A Jamie HR manager's guide

The manager's guide to umbrella company regulation

A practical guide for managers and small businesses on the Employment Rights Act 2025 reform bringing umbrella companies into employment agency law, the new Fair Work Agency, the separate PAYE liability change from April 2026, and how to prepare your supply chain ahead of the expected 2027 commencement.
New Fair Work Agency
PAYE change: April 2026
Regulation expected 2027

Umbrella companies are about to come under formal regulation for the first time.

This guide sets out what the Employment Rights Act 2025 changes for umbrella companies, the new Fair Work Agency that will enforce it, a separate tax change that already applies from April 2026, and the practical due diligence steps you can take now, ahead of the umbrella company regulation itself, which the government expects to take effect in 2027.

What's inside
What is an umbrella company?3
What the Employment Rights Act 2025 changes4
Who will enforce it: the Fair Work Agency5
Timeline: what's confirmed and what isn't6
A separate change: PAYE from April 20267
A right that already applies: the key information document8
Due diligence you can start now9
What this means for your business10
Getting ready for 202711
How Jamie HR helps12

What is an umbrella company?

An umbrella company employs temporary workers on behalf of a recruitment agency or end client, and currently sits outside employment agency law.
  • An umbrella company employs a worker directly, invoices the recruitment agency or end client for the work done, and pays the worker's wages after deductions.
  • Recruitment agencies that place workers with an umbrella company are already regulated under the Conduct of Employment Agencies and Employment Businesses Regulations 2003.
  • The umbrella company itself currently sits outside that regime, because it does not meet the legal definition of an 'employment business' under the Employment Agencies Act 1973.
  • This is the gap that the Employment Rights Act 2025 closes.

What the Employment Rights Act 2025 changes

Section 36 of the Act brings umbrella companies within the scope of employment agency law for the first time.
  • The Employment Rights Act 2025 received Royal Assent on 18 December 2025.
  • Section 36 amends section 13 of the Employment Agencies Act 1973, widening the definition of 'employment business' to include paying, or forwarding payment, to a worker supplied to work for another party. This brings umbrella companies within that definition.
  • Once the change is in force, umbrella companies become subject to the Conduct of Employment Agencies and Employment Businesses Regulations 2003, the same regulations that already apply to recruitment agencies.
  • The government's umbrella companies factsheet states the aim as giving people who work through an umbrella company comparable protections to those placed directly by an employment business.
Manager tip
Section 36 was brought partly into force from 6 January 2026, for specified purposes only. The wider regulation of umbrella companies under the Conduct Regulations is a separate, later step, so do not assume the whole change is already live.

Who will enforce it: the Fair Work Agency

The Fair Work Agency is the new enforcement body created by the Employment Rights Act 2025, and the body that will act against non-compliant umbrella companies.
  • The Fair Work Agency is an executive agency of the Department for Business and Trade, established on 7 April 2026, according to ACAS.
  • It brings together the former Employment Agency Standards Inspectorate, the Gangmasters and Labour Abuse Authority, the Director of Labour Market Enforcement, and HMRC's National Minimum Wage enforcement team.
  • Its powers include workplace inspections, requiring compliance documents, issuing Notices of Underpayment, and bringing civil proceedings in the employment tribunal on a worker's behalf.
  • Once umbrella company regulation takes effect, the Fair Work Agency is the body responsible for taking action against umbrella companies that do not meet their legal obligations.

Timeline: what's confirmed and what isn't

Parts of this reform are already law. The regulation of umbrella companies itself is not yet in force.
  • 18 December 2025: the Employment Rights Act 2025 received Royal Assent.
  • 6 January 2026: section 36, extending the definition of employment business, came into force for specified purposes only, under commencement regulations.
  • 7 April 2026: the Fair Work Agency was established.
  • The government's umbrella companies factsheet states that regulation of umbrella companies under the Conduct Regulations 'is expected to take effect in 2027', following consultation, secondary legislation and preparation time. No exact 2027 date has yet been confirmed.
Watch out
Treat '2027' as the current government expectation, not a fixed date. Check gov.uk for the confirmed commencement date before relying on a specific month.

