Draft legislation on umbrella company reform is expected soon. But while most headlines focus on umbrella companies themselves, recruitment agencies should be paying very close attention.
Non-compliance in the supply chain won’t just be the umbrella’s problem.
The government’s consultation on this issue was clear: agencies and end-clients may find themselves jointly liable if they continue to use non-compliant or financially unstable umbrella providers.
What might change?
It’s expected that a statutory definition of an umbrella company will be introduced, making it harder to hide behind vague supply chain arrangements. Agencies may be legally required to verify the compliance of umbrella providers they work with. And in the event of wrongdoing, liability for unpaid tax or worker entitlements could fall directly on the agency or the end client.
Risk vs. protection: The agency dilemma
This shift puts agencies in a difficult but clear position.
Continue working with low-cost or opaque umbrella companies, and you may save margin in the short term—but expose your business to regulatory and financial risk that will far outweigh those savings.
On the other hand, choosing to work only with financially stable, compliance-focused umbrella partners may feel less commercially aggressive upfront, but offers long-term protection. It also builds trust with clients who increasingly demand transparent supply chains.
What agencies should do now?
There’s no room for risk when legislation is this close. The smartest agencies will position themselves now as proactive, compliance-first partners.
Here’s how to prepare:
- Review existing umbrella PSLs
- Conduct documented due diligence
- Request proof of compliance, insurance, and stability
- Keep clear records for clients and HMRC
- Educate your internal team on the coming changes
Choosing the right umbrella company isn’t just about cost anymore. It’s about credibility, risk protection, and the future value of your business.
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