Agency fees: what you're actually paying for

The agency invoice lands on the finance director's desk. Forty-eight hours of a contract electrician, nights, at the agency's charge rate.

Then, over a brew, the electrician mentions what they're paid per hour. Somebody does the sum on the back of the invoice. The finance director wants to know why the agency keeps the difference, and why maintenance can't just hire its own.

It's a fair question. It usually gets a bad answer, because nobody in the room knows what's inside the rate.

So here's the breakdown. Some of the gap is the agency's margin. A lot of it is cost that someone has to carry whoever employs the engineer.

The law doesn't set the price

Start with what isn't regulated. The Conduct Regulations "do not regulate the amount of fees" an agency charges you. GOV.UK treats fee levels as a commercial agreement between the agency and the hirer (Conduct Regulations guidance).

So every rate is a negotiation. You can only negotiate well if you know the parts.

What sits under the pay rate

Take an engineer the agency employs on PAYE. On top of the hourly pay, the employer carries costs set by law.

Employer's National Insurance is 15%* on earnings above the secondary threshold. For 2026 to 2027 that threshold is £96* a week, or £5,000* a year (HMRC rates and thresholds for employers).

Holiday pay comes next. Almost all workers, agency workers included, are entitled to 5.6 weeks'* paid holiday a year (GOV.UK, holiday entitlement). For people on irregular hours, holiday builds up at 12.07%* of the hours worked in each pay period (GOV.UK, calculating leave). That pay has to come from somewhere, and it comes from your rate.

Then the pension. Under auto-enrolment, the minimum an employer pays in is 3%* (GOV.UK, workplace pensions).

Big agencies may also pay the Apprenticeship Levy. It applies to employers whose total pay bill is over £3 million* a year (HMRC rates page above).

None of that is the agency being greedy. Hire the same engineer yourself and you'd pay all of it too.

What the margin pays for

After the statutory costs, there's the agency's margin. That's where the real argument sits. In a good agency it should cover work you'd otherwise do yourself:

• finding the engineer at 4pm on a Friday, when you couldn't
• checking identity, right to work, tickets and experience before they're sent (regulation 19)
• paying the engineer every week, whether you've paid the agency yet or not
• carrying the PAYE risk if they use an umbrella company
• insurance, the payroll team and the office

That third point is a legal duty. An agency's terms with the engineer must include an undertaking to pay them for work done "whether or not it's paid by the hirer" (GOV.UK guidance above). So the agency carries your credit risk.

The fourth is new. From 6 April 2026, where an umbrella company employs the engineer, the agency that contracts with you is responsible for making sure PAYE is run properly. HMRC can recover any underpayment from the agency (HMRC, umbrella company PAYE rules). We cover what the engagement route means for you in agency, PAYE, umbrella or limited company.

Limited company contractors change the sums again. Which way they move depends on your status decision as the hirer, so get that right before you compare rates.

The rate can change on day 85

Here's a cost that catches people out. After 12 weeks* in the same role, an agency worker qualifies for equal treatment, including "the same pay as a permanent colleague doing the same job" (GOV.UK, agency workers).

If your own shift fitters earn more than the agency engineer, the agency may have to put their pay up. Your charge rate goes up with it. Plan for it. The detail is in the 12-week rule and what changes on day 85.

Cheap per hour, dear per fix

Here's our view. It's tempting to compare agencies on the hourly rate. For breakdown work it's the wrong number.

The engineer who costs less per hour but has never seen your make of drive can spend most of the shift finding the fault. The one who's fixed dozens of them finds it before the brew's gone cold. On a stopped line, the gap between those two is your cost of downtime, times every hour of difference.

Judge an agency on cost per fix. Hours charged, plus hours the line stood, plus repeat callouts for the same fault.

Questions to ask before you sign

Put these to every agency, in writing:

1. Is the engineer on PAYE with you, an umbrella company or their own limited company? The agency has to tell you whether it engages them on a contract of employment or a contract for services (regulation 21).
2. Is holiday pay inside the rate, or extra?
3. What are the uplifts for nights, weekends and bank holidays, and is there a minimum number of hours?
4. Who pays travel and mileage?
5. What's the transfer fee, and what's the extended hire option? See temp to perm: hiring an agency engineer you like.

What to do on Monday

1. Pull your last three months of agency invoices and list the charge rate for each engineer.
2. Send every agency the five questions above and ask for written answers.
3. For each agency engineer, note the date they reach 12 weeks and what your own staff earn in the same role.
4. Next time a breakdown goes to an agency, log the hours the line stood as well as the hours billed.

* National Insurance rate and thresholds, the Apprenticeship Levy threshold, statutory holiday, the 12.07% accrual rate, the 3% pension minimum and the 12-week rule are correct as of 24 October 2026. Check HMRC's rates and thresholds for employers and GOV.UK's agency worker rights for the latest.