A Seismic Shift is Coming for Umbrella Companies and Recruitment Agencies

In a development that could send shockwaves through the UK’s temporary labour market, over 750,000 umbrella workers are at serious risk of losing their employment rights by April 2026.

The looming Employment Rights Bill, alongside promised regulations outlined in the Autumn Budget 2024, signals a major overhaul of the umbrella model. A model that underpins the recruitment industry and supports hundreds of thousands of flexible workers across the UK.

The umbrella company model as we know it may soon disappear.

What’s happening with umbrella companies?

A man and woman discussing the potential for almost a million umbrella employees to lose their employment rights.

Let’s start with the facts:

As of now, no draft regulations have been published.
However, the UK Government’s consultation response on regulating umbrella companies outlines a radical shift.
Under the proposed rules, umbrella companies will no longer be responsible for processing PAYE tax for the workers they employ.

£9.5 billion – That’s the estimated annual turnover of the UK umbrella company market. That responsibility, and the risk, will shift to recruitment agencies or end hirers.

The Ripple Effect: Why Recruitment Agencies May Back Away

If these changes come into force, recruitment agencies may refuse to work with umbrella companies altogether due to:

Increased administrative burden
Greater tax liability exposure
Heightened compliance risk

Without this support, umbrella companies could quickly become obsolete. And when the umbrellas fold, it’s the workers who suffer most.

Group of men and women discussing the potential effects of upcoming change in umbrella company legislation.

Who Loses? The Workers.

This is the uncomfortable truth at the heart of the proposal.

If recruitment agencies or hirers opt out of using umbrella companies, the 750,000 temporary workers currently employed via umbrellas will be shifted to standard PAYE contracts. That means:

No protection against unfair dismissal
No redundancy pay
No statutory maternity or paternity leave
No minimum notice periods
No single employer record, which is crucial for workers juggling multiple agency jobs

In other words, a full erosion of employee rights. Rights currently guaranteed through umbrella company employment structures.

And let’s not forget: a central benefit for these workers has been the consistency of a single employer, even when hopping between assignments through different agencies. That stability will be lost.

Why Is the Government Going Down This Path?

These changes are allegedly intended to benefit workers. Ironic, considering they may strip away core employment rights for three-quarters of a million people.

This has raised serious concerns across the recruitment industry. According to Adrian Marlowe, Chairman of the Association of Recruitment Consultancies (ARC):

“This surely is an issue that should be close to the hearts of those now in power who are tasked with supporting hard-pressed workers? So why go this tortuous and rights-destroying route?”

Great question.

There Is an Alternative: A Registration Scheme for Compliant Umbrella Companies

Instead of dismantling the current system, industry experts, including ARC, are calling for a simpler, safer solution: a registration scheme for compliant umbrella companies.

Such a system would:

Protect workers’ employment rights
Offer transparency and accountability
Allow recruitment agencies to continue benefiting from umbrella partnerships, without the compliance nightmares

In other words, a win-win.

Adrian Marlowe
Chairman Association of Recruitment Consultancies (ARC)