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The wide-ranging Employment Rights Act is set to introduce significant new legislation into UK employment law.
Although the act as a whole became law in December 2025, the measures within it are set to be rolled out throughout 2026 and 2027 as part of the government’s Plan to Make Work Pay.
They include reforms such as an overhaul to zero hours contracts, unfair dismissal protection, and pay gap transparency.
New guidance has now been issued on the business.gov.uk website to support businesses with the legislation set to be introduced as a result of the act.
And as recently as February 4, the government published a fresh update on the timetable for the act, giving further clarity on when people can expect to see consultations take place and changes brought into effect.
The reforms laid out in the Employment Rights Act will affect workers across the spectrum of the employment sector.
While many of these changes are extremely important for the contingent labour market, others have less significance. For this article, we will concentrate on the measures most relevant to those in that market.
The Fair Work Agency will be a single enforcement body for workplace rights, combining several powers currently spread across agencies such as The Gangmasters and Labour Abuse Authority, HMRC’s Minimum Wage Unit, and The Employment Agency Standards Inspectorate.
It will also take over functions from the Director of Labour Market Enforcement, including enforcing statutory sick pay and holiday pay.
These new powers include taking control of:
This centralisation will see The Fair Work Agency become responsible for issues including the underpayment of wages, holiday pay disputes, modern slavery, and exploitation of vulnerable workers.
Umbrella companies will also fall under the remit of the agency. The Employment Rights Act brought in a formal definition of umbrella organisations and will eventually bring them under the control of The Fair Work Agency, which will have regulatory oversight of umbrella companies.
This will include the power to investigate non-compliant umbrella companies, targeting issues such as pay withholding, unfair deductions, and non-compliance with employment rights.
Timeframe: The Fair Work Agency will be established on April 7, 2026
The Employment Rights Act will bring umbrella companies within the scope of the Agency Work Regulatory Framework, which governs the temporary labour market.
As such, the government has launched a consultation on how Conduct Regulations within this framework should be adapted to account for the inclusion of umbrella companies, along with any broader changes that may be needed to modernise the rules.
The current regulations were designed for a simpler labour supply model that featured direct relationships between workers, recruitment agencies and end hirers. Since then, umbrella companies have been regularly used as intermediaries, including handling the employment of workers and payroll on behalf of agencies and clients.
However, concerns over non-compliance on the behalf of some umbrella organisations, including on pay clarity and employment rights, has sparked a desire for change.
Questions within the consultation address:
Transparency:
The way in which pay is presented and understood by workers has been highlighted as an issue. For example, the rates for assignments advertised to workers often include employer costs and the margins taken by umbrella companies. This means they do not represent the actual amount someone will earn.
The consultation asks whether agency workers should instead agree an actual rate of pay before accepting assignments. It also suggests workers should be informed in advance of any deductions and how they would be calculated.
Security and pay:
The consultation proposes that umbrella companies would be made subject to the regulations which currently apply to other recruitment intermediaries.
It also suggests an amendment to Regulation 12 of the framework, which prevents employment businesses from withholding pay for work done. Currently, this protection doesn't apply if workers are paid via umbrella companies. The government would like to see this regulation extended, meaning umbrellas would be compelled to pay workers for completed work even if they haven’t received money from an agency.
Choice:
There is a desire to empower workers with greater choice in how they are engaged and paid. Currently, many agency workers are required to work through umbrella companies, whether they want to or not.
The government has proposed amending the Conduct Regulations to prevent employers making a role conditional on being engaged or paid by an umbrella organisation. The plan would mean agencies could still offer umbrella arrangements, but that workers wouldn’t have to accept them.
Kickbacks:
The government has recognised there is an issue around so-called kickbacks, where an employment business receives a payout, or other inducement, from an umbrella company to be included on a preferred supplier list.
The consultation asks if there should be regulation to restrict the use of such kickbacks, and – if so – how this should operate. The hope is that by bringing genuine choice into the temporary labour market, businesses will be empowered to compete based on the quality of their service rather than relying on opaque kickback systems.
Timeframe: The consultation runs until 1 May 2026. The government has indicated that it doesn’t plan to consult again on the specific proposals relating to umbrella companies, unless the initial consultation deems it necessary.
The intention is that the changes will come into effect in 2027.
A new right for workers to receive a contract which guarantees them minimum hours of employment is planned. These zero-hours rules will also apply to agency workers.
A proposal from the House of Lords to give employees the right to request minimum hours, rather than an employer having to offer those hours, was rejected. This means employers are likely to experience significant monitoring obligations to keep track of someone’s hours.
There is concern among employers that the legislation will reduce flexibility and it remains unclear how a worker’s right to guaranteed hours, having worked those hours regularly during a reference period, would operate in practice.
The government’s hope is that the measure will combat exploitative zero-hours contracts and offer greater protections for workers.
Contracts would be based on someone’s regular work pattern and should include reasonable notice for shifts, as well as compensation if there is a last-minute cancellation.
Timeframe: A consultation on zero-hour worker protections is earmarked for 2026, with the new legislation set to be put in place during 2027.
The act effectively bans controversial fire and rehire practices, where an employer dismisses an employee and either rehires them, or someone else, under a new contract.
Once the reform is implemented, the practice will only be allowable in specific, extreme situations. In some cases, it will also be deemed as unfair dismissal.
The right to protection from unfair dismissal after six months of continuous service will also be introduced. An original plan to make this a day-one right was scrapped before the act was passed into law.
Timeframe: The proposal to reduce the unfair dismissal qualifying period to six months will be introduced on January 1, 2027.
Fire and rehire protections had originally been due to come in during October 2026, but have been pushed back to January 2027.
A consultation seeking feedback on which expenses, benefits and shift changes should be considered a restricted variation is currently ongoing, with a closing date of April 1, 2026.
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