Umbrella non-compliance and zero-hour consultations go exactly as expected…

At Chartergates, as a group, we decided not to respond to the consultations.  This was largely due to the fact that we considered them to be foregone conclusions.  Given the outcomes of the consultations, we are pleased that we chose not to respond as it allowed us to concentrate on preparing for the inevitable.

Consequently, our advice and consultation packages are well underway despite the fact that the changes due in April 2026 are still lacking significant detail.  As such, it would be dangerous for any business to make wholesale changes to their operations at this stage and those selling ‘solutions’ should be treated with extreme caution. 

What is clear though, is that the new legislation presents opportunities for closer cooperation in supply chains where all parties are focussed on and committed to compliance allied to commerciality.  To aid our clients to realise these opportunities we’ll be on hand with the significant and varied advice, drafting and protections that will be required.  As stated, we’ve spent our time wisely…

For now, a brief summary of the main points to emanate from the recent consultations:

1. The government has confirmed that agency workers will fall within the scope of the zero-hours protections housed within the Employment Rights Bill (the “Bill”).  This means, on the face of it, that agency workers will be entitled to request, in certain circumstances, guaranteed hours as well as notice of shift cancellations and potential compensation (we provided more detail on this in a previous factsheet). As stated, this move is not a surprise, but it should be remembered that significant detail is still missing from the legislation, including, crucially, how it will actually work in practice, with the government acknowledging that the zero hours measures will need to apply ‘differently’ to agency workers.  The term ‘secondary legislation’ has been doing a lot of heavy lifting for the current government as they continue to sell the changes as being balanced between workers and business.  The practical arrangements will reveal more.
2. The government has also confirmed that their chosen method for tackling ‘non-compliance in the umbrella market’ is to shift the obligation of ensuring that income tax and National Insurance Contributions are deducted and paid to HMRC away from the umbrella company (the lawful employer) to the employment business closest to the end client or to the end client, where there is not an employment business.  Again, not a surprise and again, still a lack of detail.  At present, the government response document bears similar hallmarks to Section 44 ITEPA which compliant and agile businesses were able to adapt to in short order.
3. Part of the consultation looked at whether the government should define an umbrella company in law and if so how.  It has eschewed the two options previously put forward and opted for a new definition centred on “employment arrangements”.   This focuses on the main operations of an umbrella company, namely employing individuals or being in the business of paying for, receiving or forwarding payment for the services of those individuals.  As with point two above, this is familiar terminology in parts and therefore not a bolt out of the blue.
4. Moving on to how the government wants to regulate umbrella companies, it has opted to bring them within the scope of The Conduct of Employment Agencies and Employment Regulations (“Conduct Regs”).  Consequently, umbrella companies will come within the purview of the Employment Agencies Standards Inspectorate and later the recently announced Fair Work Agency (“FWA”). There is very little detail on this change at present (further legislation will come) but given that umbrella companies have worked hand-in-hand with employment agencies to aid agencies with their Conduct Regs compliance, the Conduct Regs are not unknown to the sector.  Equally, the FWA’s proposed remit, even prior to this announcement, included many areas relevant to umbrella companies and as such, umbrella companies were almost certainly within the FWA’s scope in any event (see our earlier factsheet on the FWA for more details). 

To summarise, change is coming, and it should be viewed as an opportunity.  We’ve begun our preparations and are of the clear opinion that with cooperation and a fair degree of work (that’s where we come in) compliance and commerciality are comprehensively achievable.  A word of warning though, as we’ve seen with previous targeted legislation the potential for elements, and sometime significant elements, to change remains present until legislation is enacted.