The Employment Rights Act 2025 brings umbrella companies under the rules governing the temporary labour market, and the government expects this change to take effect in 2027. With the 2027 umbrella company regulation, agencies that place contractors through umbrella companies will see new rules shape how umbrella partners operate. Knowing what is confirmed and what is still proposed gives agencies time to prepare steadily.
What Has Been Confirmed So Far
The Employment Rights Act 2025 amends the definition of “employment business” in the Employment Agencies Act 1973 to include the handling of a worker’s pay. This brings umbrella companies within scope of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations).
According to the government’s factsheet on umbrella companies, the Conduct Regulations are expected to take effect in 2027. The new definition and the amended Conduct Regulations will come into force at the same time. Once they do, the Fair Work Agency will regulate umbrella companies, as it does other parties in the agency supply chain.
The Department for Business and Trade consulted on the details in “Make Work Pay: modernising the Agency Work Regulatory Framework”, which ran from 6 February to 1 May 2026. At the time of writing, the consultation page states that the government is analysing the feedback, and it has not published a response.
What 2027 Umbrella Company Regulation Is Expected to Cover for Agencies
Conduct Regulations applied to umbrella companies
The consultation set out proposals, which the document itself labels as not government policy. These include:
- requiring umbrella companies to pay workers for all work done, including where the umbrella company has not been paid by the agency
- clearer information for workers on pay, contracts and employment rights
- asking whether to restrict payments from umbrella companies to agencies (often called “kickbacks”)
- preventing agencies from making work-finding services conditional on a worker using an umbrella company
The government’s factsheet states that it has not yet made specific decisions on the detail of the amendments.
Accreditation and registration
The government has not announced a mandatory accreditation or registration scheme for umbrella companies, and the consultation document does not propose one. Voluntary standards, such as FCSA accreditation and SafeRec certification, remain the main external indicators agencies can use when assessing umbrella providers.
Enforcement
The Fair Work Agency, which began operating in April 2026, will regulate umbrella companies once the new definition comes into force. HMRC continues to enforce the tax rules that apply to umbrella supply chains.
Liability: already in force
Joint and several liability is not a 2027 proposal. Since 6 April 2026, under the Finance Act 2026, the agency (or the end client where there is no agency) is responsible for making sure PAYE is operated correctly when an umbrella company employs its workers. HMRC guidance states that it can recover any underpayment from that party. The rules apply to both new and existing supply chains.
Please note: the final regulations for umbrella companies have not yet been published. Details may change, and agencies should monitor gov.uk for the consultation response and draft secondary legislation.
Why Starting Now Makes Sense
Due diligence processes take time to build. Reviewing suppliers, updating contracts and training teams involve several departments.
Starting now allows agencies to spread this work across the coming months rather than compressing it into the period after the final regulations are published. Any changes to a preferred supplier list can then be made in a measured way.
Reviewing umbrella supply chains now also supports compliance with the joint and several liability rules already in place.
Practical Steps for Agencies
1. Audit current umbrella relationships
List every umbrella company on your preferred supplier list and confirm each one’s current status. Check whether it is FCSA accredited, which involves annual independent assessment against the FCSA Codes of Compliance, and whether it holds SafeRec certification. Confirm status directly with the accrediting body.
2. Review contracts with umbrella providers
Check that agreements include clear compliance clauses, such as audit rights, evidence that PAYE and National Insurance have been paid to HMRC, obligations to notify you of changes, and termination rights for non-compliance. It is also worth reviewing any fees umbrella companies pay to the agency, given that the consultation asked about restricting these.
3. Set up ongoing monitoring
A check at onboarding gives a point-in-time view, so ongoing monitoring helps. SafeRec’s Umbrella Due Diligence tool collects compliance documents in one place and provides risk alerts. FCSA’s Diligence Hub allows umbrella companies to share verified compliance packs with agencies across the supply chain. HMRC’s guidance on the PAYE rules also includes a section on reducing the risk of using an umbrella company that does not follow them.
4. Brief internal teams
Make sure recruiters and onboarding staff know what a compliant umbrella arrangement looks like: itemised payslips that show all deductions and fees, a key information document before an assignment starts, and take-home pay illustrations that reflect correct tax and National Insurance.
5. Document the due diligence steps taken
Record which checks were carried out, when, by whom and with what outcome. This helps agencies show clients, HMRC and, in future, the Fair Work Agency how umbrella partners were selected and monitored.
How SmartWork Supports Agencies
SmartWork is an FCSA-accredited umbrella company and is SafeRec certified, which places our payroll under independent legal review and real-time audit, with payslip calculations checked against what is reported to HMRC. We are an APSCo Trusted Partner, ISO 27001 certified, and a registered user of FCSA’s Diligence Hub.
For agency partners, the SmartWork JSL Agency Portal provides two layers of assurance:
- SafeRec Reports: monthly independent audit reports on the payroll of SmartWork contractors
- Direct PAYE/NI data access: P32 data, HMRC payment proof, payslips and FPS confirmations
Each agency partner has a dedicated client manager, and every contractor receives an itemised payslip showing gross pay, deductions and the SmartWork margin. Together, these provide agencies with documented evidence for their due diligence records.
Conclusion
2027 is closer than it looks. The legal basis for umbrella company regulation is in place, joint and several liability already applies, and the detail is expected to follow the consultation response. Agencies that build compliant umbrella relationships now, supported by clear records and regular monitoring, will be well placed when regulation arrives.
To discuss how SmartWork can support your agency’s compliance processes, contact your SmartWork client manager or reach out to our team.
