What Recruiters and End Clients really need to know about the Employment Rights Bill and Umbrella Legislation

Significant Effects on Recruitment Firms:

The Employment Rights Bill, along with Umbrella Company Legislation, seeks to enhance regulatory compliance and safeguard workers, including the recruitment industry and umbrella companies.

A significant modification involves umbrella and agencies becoming ‘Joint and Severally Liable’ for PAYE (Pay As You Earn).

This measure will commence in April 2026 and will allow HMRC to pursue an agency in the first instance for any payroll taxes that a non-compliant umbrella company fails to remit to HMRC on their behalf.

It is also important to note that the end client will be liable if contracting directly with an umbrella company.

Here’s an overview

PAYE Accountability:

• Legislation will be introduced in Finance Bill 2025-26 to amend part 2 of ITEPA 2003. The legislation will make employment agencies or end clients joint and severally liable for any amount required to be accounted for under the PAYE provisions where an umbrella company forms part of a labour supply chain.

Classifying Umbrella Companies as Employment Businesses:

• The Employment Rights Bill will establish a new definition for umbrella companies, placing them within the category of “employment business”. This change will enable the Fair Work Agency (once it is in operation) to regulate these companies. Workers hired through umbrella firms will receive the same rights and protections as those directly employed by recruitment agencies or end clients.

Significant Effects on Recruitment Firms

• Increased Compliance Expectations: Agencies will be required to implement effective compliance processes for individuals using umbrella companies.
• Potential Rise in Costs: The need to ensure compliance and handle possible additional responsibilities may result in higher expenses for recruitment agencies.
• Importance of Thorough Assessments: Recruitment agencies must perform meticulous due diligence on the umbrella companies they partner with to maintain compliance and mitigate potential liabilities.
• Escalation of Regulations: Umbrella companies are likely to encounter more stringent scrutiny and regulation, which could influence their business operations.

Additional Considerations:

• The Employment Rights Bill is currently progressing through Parliament and is anticipated to be fully enacted by 2026.
• Recruitment agencies and umbrella companies should remain vigilant regarding the bill’s advancement and forthcoming implementation.
• Collaborative efforts between the government, recruitment firms, and umbrella companies will be essential for the smooth rollout of the new regulations.

If you have any questions or concerns regarding the Employment Rights Bill, please don’t hesitate to get on touch on 0161 713 1730.