AWR - the 12-week rule
The Agency Workers Regulations 2010 give contractors and temporary workers the same basic working conditions as comparable permanent employees of the end client after 12 weeks in the same role.
This means after 12 weeks, the contractor is entitled to:
- Same pay (basic pay, holiday pay, bonus tied to personal performance)
- Same paid annual leave
- Same rest breaks
- Access to facilities (canteen, parking, childcare)
- Information on permanent vacancies
The 12-week clock includes any week with at least one day worked. Breaks of 6+ weeks reset the clock; shorter breaks pause it. Agencies must track this carefully or pay backdated entitlement.
IR35 in the recruitment chain
Since April 2021 (off-payroll working rules), the end client (medium/large in private sector, all in public sector) determines IR35 status for contractor engagements. Agencies in the middle have their own liability:
- If the end client provides an SDS and the agency disagrees, the agency can challenge but should follow.
- If the agency reasonably believes the SDS is wrong and the client refuses to revisit, agency liability can apply.
- If the agency operates in the chain and doesn't request/receive an SDS, agency liability defaults.
- For inside-IR35 contracts, the fee-payer (often the agency) operates PAYE on the contractor's pay.
Holiday pay - 12.07% or AWR
Two methods for accruing holiday pay for contractors:
- 12.07% accrual - the standard calculation: 5.6 weeks holiday / (52 - 5.6 weeks worked) = 12.07%. Add this to each pay run, paid out at end of placement or quarterly.
- AWR-aligned holiday - after 12 weeks, holiday matches the end client's permanent entitlement (often more than 5.6 weeks).
The 'rolled-up holiday pay' practice (just paying 12.07% on top of each pay slip) was historically common but legally questionable. Recent rulings have re-permitted it under specific conditions for irregular workers. Get this checked specifically for your contracts.
Common compliance gaps
- Missing SDS for ongoing inside-IR35 contractors (you're the fee-payer, you're operating PAYE; the SDS evidence is your protection)
- AWR clock not tracked per contractor per role - agencies discover after audit that contractors should have been on AWR-aligned terms for months
- Holiday pay not accrued on bonus or commission paid via the agency to inside-IR35 contractors
- Apprenticeship Levy - applies above £3M total payroll (own employees + contractor pay-through-agency); often missed by mid-sized agencies
- RTI late filing - weekly cycles with same-day RTI requirements catch agencies during holiday weeks
Frequently asked questions
What's the penalty for AWR non-compliance?+
Compensation to the contractor for the difference in pay/holiday from the 12-week point. Plus potential employment tribunal claims. Total exposure for one missed contractor over 6 months can be £5-20K. Across multiple contractors, it adds up fast.
Are contractors paid via umbrella our liability?+
If the contractor uses an umbrella you didn't introduce or recommend, much less. If you direct contractors to a specific umbrella (especially one paying you a referral fee), you may have liability if that umbrella runs disguised remuneration schemes. Audit any umbrella arrangements you have.
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