Employment Rights Act 2025

The Employment Rights Act 2025 will amend the definition of ‘employment business’ – expanding it to include the actions commonly undertaken by umbrella companies – thereby bringing such companies within scope of the rules which govern the temporary labour market.

There is currently no statutory definition of an ‘umbrella company’. An umbrella company is generally considered to be an entity acting as an intermediary that employs individuals on behalf of employment businesses (i.e. recruitment agencies) and end clients.

Responding to a consultation carried out in 2023 by the then Conservative administration, the current government stated that it wanted to define umbrella companies and allow for their regulation in the same way that employment businesses are regulated.

A consultation (closing on 1 May 2026) sets out how the ERA25 will bring umbrella companies within the scope of legislation including the Employment Agencies Act 1973, the Conduct of Employment Agencies and Employment Businesses Regulations 2003, and the Agency Workers Regulations 2010.

Once the amended definition comes into force (expected during 2027), umbrella companies will be regulated by the Fair Work Agency.

Additionally, from 6 April 2026, responsibility for unpaid PAYE and National Insurance Contributions linked to umbrella workers shifts up the labour supply chain. Under the new rules, the umbrella company and the client can be held jointly and severally liable for tax that should have been deducted from a worker’s pay. This means HMRC will be able to pursue either or both parties for the unpaid tax and NICs.

Where there is a recruitment company in the supply chain, it usually sits directly above the umbrella, meaning that the umbrella company and the recruitment company will be jointly and severally liable. If there isn’t a recruitment company, and the end user has a contract directly with the umbrella, the end user and the umbrella would be jointly and severally liable.