Is the construction industry’s growing reliance on agency labour becoming a problem?

Controversies are generally best avoided for an industry seeking to improve its reputation. But, if and when they do happen, they can present an opportunity to step back and take stock of where things might be going wrong.

This year, a number of awkward headlines have raised questions about the role of agency labour in construction. 

In April, four people were jailed for corruption over bribes paid to Keltbray by another company to secure £15m worth of specialist labour contracts.

Then, in the summer, there was controversy when Balfour Beatty removed Danny Sullivan from all its contracts, claiming that the labour agency had misclassified the employment status of HS2 workers.

Danny Sullivan has insisted that there was “no evidence of deliberate wrongdoing” and says it has subsequently been found to be fully tax compliant. Nevertheless, the two incidents have thrown contractors’ use of labour agencies into the spotlight, opening up a bigger debate about how effectively their widespread use serves the interests of the broader sector.

It’s safer for them to employ blue-collar people through an agency than it is to have a load of them on their books if they lose a big project

Andy Boyle, director, ITS

Everybody in the industry agrees that agencies and self-employed workers have always played an essential role – and continue to do so. Certain types of projects have very variable demand for labour, with huge amounts required at their peak. Agencies allow firms to meet these demands as and when.

While these institutions have always been part of the sector, however, they have become an increasingly dominant part of the labour supply. According to 2024 figures from the CITB, 36% of construction’s two million workforce in 2024 was self-employed, well above the average rate of 13% across the economy. And this does not include the large number who are formally on payrolls managed by labour agencies, but working short-term, insecure contracts.

Given this, it is difficult to get precise and up-to-date figures for how agency use has grown. In the five years to 2018, however, an estimated 56% of employers in construction increased the share of agency workers they employed, according to research by the Resolution Foundation – more than in any other sector.

Why has this happened? Some point to the increasing cyclicality of the construction market. “We had a public sector workload that was used as a counter towards private sector downturns, but that […] reduced post 1980s,” explains Mark Farmer, a long-time critic of the industry’s fragmented labour model. The state’s withdrawal from market interference meant more boom and bust, and with that came greater payroll risk.

Firms became more wary about directly employing the vast majority of the workers they needed in the boom times, and those that continued to do so often suffered the consequences when recession hit. “Every one of those downturns led to pain in some shape or form,” says Farmer.

“Either for housebuilders or contractors who were holding too much direct workforce. Even if things pick up, they are reticent to move back to a direct labour model.”

And the increasingly turbulent nature of the business cycle is not the only factor pushing contractors into the arms of agencies. Andy Boyle is director at ITS Building People, an agency which has more than 300,000 candidates on its database and has an average of 1,200 temps working each week. He says contractors are “almost forced down the route” of using agencies due to red tape and regulation.

“It’s safer for them to employ blue-collar people through an agency than it is to have a load of them on their books if they lose a big project,” he says, explaining the extensive HR and compliance services that modern agencies provide relating to right to work, health and safety, taxation, and modern slavery. On top of this, Boyle says agencies are increasingly used by main contractors “more for cash flow than we are for staffing”, with firms able to spread their cashflow over several agencies and longer time periods.

“We pay our workers weekly and the client pays us, depending on the arrangement, generally between 30 and 60 days later allowing for obvious cashflow benefits.”

In the medium to long-term, over-reliance on labour agencies, while effective in meeting uplifts in activity, is contributing to the skills crisis already rife within the sector

Paul Ruddick, chair, Reds10

Taxation also has an impact. Nicola Hodkinson, owner and director of family-owned contractor Seddon, is a vocal advocate of direct employment and apprenticeships. Nevertheless, she says she has been forced to make compromises by the government’s taxation decisions.

She says that it is up to 14% more expensive to directly employ and that “[chancellor] Rachel Reeves made it more expensive last October by increasing national insurance”.

Seddon had been planning to grow its direct labour by 10% and take on an extra 15% of apprentices. “Then Rachel Reeves’ shocker in October happened, we took away the 10% growth on direct labour, and we had to scale back down to 18 from 27 apprentices, because the maths wasn’t going to add up,” she adds.

Taking on apprentices and upskilling existing workers

But, if it helps contractors to manage their money and avoid going bust during downturns, then what is the problem with using agencies anyway? Well, while the use of agencies offers significant advantages to contractors individually, some people argue that their overuse has hamstrung the industry more widely, particularly as far as skills are concerned.

According to the CITB, only 10% of self-employed construction workers plan training and 76% of those follow through – compared to 51% of employers planning training and 95% of those carrying it out.

