Timeline for umbrella industry regulation revealed

Timeline for umbrella industry regulation revealed

Historic reforms set to tighten compliance and improve transparency in the umbrella company market will come into effect in 2027.

The timeline was announced in the Government’s recently published roadmap for delivering change, ‘Implementing the Employment Rights Bill,’ which also announced that further consultation on the regulation of umbrella companies will take place this Autumn.

These are changes that have been a long time coming. While the vast majority of umbrella companies are compliant and have made no secret of their desire to see increased regulation, there are a minority of non-compliant operators which avoid tax and exploit workers.

The changes to umbrella company regulation under the Bill are part of wider Government reforms across the industry. 
Separate draft legislation, scheduled for publication in July 2025, will introduce measures aimed at improving tax compliance and is expected to impose liability on recruitment agencies that engage non-compliant umbrella companies, effective from April 2026.

A phased approach

The timeline for umbrella company regulation is part of a raft of proposed changes outlined in the Employment Rights Bill, Labour’s wide-ranging plan to revolutionise workers’ rights.

The Bill also features measures such as reforms to Statutory Sick Pay (SSP) and the establishment of a Fair Work Agency, a new body which will be tasked with enforcing employment rights.

The new roadmap indicates how these proposals will be introduced in a phased manner, with various elements of the legislation coming into effect in April and October 2026 and others in 2027.

It is unclear as yet whether the umbrella regulation reforms will be implemented in April or October 2027.

What are the reforms?

The umbrella industry has been plagued by rogue operators of tax avoidance schemes. It is these organisations which the Government is targeting.

The new legislation will look to clearly define umbrella companies and extend regulatory oversight under the auspices of the new Fair Work Agency.

The planned consultation will also consider whether umbrella companies should be brought under the scope of the Conduct of Employment Agencies and Employment Businesses Regulations, with the aim of ensuring comprehensive enforcement and compliance monitoring across the temporary labour supply chain.

Key changes are likely to include:

• umbrella companies won’t be able to withhold payment of their workers on the grounds the end user client has failed to pay a recruitment business. 
• umbrella companies will not be able to place restrictions on their workers from being engaged elsewhere unless they are an employee of the umbrella company engaged under a contract of service.
• umbrella companies and their directly engaged workers will no longer be able to opt out of the application of the Conduct Regulations, unless the worker is also supplying their services via their own personal service company.

An historic moment

This news constitutes an historic moment for the umbrella industry, with the Government doubling down on compliance.

The consultation in the Autumn will reveal more detail and bring a better understanding of how the regulation will work in practice.

As these intricacies are revealed, we will keep our clients, partners and contractors informed of the latest developments, providing any necessary support to help you navigate the coming changes.