A separate change: PAYE from April 2026

A related but distinct tax change affects umbrella company arrangements a year earlier than the Employment Rights Act 2025 reform.
  • From 6 April 2026, recruitment agencies become responsible for accounting for PAYE and Class 1 National Insurance contributions on payments made to workers supplied via umbrella companies.
  • Where there is no agency in the supply chain, the end client business takes on that responsibility instead.
  • This change was introduced through the Finance Bill 2025-26, not the Employment Rights Act 2025, but it affects the same umbrella company supply chains.
  • HMRC can pursue the recruitment agency, or the end client where there is no agency, directly if the umbrella company fails to remit PAYE and National Insurance contributions, under joint and several liability.
Watch out
If your business engages workers through an agency that uses an umbrella company, or contracts directly with an umbrella company, check now who in your supply chain is liable for PAYE from 6 April 2026.

A right that already applies: the key information document

Ahead of the Employment Rights Act 2025 changes, agency workers paid through an umbrella company already have one protection in place.
  • Employment businesses have been legally required, since 6 April 2020, to give a Key Information Document to every new temporary worker before agreeing terms, under the Conduct of Employment Agencies and Employment Businesses Regulations 2003.
  • For workers paid through an umbrella company, the document must show the identity of the umbrella company, who employs the worker, the assignment rate paid to the umbrella company, and the deductions made before the worker is paid.
  • It must also show the worker's minimum expected rate of pay, holiday entitlement, and a representative example pay statement, and must run to no more than two sides of A4.
  • This requirement sits with the recruitment agency, not the umbrella company itself, until the Employment Rights Act 2025 changes take effect.

Due diligence you can start now

HMRC guidance already sets out practical steps to reduce the risk of using an umbrella company that operates a tax avoidance scheme.
  • Carry out due diligence on your whole supply chain, not only the party you contract with directly.
  • Check the HMRC list of named tax avoidance schemes, promoters, enablers and suppliers before engaging an umbrella company.
  • Ask for payslips from both the umbrella company and the worker, and compare them to confirm PAYE is being applied to the full amount paid.
  • Check the umbrella company's Companies House filings for a financial position, location and trading history that are consistent with a genuine business.
  • Be cautious of umbrella companies that are based offshore, or that offer pay through loans, grants, credit facilities or similar arrangements in place of taxed wages.
Manager tip
HMRC guidance states that being unaware of non-compliance in your supply chain is not a defence. Build these checks into your supplier approval process now, rather than waiting for the Fair Work Agency to take on umbrella company enforcement.

What this means for your business

You do not need to run an umbrella company to be affected by this reform.
  • If you engage workers through a recruitment agency, ask whether that agency in turn uses an umbrella company, and which one.
  • If you contract directly with an umbrella company, you may become directly liable for PAYE and National Insurance contributions from 6 April 2026 where there is no agency in the chain.
  • Once umbrella company regulation takes effect, expect the Fair Work Agency to hold the same inspection and enforcement powers over umbrella companies that it already holds over recruitment agencies.
  • Review your list of umbrella companies and agencies now, rather than relying solely on a supplier's own assurance of compliance.

Getting ready for 2027

A summary of the essentials covered in this guide:
  • The Employment Rights Act 2025, which received Royal Assent on 18 December 2025, brings umbrella companies within the definition of 'employment business' under the Employment Agencies Act 1973, via section 36.
  • Once in force, umbrella companies become subject to the Conduct of Employment Agencies and Employment Businesses Regulations 2003. Government guidance expects this in 2027, though no exact date is yet confirmed.
  • The Fair Work Agency, established 7 April 2026, is the body that will enforce this against umbrella companies once the change takes effect.
  • A separate tax change already applies from 6 April 2026: agencies, or end clients where there is no agency, become responsible for PAYE and National Insurance contributions on payments made via umbrella companies.
  • Key information documents have been a legal requirement for agency workers since 2020, and already have to cover umbrella company pay arrangements.
  • Start supply chain due diligence on your umbrella companies and agencies now, using HMRC's existing guidance, ahead of the 2027 regulation change.

How Jamie HR helps

Jamie HR keeps your agency and umbrella company records, checks and documents in one place, ready for the 2027 change.
  • Supplier and agency records holding your recruitment agency and umbrella company details and review dates.
  • Document storage for key information documents and payslip checks, held against each assignment.
  • Policy library so managers can find and apply the same supply chain due diligence process across the business.
  • Audit trail showing when your umbrella company and agency checks were last reviewed.
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This guide is general information, accurate to the best of our knowledge as of 2026, and is not legal advice. Employment law changes and every situation is different, so for a specific case take professional HR or legal advice. Sources: ACAS, gov.uk, HMRC and the Employment Rights Act 2025.