“In the medium to long-term, over-reliance on labour agencies, while effective in meeting uplifts in activity, is contributing to the skills crisis already rife within the sector,” says Paul Ruddick, chair of contractor Reds10. “It means that you are not invested in the long-term growth and development of those employed in this way.”

Essentially the problem is this: main contractors generally do not want to pay to upskill workers for the sake of one job; labour agencies don’t want to pay for training that workers could easily access through a rival supplier of work; and workers are hesitant to forgo wages in order to get qualifications when nobody is promising a better job at the end of it. The end result is a less skilled-up workforce.

Labour agencies can limit the construction workforce. For people to grow, they need development, they need qualifications, and they need employers

Nadeem Mirza, resourcing director at Sir Robert McAlpine

“From a training and development perspective, labour agencies can limit the construction workforce,” says Nadeem Mirza, resourcing director at Sir Robert McAlpine. “For people to grow, they need development, they need qualifications, and they need employers.”

Hodkinson says unwillingness to employ makes it difficult to bring through new talent, since apprentices have to be employed, and that lack of upskilling among more experienced workers also means people are not able to “move up and sideways, to allow that next generation to come through”.

According to Boyle, this was not always the case. He says that, decades ago before a change in employment law, when they invested in qualifications for agency workers, the firm was able to own those qualifications for around a year before the workers could use them elsewhere.

“If the government was going to do anything, it would be to ensure that whoever was investing in the long-term training of an individual would then be able to utilise those skills,” Boyle says.

His firm still trains people, but generally only at entry-level, where costs are low and there is a good chance the trainee will stick around for long enough to pay off the costs.

Wider benefits of direct employment

These are not the only problems either. While self-employment and agency work can offer flexibility and higher pay for workers, it also comes with downsides. There is little job security, often no paid holidays or sick leave, and, for some, the lifestyle can also be very isolating.

“So, if you put yourselves in some of these guys’ shoes, you work for a whole year,” says Hodkinson. “You might have been on eight or nine different sites. You don’t know anybody in the workplace. I think that is a bit of a detriment to the individuals. It can work for some, not for others.”

Agency labourers can also miss out on some of the subtler benefits of employment, like one-to-one feedback and appraisals from a dedicated line manager.

Some also have concerns about safety and quality. Ruddick says vertical integration is a “fundamental aspect” of how Reds10 ensures their work is done to a high standard and this is “particularly important for new legislation such as the Building Safety Act, enabling us to have an overview of the competency within the business and implement the training required”.

Meanwhile, Hodkinson fears that there might be “an element of less care” on sites where nobody is employed full time.

Then there is the question of standards. “There’s a lot of bad practices that happen in the sector,” says Henryk Jakubiak, who worked in construction for 10 years. Then, two-and-a-half years ago, he decided he wanted to do something to make it easier for workers to find opportunities and co-founded a tech-enabled agency called Fixed Construction.

On the one hand, he says, companies will go to agencies and cancel jobs at the last minute, often after the workers sourced by the agencies have quit their previous job, while on the other agencies will mislead workers about the length of the job, issue false invoices, or even turn a blind eye to modern slavery. 

Auditing labour agencies

Then there are issues such as the corruption seen in the Keltbray case or the apparent misclassification of workers that Danny Sullivan was accused of. All of this damages the sector’s image, as well as harming workers.

As you might expect, ITS’ Boyle is keen to defend the better behaved firms in his sector. To work for a major contractor on a big public sector job is likely to require getting onto a preferred supplier list, which means significant auditing, while work for the biggest housebuilders means engaging with another third-party platform that does its own checks.

He says his own firm gets audited at least five times a year. On a lot of these jobs, the worker isn’t even formally self-employed; at least for tax purposes. While still engaged on an insecure contract-for-services arrangement, they will be on PAYE, managed by the agency.

The way that public sector is funded, it’s a bit feast and famine. We have not had that [consistency] for 25 years, and that is why we are where we are

Nicola Hodkinson, owner and director, Seddon

“All the larger companies, because of false self-employment legislation, they don’t want us to employ anybody on a CIS or self-employed basis,” says Boyle. This, combined with legal changes that allowed transfers of tax liabilities back up the supply chains, is the reason for all those audits.

“If a dodgy agency was deemed by HMRC not to have paid employers’ National Insurance contributions for X amount of agency workers over X amount of years, and they went bust, then the client is then liable for those debts.” In other words, it is difficult to get away with doing dodgy business these days. 

