Webinar: Umbrella Reform & Employment Rights Act – What It Means for Your Agency

Yes — from an SSP (Statutory Sick Pay) perspective.

Current waiting times are significantly longer than 3–5 months. We are regularly seeing cases take 12–18 months. More claims without additional resources will only compound the problem, in my view.

Where changes are required, they can be implemented via an amendment rather than issuing new contracts.

The House of Lords opposed the change which led to the bill being passed between the Houses of Parliament until a compromise of a 6-month qualifying period was agreed. It is anticipated this will be brought into force in early 2027.

Because the Act covers such a large remit. The changes cover multiple areas of law, and both businesses and the Government will need time to prepare. Ideally, the Government would also be able to reflect on the rollout and adapt the plan accordingly if they see issues arising. However, this will be subject to political decisions. This isn’t unusual with modern statute, particularly where they are overarching Acts.

It remains to be seen, but we are tentatively optimistic. The current system is fragmented, with responsibilities split between multiple agencies. This makes liaising with them harder and increases costs, both for business and for the Government. It will hopefully make the system fairer for both workers and employers – but as this is such a large change, it will need to be done carefully.

Temporary workers will be equally entitled to the new day-1 rights as other workers. This covers the rights to SSP, paternity leave, unpaid parental leave – however, who is eligible varies (certain rights only apply to workers classed as Employees).

The emphasis here is on the phrase “all reasonable” – only the steps that would be reasonable for the business to take are required. This is a proportionate duty and the practical requirements will depend on the circumstances – this will vary based on sector, business, and the nature of the event. A typical minimum we’d expect is for there to be clear guidance on reporting harassment and pre-emptive consideration of the risk to employees (this need not be a formal risk assessment where this would be disproportionate).

This will depend on the situation. The Act does contain exceptions where it is permitted for an offered guaranteed hours contract to be for a limited term which are likely to cover most genuine temporary work situations. However, where temporary workers are engaged on a revolving basis, this is unlikely to be covered. The draft regulations and accompanying guidance are expected to have further details.

This is something which is to be defined in regulation. We haven’t got these yet and it unlikely we will get them until closer to the time that the reasonable notice requirement comes into force – this is listed for late 2027 at the current time. From what has been discussed in Parliament it seems the current working concept is that this will be 48 hours.

Per the legislation, the umbrella company is a business that employs workers to provide services to a client, where the worker does not have a material interest in the company, and the “umbrella company arrangements conditions” are met (e.g., specific contractual setups). 

CIS contractors are considered self-employed and therefore would not fall under the definition of umbrella companies related to employed workers.  
However, if an intermediary is being used to disguise employment or avoid PAYE, HMRC can still challenge the arrangement.  

MUCs are already viewed as high-risk structures due to VAT and NIC exploitation.  
Until the introduction of this new legislation though, HMRC would only have been able to collect lost VAT due to the Kittel principle, if it was found that the mini-umbrella company was operating VAT in a fraudulent manner within their supply chain. This will now be extended to lost payroll taxes (PAYE/NI) as well, although the fact that the liability is joint and several, it means that the loss can immediately be passed to a relevant party in the supply chain. 

Increased scrutiny of supply chains, combined with joint and several liability, makes their continued use commercially and reputationally extremely risky. 

Using multiple umbrellas may spread operational exposure in theory, but it does not remove liability. Under joint and several rules, agencies can still be held liable for compliance failures anywhere in the chain. 

From a practical perspective, more umbrellas mean more due diligence, more monitoring and more auditing. That increases cost and resource burden on internal compliance teams, and in many cases the additional workload outweighs any perceived benefit of spreading risk.  

The due diligence processes that we propose would have an element of historical review, but there should also be checks introduced to predict the financial viability of umbrella companies to ensure the lowest possible risk profile.  
The real focus should be on depth and quality of checks, rather than the number of umbrellas engaged. 

APSCo may issue guidance and best practice, but maintaining a public blacklist has legal and commercial implications. Any definitive position should be checked directly with APSCo.

Agencies should expect to update terms to reflect new supply-chain responsibilities, assurances, audit rights, and information reporting. APSCo and other bodies may issue templates, but agencies will still need to tailor them.

You can require evidence and perform structured ongoing checks. Good practice includes sampling payrolls through to final RTI submissions, requesting HMRC portal screenshots, verifying Employer NIC calculations, and reviewing expense and untaxed payment policies.  

Financial strength also matters, so request evidence that PAYE, VAT and Corporation Tax payments are up to date and assess balance sheet resilience.  

The umbrella is primarily responsible, followed by the agency closest to the end client, or the closest UK-resident agency if the chain includes non-UK intermediaries. If there is no agency at all, liability will sit with the end client. 

Umbrellas will continue to exist, but the market will contract as non-compliant models become untenable.  

Some agencies will consider running their own PAYE, and some may prefer compliant umbrella partners due to operational complexity. 

Due consideration should be given though to moving workers from an umbrella employment contract (as umbrella employees they would be on a contract of service) to a contract for services with the agency as it could be a TUPE transfer and the workers could end up with diminished rights. Please do consult employment solicitors if you are planning to do this.   

Where end clients are highly price-sensitive, compliance costs will create pressure on margins. In some sectors (e.g. industrial, logistics, care) where margins are already under pressure and cost-driven procurement dominates, agencies may need to justify higher charge rates by demonstrating reduced supply chain risk and legal certainty.  

Over time, competitive advantage will sit with agencies who can demonstrate compliant supply chains rather than the cheapest day rate.  

Typical red flags include: 
– Workers being engaged via subsidiaries or unrelated companies 
– Foreign-only directors or directors linked to sequential failed entities 
– Very low or zero margins and unusually high worker take-home pay 
– Opaque or over-complex payment processes 
– Refusal to evidence RTI submissions or HMRC payments 
– Weak financials (e.g. low reserves) 

HMRC will care about both process and evidence. Agencies should maintain a structured due diligence file that includes: 
– Initial risk assessment of each umbrella (with rationale) 
– Ownership and director checks 
– Payroll sampling and RTI verification records 
– Evidence of tax payments (screenshots, statements) 
– Ongoing monitoring logs (issues, remediation, escalation) 
– Financial strength assessments and periodic reviews 
– PSL decisions and reasons for inclusion/exclusion 

Please note though that the Joint and Several Liability regime for umbrella  company non-compliance operates on a strict liability basis with no statutory  defence or excuse. This means Relevant Parties are automatically liable for the  umbrella’s unpaid PAYE and National Insurance contributions (NICs) without  any legal way to avoid it by demonstrating due diligence, reasonable care, or  lack of fault.