Employment Rights Bill brings new rights to UK’s umbrella employees

Amendments to the Employment Rights Bill published on 5 March have introduced a huge raft of employment law reforms but one of the most significant, that has received relatively little attention, is a new regime for the regulation of umbrella companies. It marks a big change for businesses engaging contingent workers and a major shift in how the umbrella the company market operates. We’ll speak to an employment lawyer about the changes proposed in the Bill and their likely impact on end users.

The amendments build on Rachel Reeves’ Autumn Budget commitment to tackle non-compliance in the umbrella market. Her concern is umbrella companies too often deprive workers of employment rights, distort competition in the labour market and cause significant tax loss – she estimates is costing the Treasury around £500 million a year. The biggest and most significant change is certainly the shift of PAYE and NICs liability up the supply chain and away from umbrellas from April 2026 – we have a separate programme on that with input from a tax specialist.

The Bill, meanwhile, focuses on employment law reforms which include bringing umbrella companies under formal regulation by defining them as employment businesses, ensuring they fall under the Employment Agency Standards Inspectorate and, in due course, the Fair Work Agency. The amendments also strengthen worker protections, giving umbrella employees clearer pay structures, stronger rights against unlawful deductions, and better enforcement of holiday pay entitlements. Taken together they mark a significant shift in how umbrella companies are regulated, all designed to increase transparency and worker protections in the labour market.

So, let’s hear more about these changes and how they will impact on end users. Emma Johnston is currently working with a number of clients helping them prepare for these changes and earlier she joined me by phone to discuss it:

Emma Johnston: “Yes, so there's a bit more clarity now in terms of what is going to change for the umbrella companies and it looks like that we've got some quite strict regulation that's coming in whereas before there was clearly a bit of uncertainty and a grey area in terms of the extent of regulation of umbrella companies. So now it looks like we're going to have the Fair Work Agency which is eventually going to take on responsibility for effectively policing the regulation of these umbrella companies and it's going to have quite a fundamental change to the way in which umbrella companies will be required to operate. By that I mean that the Fair Work Agency is going to have powers to be able to issue notices of underpayment, for example, to umbrella companies in circumstances where it becomes clear that the employees that they engage are not being paid fairly in terms of their jurisdiction over holiday payments, national minimum wage, and these kind of things where there will be almost a potential for an audit to happen by the Fair Work Agency. They can also issue fines in circumstances where the notice of underpayment isn't settled and  things like that but the Fair Work Agency, in quite an unusual turn of events, will apparently also be entitled to bring employment tribunal claims on behalf of workers in circumstances where the worker perhaps isn't in a position to bring it themselves, so that's quite a new detail that we didn't have before. So there's this big emphasis on ensuring that workers in these scenarios are not exploited and that they are given information that they require in relation to what they are being paid and what they should be entitled to and if that then doesn't come to fruition then we can anticipate the Fair Work Agency, potentially, getting involved. The whole point in it really is to make sure that there's going to be this stronger accountability, not just at the umbrella company stage but throughout the chain of engagement so that in circumstances where PAYE and NICs is to be applied then there is going to likely be responsibility for that further up the chain shifting from the umbrella companies to, potentially, right the way up to the end client where there isn't an agency in the chain. The other change as well is the fact that, just to go back to that further regulation point in relation to umbrella companies, is umbrella companies will get a bit of a specific definition just in terms of that further regulation. So yes, there are a number of changes that are going to be occurring and there will be responsibility all the way through the chain to make sure that these requirements are complied with.”

Joe Glavina: “Your central message to your clients, end users, is ‘know you supply chain.’ Can you explain why that is so important under the new rules.”

Emma Johnston: “So often we are asked, particularly in the end client scenario, to give advice on a variety of issues around employment status risks, the types of legislation which would apply to a worker in certain different engagement models, and what becomes clear from time to time is that often the end client isn't particularly familiar with precisely what that contractual chain looks like. So occasionally a client will be, for example, unaware of the fact that the agency that they're engaging to have a flexible staffing resource is actually engaging individuals through an umbrella company earlier down the chain and the end client may not understand that that could involve, for example, an employment relationship between the worker and the umbrella company right at the beginning of that contractual chain. Understanding these types of details is very important for a variety of reasons but even more so now that we have this greater focus on regulation of umbrella companies and the fact that the responsibility for ensuring compliance, particularly in relation to the PAYE and NICs liability, is being moved further up the chain.”

Joe Glavina: “Under the new rules responsibility is piled onto the end user, away from the umbrellas, so the end users face greater potential liability. Is that right?”

Emma Johnston: “Absolutely. So if there was a situation where workers were not being treated in the way that they should be lower down the chain in terms of the umbrella companies, then there is a risk that there will be repercussions for the end client particularly in circumstances where there's not an intermediary agency in the contractual chain. It may well also be significant in circumstances where that intermediary agency is in existence and that can be, as I say, in relation to the liability in terms of PAYE and NICs, but also, it's not entirely clear yet exactly how the Fair Work Agency is going to work in terms of the claims that they can bring. At the moment, it appears to be that's very much focused in terms of the umbrella companies and the way that they are behaving towards their staff, but it remains to be seen precisely what that detail will look like and what repercussions will therefore be for end users, potentially.”

Joe Glavina: “So what’s your key message to end user clients watching this programme, Emma?”

Emma Johnston: “So the key messages have to be at the moment in terms of really understanding again what that supply chain looks like. It sounds very basic but it's absolutely crucial. If as an end client, if you engage an agency you're going to want to understand what the agency is doing to secure staff that are then provided to the end client business because you, as an end client, may not be aware that staff are being provided at the very start of the chain through that umbrella company so there needs to be an audit in terms of the supply chain. There also needs to be payroll audits to understand exactly how the pay arrangements are being handled, who's responsible for paying particular staff, and just to understand exactly how that's working because it's really important that records are being kept by the end client, particularly, so that they can demonstrate that they understand and have done the due diligence in terms of what happens further down the chain.”

The biggest and most significant change is certainly the shift of PAYE and NICs liability up the supply chain and away from umbrellas from April 2026. We have a separate programme on that ‘New with input from a tax specialist Penny Simmons who explains how this will impact end users. That’s ‘Tax rules to shift liability from umbrellas to agencies and end users’ and it is available for viewing now from the Out-Law website.

- Link to HRNews programme: ‘New tax rules to shift liability from umbrellas to agencies and end users’