Zero Hours Contracts & Umbrella Company Consultation
As a legal and audit consultancy group, we decided not to respond to the various government consultations surrounding umbrella companies and agency workers. This was largely due to the fact that we considered them to be foregone conclusions. Given the results of those consultations, we are pleased that we chose not to respond. This allowed us to concentrate on preparing for the inevitable.
Advice & Consultation Packages
Consequently, our advice and consultation packages are well underway. This is 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. Businesses seeing those selling ‘solutions’ should take extreme caution.
Unlocking Opportunities Through Collaborative Compliance
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…
Key Legislative Developments from Recent Employment Consultations
For now, a brief summary of the main points to emanate from the recent consultations:
1. Agency Workers Brought Within Scope of Zero-Hours Protections
The government has confirmed that agency workers will fall within the scope of the zero-hours protections. This sits 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.
Learn more about the impact to zero hour contracts here.
As stated, this move is not a surprise, but we should remember that significant detail is still missing from the legislation. This includes, crucially, how it will actually work in practice. The government acknowledges 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. This is because they continue to sell the changes as a fair balance between workers and business. The practical arrangements will reveal more.
2. New Tax Compliance Burdens Shifted to Employment Businesses and End Clients
The government has also confirmed its chosen method for tackling ‘non-compliance in the umbrella market’. It plans to shift the obligation for deducting and paying income tax and National Insurance Contributions to HMRC. Moving it away from the umbrella company (the lawful employer). Instead, this responsibility will fall to the employment business closest to the end client—or to the end client itself, where no employment business is involved.
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. Redefined Legal Status of Umbrella Companies Based on Employment Arrangements
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. Umbrella Companies to Be Regulated Under Conduct Regulations and FWA Oversight
Moving on to how the government wants to regulate umbrella companies. They plan 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. Later moving under the recently announced Fair Work Agency (“FWA”).
Extending Oversight: Umbrella Companies and the Regulatory Framework
There is very little detail on this change at present (further legislation will come). However, 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.
Familiar Territory: Conduct Regs and the Expanding Role of the FWA
Equally, the FWA’s proposed remit, even prior to this announcement, included many areas relevant to umbrella companies. As such, umbrella companies were almost certainly within the FWA’s scope in any event.
Learn more about the FWA in our previous factsheet.
Concluding Umbrella Company & Zero Hours Contracts Consultations
To summarise, change is coming, and we should view this 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 sometimes significant elements, to change remains present until legislation is enacted.
Questions For Zero Hours Contracts & Umbrella Company Consultation
1. When will the legislative changes take effect?
The new legislation is scheduled to come into force in April 2026. However, much of the detail—particularly how certain rules will apply in practice—is still missing. We expect more information to emerge through secondary legislation and official guidance over the coming months.
2. Should businesses make changes now?
No. We strongly advise against making sweeping operational changes at this stage. The lack of detail in the draft legislation creates significant uncertainty. Premature action could result in wasted resources or compliance gaps later. Businesses should instead focus on staying informed and preparing for multiple possible outcomes.
3. What support are you offering clients?
We’ve developed a range of advice and consultation packages designed to help clients navigate the upcoming changes. These services include legal guidance, drafting support, and practical protections. Our goal is to ensure clients remain compliant while maintaining commercial flexibility and control within their supply chains.
4. How do the changes affect agency workers?
Agency workers will now fall under the protections outlined in the Employment Rights Bill, including rights related to zero-hours arrangements. In specific circumstances, they can request guaranteed hours, advance notice of shift cancellations, and even compensation for those cancellations. However, details on how these rules will apply in practice—especially for agency workers—are still under development.
5. What’s changing with tax compliance in umbrella arrangements?
The government plans to shift tax compliance obligations. Instead of umbrella companies deducting and paying income tax and National Insurance, that duty will now fall on the employment business closest to the end client—or on the end client itself if no employment business is involved. This change reflects the government’s efforts to tighten enforcement and close gaps in compliance.
6. Is the legal definition of an umbrella company changing?
Yes. The government will introduce a new legal definition focused on “employment arrangements.” This means any entity that employs individuals or manages payments for their services may be considered an umbrella company. While some of the terminology is familiar, the new definition will give regulators broader oversight and clarity in enforcement.
7. Will umbrella companies face additional regulation?
Definitely. Umbrella companies will now fall under the scope of the Conduct of Employment Agencies and Employment Regulations (“Conduct Regs”). They’ll also be overseen by the Employment Agencies Standards Inspectorate and eventually the new Fair Work Agency (FWA). These regulatory bodies will have authority to monitor and enforce compliance more actively.
8. Are these proposals final and fixed?
Not entirely. While the direction of travel is clear, many of the proposed measures depend on future legislation. Key areas are still subject to change, and further guidance is expected. Businesses should prepare but stay flexible as the final details emerge.
