Government unveils ‘Umbrella Company Regulations consultation’ - Contractor UK

More than 30 proposed changes to the Conduct Regulations are set to 'reshape how the temporary labour market is regulated.' And contractors have 12 weeks to have their say.

The government has nodded to a ContractorUK guide in its long-awaited 'Umbrella Company Regulations consultation,' which it published on Friday.

In "Make Work Pay: Modernising the Agency Work Regulatory Framework," the business department says on page 72 that "there is an issue with…kickbacks".

'Prevent umbrella companies from making contractor pay deductions related to agency kickbacks'

To illuminate it, business officials cited "evidence" of kickbacks being paid "per worker or per timesheet", referencing this guide, commissioned and published by ContractorUK.

Now, with the aim of 'protecting worker pay,' officials say ministers want to "prevent umbrella companies" from making deductions to such pay where it relates to agency kickbacks.

It's just one of more than 30 changes the Department for Business & Trade (DBT) proposes, across 63 pages, to "modernise and streamline the rules which govern the temporary labour market".

The consultation is open for responses until May 1st 2026.

And the majority of its proposals centre on amending the Conduct Regulations 2003.

But there's already fears that 12 weeks for contractors and others to have their say isn't long enough.

(N.B. "Workers" are the first of four groups which DBT says it hopes will respond to the consultation).

Facing up on Friday to the consultation to regulate brollies, which has been urged since they were deemed the "Wild West" in 2013 (and earlier), some advisers sounded daunted.

Responses included, "So, that's the next few weeks to set to 'very busy' for me [then]" (FCSA's Chris Bryce).

And, sarcastically, "Some light weekend reading [then]" (Brabners' Hannah Morrison).

'Umbrella regulations consultation's closing date should be extended'

Crawford Temple, chief executive of compliance organisation Professional Passport, is going further.

He says that because "the scope of measures being proposed is wide-ranging," the May 1st consultation deadline should be extended "by at least a month."

In a statement sent to ContractorUK, Mr Temple explained: "Careful scrutiny by all affected parties…[is required].

"This is particularly important given that the labour supply chain is already preparing for the introduction of Joint and Several Liability legislation, due to come into effect in April."

Lawyer Rebecca Seeley Harris, of Re Legal Consulting, told ContractorUK that she disagrees.

"I thought that the May deadline was quite generous," she wrote on a WhatsApp message last night. "No need to extend it."

The lawyer's satisfaction with the consultation deadline may be because she perhaps already knew that the Conduct Regulations were to be shaken up.

'Points of conduct regarding umbrella companies'

On a Worksome webinar, on January 28th, she stated: "The umbrella regulations are going to deal with other points of conduct regarding umbrella companies.

"But if I were the government, I would be taking this opportunity to look at the Conduct Regulations in their entirety, to make sure the whole of the labour supply chain works and that their conduct — umbrella companies' and agencies' — is reviewed.

"So the first thing to do is acknowledge… that the likelihood is that the Conduct Regulations are going to change."

The sheer scale of proposed changes to the 2003 recruitment framework might surprise even the DBT officials tasked with making them, however.

In the consultation's first chapter, "Security," the business officials say the government wants to potentially reform Conduct Regulations 8, 10, 12, 19 and 20.

Guiding principles for these five potential rule changes are "ensuring fair remuneration," "ensuring wide-ranging coverage of protection," and "providing assurances for businesses."

In the consultation's second chapter, "Transparency," DBT officials say the government proposes to amend Conduct Regulations 13-15, 18-21, 23, 27, 27A and 33.

Guiding principles for these 11 potential rule changes are "clarity for workers," "pay transparency," and "proportionality."

In the consultation's third chapter, "Choice," which proposes changing Conduct Regulations 5 and 6, the major change tabled is to Regulation 32.

'Ensure that umbrella companies can no longer opt out contractors'

On its face, amending Reg 32 in the manner that the consultation proposes would have a significant protective advantage for contractors.

"The government is…proposing amending Regulation 32 to ensure that umbrella companies are no longer able to opt out of the Conduct Regulations on behalf of workers."

In "Choice," the consultation says the government also wants to amend Regulation 5, with the effect that:

"Employment businesses cannot make work-finding services conditional upon workers working through an umbrella company."

'Are Agency Workers Regulations 2010 still fit for purpose?'

Before the consultation's last chapter ("Chapter 4: Further opportunities for modernisation"), DBT says that the Agency Workers Regulations might also be ripe for change.

