What’s happening?
In October 2024, the government began several 6-week consultations as part of its plan to Make Work Pay. On 4 March, the government published its responses and confirmed several key amendments to the Employment Rights Bill (ERB). As a reminder, the ERB is still subject to parliamentary approval and is estimated to come into force at some point in 2026 so we will provide further updates when this happens.
This article is part of a mini-series where we are exploring the government’s recent responses to the various ERB consultations. You can find our other articles in the series here:
- Make Work Pay – Statutory Sick Pay
- Make Work Pay – Collective Redundancy & Fire and Rehire
- Make Work Pay – Trade Unions
- Make Work Pay – Zero Hour & Agency Workers
However, in this article we are focussing on some of the key changes being in relation to Umbrella Companies.
Why is this important?
Umbrella companies are typically companies that become the employer of contractors, agency workers, and other similar workers, assuming the associated employment rights and obligations. Whilst many umbrella companies operate lawfully, some are used to facilitate tax avoidance and tax fraud.
The government is legislating for greater regulation and enforcement of umbrella companies both through amendments to the ERB and subsequent legislation. Some key areas which the government’s response to the consultation highlighted were:
- Defining Umbrella Companies: broadly the definition will include entities which:
- employ a person with a view to them being supplied to a hirer; and
- pay for, receive, or forward payment for the services of persons with a view to them being supplied to a hirer.
- Enforcement: bringing umbrella companies under the scope of the Employment Agency Standard’s Inspectorate (EAS) and, in the long run, by the Fair Work Agency (a new enforcement body due to be created which will enforce a wide range of employment rights).
- Redistributing Responsibilities: introducing legislation which moves the responsibility for accounting for PAYE from the umbrella company onto the agency that contracts with the end client to supply the worker’s services (or if there is no agency, the end client).
The government aims for the legislative changes to be in force by April 2026.
What should you do?
Stay Tuned: These amendments are still subject to consultation. We will continue to update you of amendments as we receive them and will confirm the final position when the ERB is officially passed.
Prepare: If you employ any workers through umbrella companies or are the end-client of such services, you will need to familiarise yourself with the new obligations and consider updating your policies and procedures in due course once more detail is provided.
Advice: If you require advice relating to these changes or the ERB in general, please contact [email protected] who can put you in touch with one of our specialist employment lawyers.
Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