Nevertheless, as Boyle suggests in his qualified endorsement of the sector – “the majority of the reputable agencies are all above board” – there are still those who try to get away with it to enhance their margins. Asked whether he thinks agencies misclassifying workers’ employment status is a rare thing, he says “no”, adding that it depends on how thoroughly they are being audited.

“I think the top tier one contractors are generally very, very thorough with it,” he says. “The further down the chain you go, the less PSL, the less auditing goes on. Twas ever thus, I would imagine.” 

Potential for digital disruption in the sector

For Jakubiak at Fixed Construction, the answer to bad practice in the sector is technological disruption. “I think the best way to really facilitate training and efficiency in the sector is by basically companies being able to find workers directly,” he says.

This is the kind of digital platform he is trying to create at Fixed, which he hopes can become a kind of LinkedIn for construction, enabling the many “invisible workers” in the sector, who do not have CVs or do not speak English as a first language, to show their experience directly to potential employers.

This may indeed be an effective way of addressing some of the bad practices that come from the existence of a middle man in the labour relation, but it hardly addresses the skills issue. Fixed actually tried to offer training at one point and found it was not commercially viable. Instead, it wants to provide a “career copilot” on its platform, which would guide workers on how specific qualifications could help to unlock opportunities and increase earnings.

Jakubiak’s answer is simple, if a little pitiless: “Ultimately, if workers are self employed, they should really be paying for their own training.”

Market sticks and carrots

The most popular solution among those Building spoke to was the ever-present one-word answer to all of construction’s woes: pipeline. This is the word people always bring up when Hodkinson asks what it would take for them to take on apprentices, and it is what the government once provided through counter-cyclical investment.

“The way that public sector is funded, it’s a bit feast and famine,” she says. “We have not had that [consistency] for 25 years, and that is why we are where we are.”

The very biggest contractors in the country do not need much convincing, if you believe what they tell you. “Our default position is always to employ people,” says Karen Brookes, chief people officer at Sir Robert McAlpine. “It’s more cost efficient and cost effective because they understand your processes, your way of working, your policies, and your culture.”

It is at the smaller end of the market that there is a greater reliance on agencies. Dale Turner, Skanska UK director of procurement and supply chain, says that, while national contractors tend to “maintain sizable directly employed workforces that they develop and rotate across projects”, regional main contractors “often rely more heavily on agency or highly skilled temporary labour due to local market conditions and capacity constraints”.

Of course, some of these smaller firms might need a little stick to go with the carrot – probably in the form of some kind of procurement requirements – but most seem happy to accept this. Stephen Teagle, chief executive of the partnerships business at housebuilding giant Vistry, says he would “100% support” a Homes England funding prospectus with strings attached.

“If you want grant funding, you should be expected to commit to some social value outputs and some employment training and apprenticeship outputs as well,” he says.

If you’ve got a secure contract with a big project for five years […] then you’re very happy to upskill the local workforce

Andy Boyle, director, ITS

Of course, even this solution would have its challenges. As previously mentioned, a lot of workers like being self-employed for the flexibility, the ability to work near home and the better tax treatment. “You’d have to get the buy-in from the workforce, as well as the companies,” says Jakubiak. 

What would be required, then, to address the issues associated with over-reliance on agencies, is not necessarily a return to old-fashioned direct employment by contractors, but rather a suite of policies to subtly transform the industry’s existing labour model: public investment and an assured pipeline to give contractors the confidence to invest in skilling up workers who continue to work through agencies or new tech-enabled platforms, which, through beefed up procurement rules, have greater pastoral responsibilities.

Indeed, the experience of firms such as ITS working on big public projects shows that this approach works. “If you’ve got a secure contract with a big Balfour Beatty project for five years […] then you’re very happy to upskill the local workforce, because you know they’re going to be working for you for four or five years,” says Boyle.

“If you are at the retail level, and you are trying to supply Persimmon Homes with a forklift driver or a labourer and you are up against five or six other agencies, then it reduces your options.”

Similarly, according to Seddon’s Hodkinson, there are some agencies already demonstrating best practice. While her firm relies as much as possible on its own workforce, it sometimes requires a top-up. When that happens it turns to a firm called We Are Footprint and, for every £1 they spend, 10% goes into a social value pot.

“They pay for [workers’] training, they support them pastorally, they help them with mental health,” she says. “That for me is a good agency.”

Creating an industry where every labour agency is so generous may be wishful thinking. But, with the right support from the government, a few tweaks to the way the sector operates could go a long way in improving the lot of employers and employees alike.