limited company covers appointing directors, choosing shareholders, identifying people with significant control, preparing articles of association and registering with Companies House, which has charged £50 to incorporate online since 1 May 2024.

• →Register for Corporation Tax once the company is formed.
• →Set up PAYE before you pay any salaries, including your own.
• →Register for VAT when your taxable turnover passes the threshold, which GOV.UK currently sets at £90,000 over a rolling 12 months.
• →Open a business bank account and appoint an accountant who knows recruitment.
• →Arrange insurance. Employers' liability is a legal requirement once you employ people, and clients often ask for professional indemnity cover.

Choosing a name comes early in this process, because you need it for Companies House, your domain and your trade mark search. Check that the company name, the .co.uk and .com domains and the matching social handles are free, and search the trade mark register before you commit. Our guide to recruitment agency start up costs sets out what each of these items costs and what drives the price.

UK compliance basics

Recruitment in Great Britain is governed mainly by the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003, usually called the Conduct Regulations. There is no general licence to run an agency, but GOV.UK says agencies supplying workers into agriculture, horticulture, shellfish gathering or food processing and packaging need a gangmaster licence, and some care agencies must register with regulators such as the Care Quality Commission.

The government's overview of the Conduct Regulations highlights several duties every founder should know:

• →You cannot charge work-seekers a fee for finding them work, apart from limited exceptions such as some entertainment and modelling work.
• →You must agree terms with work-seekers before providing work-finding services.
• →You need enough information from the hirer about the role before you introduce or supply anyone.
• →You must confirm a candidate's identity, relevant experience and qualifications, and their willingness to do the work.
• →You must keep records that show you comply, for at least 12 months.
• →Employment businesses must give new agency workers a key information document before agreeing terms, a requirement in force since 6 April 2020.

The Employment Agency Standards Inspectorate enforces these rules in Great Britain, and breaches can lead to fines and prohibition orders.

Data protection applies from your first CV. Most organisations that process personal data must pay a data protection fee to the ICO, which GOV.UK puts at £52 or £78 a year for most small and medium-sized businesses. You also need a privacy notice, a lawful basis for holding candidate data and a retention policy.

Right to work checks matter whenever you employ people, including temporary workers on your own payroll. GOV.UK says the civil penalty can be up to £60,000 for each illegal worker, and that you will not have to pay it if you can show you made the correct checks. If you supply contractors, also read up on the Agency Workers Regulations 2010 and the off-payroll working (IR35) rules.

Funding contractor payroll

If you place contractors, you pay them weekly or monthly while clients pay on 30 days or longer. Every new contractor widens the gap. Most new agencies fund it with invoice finance or a funded back-office provider that handles payroll and credit control. Compare the total cost, the contract term and how each option handles bad debt before you sign.

Terms of business

Your terms of business protect your fee. At a minimum they should cover the fee and when it is due, rebates or replacements, introductions that lead to a hire later, and payment terms. For temporary supply, they also need to cover timesheets, charges and transfer fees. The Conduct Regulations restrict when transfer fees can be charged, so have a solicitor check your temporary terms. Trade bodies such as the REC provide templates to members.

Brand, website and ATS

Clients who knew you at your old agency now need a reason to trust your new one. A clear position, a professional identity and a credible website do that work. Our guide to recruitment agency branding explains what a new brand needs to do, and our list of what the best recruitment websites have in common shows what to build first.

Choose your ATS before you build the website, so jobs can feed onto the site automatically and applications flow back into your database. Changing systems later is painful, so ask about data export, integrations and contract length before you commit.

Your first 90 days

The business development rhythm matters more than any single campaign. Our recruitment BD email templates give you a starting point for outreach that does not sound like everyone else's.