The UK government have recently provided guidance on best practices for umbrella companies operating in the temporary labour market. We have compiled a thorough checklist to help you ensure the umbrella company you choose adheres to the guidelines.
Compliance Checklist for Recruiters
As an agency you’re not just referring workers to an umbrella, you’re also putting your reputation and compliance at risk. This means it’s vital that you know what to look for when reviewing or building your Preferred Supplier List (PSL).
1. Transparent and Qualified Leadership
Umbrella companies should be run by individuals clearly listed on Companies House. These can include directors or anyone with ‘significant control’. They should also have the right level of employer insurance, such as employer’s liability. You can find this out by requesting a copy of the certificate from the employer.
2. Financial Stability
Your umbrella provider should be able to meet payroll obligations even if there are delays in payments from agencies or end clients. Failure to do so puts both you and your workers at financial risk. They should also be able to demonstrate they have the right levels of insurance as an employer.
3. Strong Compliance with Employment Law
Umbrella companies should be:
- Conducting right-to-work checks on employees before engaging with agencies under contract.
- Issuing written employment contracts that are clear and legally compliant.
- Providing accurate payslips and showing a clear breakdown of the payment process and deductions.
- Make sure that contractors are completely aware of their employment rights including holiday pay, sick pay, and pension contributions.
- Ensure they stay up to date with any changes relevant to tax, employment and company law.
4. Accurate Payroll and Tax Handling
All PAYE, National Insurance, and statutory deductions must be processed correctly and reported to HMRC. Mistakes can impact workers and bring compliance consequences for your agency. Employees must be paid at least the National Minimum or National Living Wage by the umbrella company.
5. Avoid ‘Mini Umbrella’ or Tax Avoidance Schemes
Be cautious of any umbrella company that splits workers across multiple small companies (known as Mini Umbrella Companies) or offers unusual tax arrangements, as these are likely to be non-compliant. Such setups expose you to serious compliance and financial risks. If you suspect an umbrella company is non-compliant, it’s crucial to report them and remove them from your supply chain.
What Contractors Should Look Out For?
As a contractor, you rely on your umbrella company to ensure accurate payments and provide support throughout your employment. Here’s how to know if you’re in safe hands:
1. Clear, Trustworthy Leadership
It’s crucial to know who runs your umbrella company and ensure they are legitimate. You can verify this information on Companies House. If it’s difficult to determine, consider it a red flag!
2. On Time, Correct Pay
Your umbrella company should pay you on time and deduct the correct tax. If your payslips are confusing or you’re promised “extra take-home pay,” this could be a sign of non-compliance.
3. Full Employment Rights
Holiday pay, sick pay, pensions, and other entitlements should never be optional. Unfortunately, many non-compliant umbrella companies neglect these. Your provider should clearly explain your entitlements from the outset.
Why Umbrella Company Compliance Matters Now More Than Ever
By 2026, payroll compliance is expected to become the responsibility of recruitment agencies and end clients not just umbrella companies. Meaning if you’re a recruitment agency choosing the right umbrella company is crucial —not just for compliance, but for maintaining your reputation, protecting your candidates, and ensuring smooth financial operations.
For contractors, the government is already increasing their scrutiny on income tax. Don’t get caught out and risk the significant consequences if you’re under a non-compliant provider.
How Danbro Umbrella Sets the Standard
At Danbro Umbrella, we pride ourselves on being more than just regulation followers. We’re proactive, transparent, and committed to delivering a fully complaint first-class service. Our FCSA and SafeRec accreditations mean that we’re compliant with UK employment law and exceed the average expectations for an umbrella company. As a SafeRec accredited provider, every single payslip we process is checked for compliance, providing assurance to agencies and contractors.
We stay up to date with the ever-changing landscape of employment law. This includes keeping agencies and contractors informed with what they need to know. We are also extremely proud of our dedicated customer care team, who are always happy to help.
Get in touch with our team today to discover how Danbro Umbrella can be your trusted, compliant partner offering you service that goes the extra mile.
