Perception risk from the new umbrella legislation: why agencies shouldn’t assume they’re safe

Adrian Marlowe

December 12, 2025

Proposed changes to umbrella legislation, particularly the Joint and Several Liability (JSL) rules under Chapter 11, set for April 2026, are already reshaping behaviour across the recruitment supply chain. But while most conversations focus on PAYE and NICs liability, a quieter, more powerful risk is emerging: perception.

Perception influences decisions long before legislation does, and if the sector reads these proposals incorrectly, the commercial fallout could be far wider than expected.

Agencies are reducing PSLs, but are they reducing risk?

Across the industry, agencies are reviewing their umbrella PSLs and tightening due diligence processes. The logic is simple: “If we only work with the most trusted umbrellas, we reduce our risk.” This feels sensible. It feels controlled. It taps into a common psychological bias. The safety heuristic, i.e. choosing what feels safe rather than what is safe.

But HMRC has already stated clearly, “due diligence alone will not protect an agency from liability if an umbrella fails to pay the correct taxes”. So although many agencies will perceive that reducing their PSL strengthens compliance, the legislation doesn’t support that assumption. And as PSLs shrink, the largest umbrellas stand to gain the most, while smaller operators are pushed out.

On the surface, this looks like a win for HMRC. In reality, it’s only chapter one of a much bigger story.

Hirers are the next group to feel exposed

Under the current proposal, a hirer could become jointly and severally liable for the unpaid PAYE and NICs of an umbrella that employs its workers. This introduces an entirely new perception shift. Where hirers once felt protected by using an agency, they may now believe they are exposed. And when businesses feel exposed, they take action, whether that action is fully informed or not.

Potential hirer responses include:

contractual bans on agency workers, giving the impression of risk reduction
pressure on agencies to avoid employment models
increased scrutiny of who actually “employs” the worker

But here’s the catch:

Even if a hirer bans the use of employed workers, how can they be sure their requirements are being followed across the supply chain?

Liability is absolute. There is no defence.

Perception may drive behaviour, but it won’t remove the underlying risk.

Agencies could face impossible decisions

If a hirer prohibits the employment of agency workers, an agency that does employ its workers faces an unenviable choice: lose the business or lay off employees.

Neither outcome is commercially or ethically desirable, and any attempt to move employees to contracts for services carries its own risks, including a straight line to the Employment Tribunal.

This is where the proposals start to have unintended consequences. Not because the legislation demands it, but because perception fills the gaps.

Why indemnities won’t fix the problem

Some may look to indemnities as a solution. But indemnities only activate once the damage is done, meaning the agency has already failed to pay the correct taxes. In other words, a contractual promise won’t protect a hirer from a legislative requirement.

The result? Winners and losers. And not the ones you expect

Just as agencies are filtering out smaller umbrellas, hirers may begin filtering out smaller agencies. Why? Because trust becomes the deciding factor, not capability. And once trust becomes the metric: