Why these reforms matter to contractors
You may have heard about the UK government introducing a series of employment law updates which could impact contractors working through umbrella companies. The changes proposed by the government aim to enhance worker protections, reduce tax non-compliance, and create a more transparent employment landscape.
As a contractor, it’s important to stay informed about relevant changes in the Contracting Industry. So, we’ve provided you with a full overview of the situation and how it affects you.
Umbrella Company Regulation: What’s Changing?
The Employment Rights Bill (ERB) brings umbrella companies within the scope of the Employment Agencies Act 1973. This 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, further regulating these companies.
The government have also established a new agency to oversee compliance and enforcement of these regulations. The Fair Work Agency will be authorised to investigate labour law breaches and ensure that:
- Workers receive their entitlements fully
- Employers comply with the new standards.
The government’s aim for this is to help standardise and monitor compliance across the umbrella industry.
Here at Trafalgar Umbrella, we take pride in our high standards for ensuring compliance, our commitment to contractor wellbeing and our offering of 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 strong stance on tackling non-compliance in the umbrella company industry. This is resulting in changes to rules surrounding PAYE compliance and the minimum hours agencies can offer workers.
PAYE Compliance
Although umbrella companies will continue to process payroll, From April 2026, recruitment agencies and end clients will become responsible for PAYE compliance. This means that agencies and clients will now be legally accountable for ensuring correct tax deductions. The intention of this change is not only to reduce tax revenue loss but also protect contractors from unknowingly engaging with non-compliant providers.
The FCSA has flagged potential risks about this shift. In their recent report, they warn that shifting the responsibility from well-regulated Specialist Payroll Intermediaries (SPIs) to a larger group of Employment Businesses (EBs) could make fraud and tax enforcement increasingly challenging. The reallocation of responsibility could also make it more difficult to ensure compliance across a larger, less specialised group which could increase financial instability for workers. Instead of the shift in responsibility, the FCSA recommends a licensing regime for payroll intermediaries. They suggest mandatory licensing, 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. Taking into consideration the FCSA’s concerns, our advice is to ensure that contractors and recruitment agencies choose FCSA accredited and compliant umbrella companies. It’s vital to make sure you’re with a compliant umbrella provider. So, if you’re not sure how compliant your provider is, then why not switch to Trafalgar Umbrella? We’re FCSA Accredited and fully compliant. We pride ourselves on being an industry lead and ensure our contractors receive outstanding support and service.
Changes to Zero-Hour Contracts
The Labour government introduced a new requirement for agency workers to be offered contracts with a guaranteed minimum number of hours each week on March 5th 2025. The purpose of this new requirement is to reduce exploitation and ensure more stability in workers’ employment terms. However, legislation could limit the flexibility of zero-hours contracts. And, as many of you may be already thinking, this could pose an issue for workers in sectors, such as teaching and the NHS, that heavily rely on last minute cover. Despite the understandable concerns this raises, further reviews are yet to be made to the employment rights bill before it’s expected to come into effect in 2026.
What Does This Mean for Umbrella Company Contractors?
Despite the upcoming changes and proposals, your status as an umbrella employee will not change – or your access to employment benefits and statutory employment rights.
With stricter and clearer regulations, as well as upcoming changes to your employment rights, you can expect greater protection against non-compliant umbrella companies and improved transparency in your employment terms.
Other amendments to the employment rights bill are set to bring in more “Day One” rights to employees. This will allow you as an umbrella employee immediate access to employment rights such as statutory sick pay, unfair dismissal protection and parental leave entitlements from the first day of employment. At Trafalgar Umbrella, we make it a priority to stay up to date with new legislations and ensure we remain complaint with UK law. So, as a Trafalgar Umbrella employee, you can always be sure that your full entitlements are honoured.
How Can Contractors Protect themselves?
Considering the upcoming stricter compliance measures, now is the ideal time to make sure you are with a fully accredited, compliant umbrella company. Below are some key signals that your umbrella company is operating compliantly:
- They don’t advertise unrealistic take-home pay figures. This could be an unusually high take-home pay percentage.
- They clearly outline all deductions made, including PAYE tax and National Insurance, on your payslip.
- They are accredited by a recognised and reputable industry body, such as the FCSA (Freelancer & Contractor Services Association).
- They have a transparent payment process that isn’t complicated, or includes hidden fees or confusing calculations.
If you are unsure whether your current umbrella provider meets these standards, it may be time to switch to an FCSA-accredited umbrella company. Trafalgar Umbrella is a trusted name under the FCSA. We ensure compliance, reliability, and exceptional benefits for contractors.
What’s ahead for Umbrella Company Regulations
The positive outlook that these changes may bring is that they represent a step towards a more compliant and transparent umbrella company market. And, contractors working with trusted and compliant umbrella companies, like Trafalgar Umbrella, can continue operating with confidence.
As these amendments become finalised, we expect further guidance on how to adapt to these new rules. It’s also crucial for agencies to keep up to date with their due diligence process and reassess their Preferred Supplier Lists to remain compliant.
One key thing to keep in mind is that the government are yet to give full details on the process of implementation, and further discussions with industry stakeholders, such as the FCSA is expected. The FCSA’s report which highlights their concerns provides a perspective on how these changes might unfold. Their recommendation for a more effective approach sheds light on a way to prioritise worker protections and compliance without introducing unnecessary complexity and risks within the industry.
If you have any worries or questions about how these changes may impact you, then please don’t hesitate to get in touch with our team. And, if you’re seeking a trusted and fully compliant umbrella company, then join Trafalgar Umbrella. We provide top-quality service alongside premium benefits. Get in touch with our team today to find out more about what we can do to support your contracting career.