Why the P45 Matters for Staffing Agencies

A P45 is the document that proves a worker's tax position at the point they leave an employer. In the UK tax system, where income tax and National Insurance are deducted at source through PAYE, the P45 is the mechanism by which the correct tax code and year-to-date earnings information travels with the worker from one employer to the next. When it is missing, the worker's new employer - or the staffing agency acting as employer of record for a temporary placement - must place the worker on an emergency tax code. Emergency codes often overtax workers, particularly those with multiple concurrent engagements, and the resulting pay discrepancies generate complaints, early-tenure frustration, and sometimes early resignation.

For staffing agencies handling high volumes of short-duration placements, the P45 workflow is an administrative pressure point that directly affects worker experience and payroll accuracy. A contractor who finishes one assignment on Friday and starts another the following Monday needs their tax position to follow them seamlessly. When it does not, the agency absorbs the complaint. When HMRC identifies cumulative PAYE errors during a payroll audit, the agency absorbs the liability.

The paperwork itself is not complicated, but the timing and follow-through involved in collecting P45s across a large contractor base is operationally significant.

How the P45 Works

A P45 is issued by an employer when an employee or worker leaves. It contains four pieces of information: the tax code in use at the point of departure, total taxable pay received in the current tax year up to the leaving date, total tax deducted in the current tax year up to the leaving date, and the leaving date itself. The document is structured across parts: Part 1 goes to HMRC, Part 1A is retained by the employee, and Parts 2 and 3 are given to the new employer. The new employer uses Parts 2 and 3 to set up the worker's PAYE record with the correct opening figures.

For staffing agencies, the most common complication is workers who do not provide a P45 when starting a new placement. This happens for several reasons: the previous employer has not yet issued one, the worker has lost it, or the worker has multiple concurrent engagements (which means there is no single P45 that covers their full year-to-date position). In all of these cases, the agency uses the starter checklist process, asking the worker to declare whether this is their only employment, their main employment but they have others, or a secondary employment. The answer determines which emergency tax code applies.

A payroll administrator at a managed services staffing firm that places IT contractors processes P45 and starter checklist documentation as part of the initial onboarding pack for every new placement. Workers who do not submit either within five working days of starting are automatically chased. The process reduced emergency code placements by 60% over one year, cutting the volume of tax code correction requests and associated worker calls by a proportional amount.

What Happens Without a P45

Without a P45, the agency applies an emergency tax code: 1257L W1/M1 in most cases for the 2024/25 tax year, which treats each pay period in isolation rather than cumulatively. This often overtaxes workers who have already used their personal allowance earlier in the year, and undertaxes workers who have not. Either outcome requires correction via HMRC, generating administrative overhead for the agency and potentially a tax bill or refund for the worker. Workers in their first job of the tax year who are incorrectly placed on an emergency code can end up overpaying tax for months before the discrepancy is resolved.

HMRC accepts notification of a new employee's details through Real Time Information (RTI) submissions, which must be made on or before the first payday. The starter declaration information - drawn from the P45 or the starter checklist - feeds directly into the first Full Payment Submission. Errors at this stage compound in subsequent payroll runs until a corrected tax code is received from HMRC.

P45 in Practice

A compliance manager at a specialist healthcare staffing agency noticed a pattern of agency workers contacting payroll in their second or third week of placement to query their take-home pay. Investigation showed that 40% of new starters were being placed on emergency codes due to missing P45 documentation, and that the standard chasing process was not triggering until after the first payroll run. She moved the P45 and starter checklist deadline to 48 hours before the first payroll cut-off and added a block in the onboarding system that prevented timesheet approval for workers without a completed tax document on file. Emergency code placements dropped to under 10% of new starters within two months.