Umbrella company rules are changing – here’s how to weather the latest legislation 

Contractors are an increasingly important element of an agile workforce strategy, providing access to in-demand skills, the ability to quickly scale with your needs, and overall cost-efficiency. 

But with major reforms to the UK’s umbrella company market coming in April 2026, employers will need to pay closer attention to the way they engage contractors, ensuring that a competitive advantage doesn’t turn into a full-blown compliance risk. 

We’ve shared our insight on what leaders need to know about the proposed changes, and recommended actions going forward. 

Why are these changes happening? 

It can seem like not a month goes by without a newly announced employment law bill or updated piece of legislation in the works. But why exactly are workers' right evolving so rapidly? And what does this legislative surge say about the changing nature of work in the UK? 

The rise of non-traditional work models, heightened concerns surrounding workers' rights, and the government’s drive to raise living standards, have all contributed to the series of planned employment reforms in the pipeline. The legislative momentum reflects the way people work, and how employers engage professionals, is ultimately changing. And umbrella companies play a significant part in this shift. 

Acting as intermediaries between recruitment agencies and contractors, umbrella companies manage payroll and employment responsibilities. While many operate legitimately, a significant number have been linked to tax avoidance schemes, non-payment of holiday pay, and a lack of transparency in deductions. According to HMRC, 275,000 workers were engaged by non-compliant umbrella companies in 2022–23, contributing to £500 million in tax losses.

The reforms aim to clamp down on tax avoidance and protect both workers and the integrity of the temporary labour market. If you currently engage contractors, or plan to do so in the future, understanding these changes is essential to staying compliant and competitive. 

What’s changing in April 2026? 

The biggest change concerns who is responsible for accounting Pay As You Earn (PAYE) tax and National Insurance Contributions (NICs), aiming to promote greater oversight and financial stability.  

Legislation will be introduced in the Finance Bill 2025-26 to amend Part 2 of the Income Tax (Earning and Pensions) Act (ITEPA) 2003, imposing joint and several liability (JSL) on the clients of umbrella companies. The new rules will mean that if an umbrella company fails to meet its tax obligations, the recruitment agency, or the end client if no agency is involved, may be held equally liable. 

In addition, umbrella companies will be legally defined in UK legislation and regulated under the Employment Rights Bill. This will help ensure contractors receive proper employment rights including holiday pay, sick leave, and pension contributions and help prevent workers facing unexpected tax bills that haven’t been paid by non-compliant umbrella companies. 

What this means for employers – and what to do next 

The shift in PAYE and NIC responsibility, and imposing JSL on umbrella company clients, represents a significant tightening of compliance in the labour supply chain. Together with the upcoming Employment Rights Bill legislation (you can learn more what these latest changes mean for your organisation here) employers will need to pay greater attention to their workforce management. 

But rather than radically changing the way organisations engage with contractors and agencies, the reforms reinforce the need for robust compliance processes and transparent partnerships. While compliance with the latest legalisation may increase administrative overhead, it also presents an opportunity to build more ethical, transparent supply chains and strengthen trust with clients and contractors. 

Going forward then, employers should: 

• Educate HR and hiring managers on the new rules and increase awareness of your supply chain and potential risks. 

• Communicate with contractors about how they’re engaged, and ensure open lines of conversation with any managed service programme (MSP) providers – ideally working with a trusted MSP partner. 

• Continue to vet umbrella companies and thoroughly review contracts and supply chains to understand where liability lies. 

Stay ahead of the curve 

At Hays, we’re here to help you navigate the future of work with confidence, providing you the data, insights and proven processes required to ensure visibility and compliance across your entire workforce and recruitment function. 

Get in touch with one of our expert consultants to discuss your talent needs, or explore our non-permanent recruitment solutions.