Employment Rights Bill Amendments & Umbrella Regulation: What Recruitment Agencies Need to Know
The government’s proposed Employment Rights Bill (ERB), first introduced in October 2024, has now undergone its first round of revisions. While the headline changes aim to enhance worker protection, they also present a series of complex challenges for recruitment agencies and umbrella companies alike.
At AGPayroll, we know that recruitment businesses are balancing the need to remain compliant with the need to stay agile. So, what do these proposed amendments really mean for agencies, and what steps should you be taking now to prepare?
Zero-Hours Contracts: From Flexibility to Fixed Terms?
One of the most talked-about changes is the government’s move to ban so-called ‘exploitative zero-hours contracts.’ Under the revised Employment Rights Bill, agency workers must be offered contracts that guarantee a minimum number of hours each week.
While this change is positioned as a win for worker protection, it raises important questions for agencies and contractors who value flexibility. Many contractors—especially in sectors like healthcare, education, and hospitality—choose zero-hours contracts because they offer freedom and control over when and where they work.
At AGPayroll, we understand the critical difference between protecting workers and limiting choice. As legislation develops, it’s important for agencies to seek clarity on the definition of ‘genuinely temporary’ roles and whether any exemptions will be applied. Without that clarity, there’s a risk that sectors relying on flexible workforces will face unnecessary restrictions and added complexity.
But there’s another angle recruitment agencies need to consider. If agency workers are offered guaranteed hours, their employment status and rights may shift, increasing end-client liabilities for areas such as holiday pay, pensions, and termination costs. Recruitment businesses should start thinking now about how to mitigate these changes without losing the flexibility that makes agency work attractive.
Umbrella Company Regulation: A New Era of Compliance
The government is also pushing ahead with its long-anticipated regulation of umbrella companies. Following the August 2023 consultation, the ERB has now been updated to bring umbrella companies under the oversight of the Employment Agency Standards Inspectorate. In time, this will fall under the newly proposed Fair Work Agency.
One of the most significant developments is the plan for recruitment agencies to take on full responsibility for ensuring PAYE tax compliance when workers are engaged through an umbrella company. This change, expected to come into force from April 2026, marks a major shift in liability. If no agency is involved, the responsibility falls directly to the end client.
On paper, these measures aim to drive out non-compliant umbrella models. However, as always, the devil is in the detail. If the government doesn’t address outstanding questions, there’s a risk of unintended consequences—such as driving businesses toward self-employment models that have previously complicated the compliance landscape (as we saw with IR35 Off-Payroll reforms in 2017 and 2021).
What Should Recruitment Agencies Do Now?
Regardless of where the government lands on the final details, the direction of travel is clear: agencies will soon be held to a higher standard of due diligence when selecting umbrella partners.
At AGPayroll, we recommend that recruitment agencies:
✅ Review and update their Preferred Supplier Lists (PSLs), ensuring that all umbrella providers are fully compliant, transparent, and independently audited.
✅ Confirm that existing due diligence processes are robust enough to stand up to potential HMRC scrutiny under the new regime.
✅ Partner with umbrella companies that are SafeRec Certified (like AGPayroll), offering real-time auditability and guaranteed compliance.
✅ Engage with end clients now to clarify responsibilities, especially around worker classification and potential liabilities.
In short, agencies should act now to future-proof their processes—waiting until 2026 will be too late.
How AGPayroll Can Support You
We believe compliance shouldn’t slow you down—it should give you peace of mind. AGPayroll’s umbrella solution already meets (and exceeds) the proposed compliance standards.
Here’s how we protect your business and your contractors:
✔ SafeRec Certification: Real-time auditing of every payslip—so you can prove compliance, not just claim it.
✔ HMRC-Recognised Processes: We operate within HMRC guidelines, ensuring full transparency for your agency, your clients, and your workers.
✔ Nxsys Agency Portal: Our industry-leading technology gives you 24/7 access to worker onboarding, payment status, and compliance reports—all in one place.
✔ A Trusted Partner: We’re more than a payroll provider. We’re your partner in scaling recruitment, whether you’re placing contractors locally or internationally.
The Future of Payroll: Compliant, Transparent, Scalable
The upcoming changes to the Employment Rights Bill and umbrella regulations reinforce why recruitment agencies need payroll partners they can trust.
At AGPayroll, we’re here to keep your business moving—without cutting corners. If you’re unsure how these proposed reforms could affect your agency, or you want to review your current umbrella arrangements, we’re ready to help.
Let’s talk.
Schedule a call with our team today and find out how we can help you stay compliant and competitive.
