The previous Government launched a consultation in 2023 on non-compliance in the umbrella company market (i.e. a business which employs a worker with a view to that worker being supplied to work for, and be under the control of, an end-client). The current Government issued a response and included provisions in the ERA 2025 to expand the definition of ‘employment businesses’ to include umbrella companies, allowing for the regulation of umbrella companies, and for state enforcement (currently by the Employment Agency Standards Inspectorate, but then by the Fair Work Agency once established).
Existing laws that regulate the conduct of employment agencies and businesses include: (i) providing a ‘key information document’ to agency workers; (ii) maintaining accurate records of compliance with regulations; (iii) protections from detriment for the agency worker if they terminate their agreement with the employment business or work elsewhere; and (iv) ensuring transparency regarding pay and deductions. The Government launched a consultation on 6 February 2026 which seeks views on its proposals to amend the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the ‘Conduct Regulations‘), including to ensure that they apply effectively to the particular business activities of umbrella companies, as well as seeking views on aspects of the Agency Workers Regulations 2010.
The consultation paper sets out a number of proposed changes to the Conduct Regulations, focusing on three overall objectives of (i) increasing security in the agency worker market (for example, ensuring agency workers are always paid for work done), (ii) increasing transparency for agency workers (for example, in respect of pay), and (iii) allowing for genuine choice within the temporary labour market (for example, extending protections against detriments). The consultation also states that depending on the responses to the consultation, the Government may run a second consultation seeking views on more detailed proposals to streamline and simplify the regulatory framework. The Government has indicated that it seeks to balance the need to ensure clarity for workers without creating undue burden on businesses who operate in this sector. The new regulations will then apply to the expanded definition of employment businesses.
Separately, the Government has decided to introduce legislation to make tax reforms to umbrella company arrangements (essentially introducing joint and several liability provisions within the labour supply chain), with such changes to take effect from April 2026. Details of this are outside the scope of this hub (see Gov.uk for more).
Timing and developments
The employment law changes are included in the ERA 2025.
The consultation on modernising the agency work regulatory framework is open until 1 May 2026.
The Government’s updated timeline indicates that this measure will take effect in 2027, although a specific date is not provided.