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The UK government has introduced a series of employment law updates which could impact contractors working through umbrella companies. These changes aim to enhance worker protections, reduce tax non-compliance, and create a more transparent employment landscape. For umbrella contractors and recruitment agents out there who might be unsure about the upcoming changes, don’t stress! This guide provides an overview of what you need to know about the upcoming changes and how they affect you.
Regulation of Umbrella Companies
The Employment Rights Bill (ERB) brings umbrella companies within the scope of the Employment Agencies Act 1973. This measure ensures that workers employed through umbrella companies receive similar rights and protections as contractors engaged directly by recruitment agencies. Additionally, the government has amended the ERB to include a crackdown on non-compliance within the umbrella sector. This aims to implement further regulation of these companies.
The newly established Fair Work Agency will oversee compliance and enforcement of these regulations. This agency will have the authority to investigate labour law breaches. This means they can ensure that workers receive their full entitlements and that employers adhere to the new standards. Hopefully, this will also help standardise and monitor compliance across the umbrella industry.
Here at Danbro, we take pride in our commitment to contractor wellbeing. We ensure that we keep up to date with new legislation and offer premium benefits to our contractors.
For more information about the benefits we provide, click here.
Ensuring Compliance in the Umbrella Market
The government has taken a firm stance on tackling non-compliance in the umbrella company industry.
From April 2026, new legislation will shift the responsibility for PAYE compliance from umbrella companies to recruitment agencies and end clients. While umbrella companies will continue to process payroll, agencies and clients will now be legally accountable for ensuring correct tax deductions. This change aims to protect contractors from unknowingly engaging with non-compliant providers, while also reducing tax revenue losses.
The FCSA has raised concerns about this shift. In their recent report, they warn that moving the responsibility from well-regulated Specialist Payroll Intermediaries (SPIs) to a larger group of Employment Businesses (EBs) could make fraud and tax enforcement more difficult. This shift could also increase financial instability for workers, making it harder to ensure compliance across a larger, less specialised group. The FCSA recommends a licensing regime for payroll intermediaries instead. They also recommend real-time digital oversight, and stronger enforcement of existing laws to maintain compliance without harming the system.
While umbrella companies will no longer have direct liability for ensuring proper tax deductions, they will continue to process payroll under this new framework. However, the FCSA’s concerns highlight potential risks. In light of this, our advice is to ensure that contractors and recruitment agencies choose FCSA accredited and compliant umbrella companies. During this time it’s crucial to be confident about the compliance of your umbrella provider. So, if you’re not sure whether your provider is compliant, why not switch to Danbro Umbrella? We’re FCSA Accredited and fully compliant. We pride ourselves on being an industry lead. We never cut corners and ensure our contractors receive outstanding support and service.
On March 5th, the Labour government introduced a new requirement for agency workers to be offered contracts with a guaranteed minimum number of hours each week. This new measure aims to reduce exploitation and ensure more stability in workers’ employment terms, offering greater protections. However, as plenty of you may be already thinking – this could pose an issue for the temporary labour market. This new legislation could limit the flexibility of zero-hours contracts, which many workers in sectors (such as teaching, and the NHS) rely on for last-minute cover. Despite the valid concerns this raises, there are further reviews to be made to the employment rights bill before it’s expected to come into effect in 2026.
What This Means for You as an Umbrella Employee
Please note that the changes do not alter your status as an umbrella employee or your access to employment benefits. As an umbrella employee, just like full-time employees, you are entitled to your statutory employment rights.
Future changes to your employment rights could mean that with stricter regulations in place, you can expect greater protection against non-compliant umbrella companies and improved transparency in your employment terms.
Future amendments to the employment rights bill is also set to introduce more “Day One” rights to employees. This means that you as an umbrella employee would have immediate access to employment rights such as statutory sick pay, unfair dismissal protection and parental leave entitlements from the first day of employment. With Danbro Umbrella, you can be sure that your entitlements are honoured as we stay up to date with new legislations and ensure we remain compliant with UK law.
How Can You Protect Yourself?
With stricter compliance measures coming into force, now is the time to ensure you are with a fully accredited, compliant umbrella provider. Here are some key indicators that your umbrella company is operating compliantly:
They do not promise unusually high take-home pay percentages.
All deductions, including PAYE tax and National Insurance, are clearly outlined on your payslip.
They are accredited by a recognised industry body, such as the FCSA (Freelancer & Contractor Services Association).
They have a transparent payment process that isn’t overly complicated or confusing.
If you are unsure whether your current umbrella provider meets these standards, it may be time to switch to an FCSA-accredited umbrella company. Danbro Umbrella has been a trusted name in the industry for over 25 years. We guarantee compliance, reliability, and exceptional benefits for contractors.
What’s Next for Agencies & Umbrella Employees?
These changes represent a significant step towards a more compliant and transparent umbrella company market. While non-compliant providers may struggle under the new rules, contractors working with trusted companies like Danbro Umbrella can continue operating with confidence.
As these amendments are finalised, we expect further guidance on how to adapt to these new rules. It’s crucial for agencies to reassess their Preferred Supplier Lists and update their due diligence processes to stay compliant.
The government has yet to provide full details on the implementation process, and further consultation with industry stakeholders is expected. Additionally, the FCSA’s concerns and recommendations provide a crucial perspective on how these changes might unfold. They advocate for a more effective approach that prioritises worker protections and compliance without introducing unnecessary complexity.
If you have any concerns or questions about how these changes may impact you, get in touch with our team today. At Danbro Umbrella, we pride ourselves on providing industry-leading employment benefits and compliance assurance. If you’re looking for a trusted and fully accredited umbrella provider, then get in touch with us today.