"The government is interested in views on whether the terms of the Agency Workers Regulations 2010 remain relevant and fit for purpose, particularly in light of how they will interact with the measures contained in the Employment Rights Act 2025."

A former Treasury secondee, Rebecca Seeley Harris reflected to ContractorUK:

"Umbrella companies, in any case, will be moved into the Conduct Regs by virtue of the Employment Rights Act 2025 as 'employment businesses' are.

"This regulatory environment will be backed by stronger, more unified enforcement under the Fair Work Agency."

In the consultation, the government acknowledges both the Employment Rights Act (ERA) and Joint & Several Liability (JSL).

'A lot on the umbrella industry's plate'

Both frameworks are invariably what Professional Passport's Crawford Temple had on his mind when, in his statement, he spoke of the umbrella industry having "a lot on its plate".

The government acknowledges in the consultation that, through the ERA 2025, the definition of "employment business" in the Employment Agencies Act 1973 will be amended to include the activities of umbrella companies.

Notably: "This change will bring umbrella companies into scope for regulation through the Conduct Regulations."

'JSL from April 6th 2026, and ERA 2025 just aren't enough'

The DBT consultation continues: "However, the government's view is that these changes…[including JSL] will not be enough to bring the framework that governs the temporary labour market into the modern world of work."

To that end, the consultation appears to achieve a first — defining a Personal Service Company.

Page 38 states: "[The government] suggests a definition of a PSC that would cover the following key characteristics of a PSC for the purposes of the legislation:

where the sole or main shareholder of which is also its director, who, instead of working directly for clients, or taking up employment with other businesses, operates through their own company; and where the individual referred to in paragraph (a) has control of the company. "control of the company" in paragraph (b) means that the individual: is the beneficial owner of more than half of the ordinary share capital of the company, and has the legal power to direct, or cause the direction of, the general management of the company."

'Remove the ability to opt-out entirely'

The government only arrives in the consultation at the need to define PSC in relation to the potential reform of Conduct Regulation 32.

"The government proposes that the opt-out should be limited to personal service companies," it says, but adds later on:

"The government is…also seeking views on whether a more appropriate option would be to remove the ability to opt out entirely.

"This would mean that all those who find work through an employment agency or employment business – including those working through their own PSC, who likely would consider themselves self-employed – would be subject to the protections that the regulations offer."

The consultation explains: "The government recognises that, firstly, the Conduct Regulations in their current form do not accurately regulate the activities of umbrella companies and, secondly, there is appetite for the Conduct Regulations to be updated to reflect the realities of the modern labour market."

Due to policymaking inactivity around temporary labour being historical, and following pleas to ministers to take a holistic approach, the consultation is unable to have a single objective.

'In this Umbrella Regulations consultation, DBT is trying to do two things at once'

Re Legal Consulting told ContractorUK: "This consultation, which despite its 'Make Work Pay' title will no doubt be called the 'Umbrella Regulations consultation,' is DBT trying to do two things at once.

"Firstly, it's trying to openly and deliberately modernise a 2003 regulatory framework that no longer matches today's multi-layer agency and umbrella supply chains.

"And secondly, it's trying to do it in a way that targets the real harms — non-payment risk, opaque deductions, coerced umbrella models, and blurred accountability — without burying compliant businesses in paperwork."

In line with Re Legal's verdict, the consultation proposes an option to stop umbrella companies from passing commercial charges onto the worker, but it also takes aim at a "matrix of regulation."

Referring to the instance of an employment business seeking to sub-contract out its obligations to an umbrella company, the business officials said:

"The government believes that this matrix of regulation around the information that must be given to or made available to the work-seeker [in such an instance] creates unnecessary and burdensome complexity, which [also] risks overwhelming workers with difficult-to-decipher information.

"This can prevent compliant employment agencies and employment businesses from responding quickly to market demands. The government believes these requirements can be streamlined, to the benefit of all parties, and is seeking views on how this can best be achieved."

'Further opportunities for modernisation'

For interested parties, the corresponding question is "18a)" in the consultation, which in total poses more than 40 questions, most of which have parts a) and b).

Those 40+ questions include questions relevant to eight further Conduct Regulations, which are the focus of the consultation's final chapter, "Further opportunities for modernisation."

The eight regulations inquired about include Conduct Regulations 16 (which requires agencies to obtain agreement to terms with work-seekers) and 24 (covering situations where work-seekers are provided with travel or required to live away from home).

Author of an "Employment Status Roadmap," which the consultation's most senior minister, Peter Kyle MP, has now been sent, Ms Seeley Harris said: "Along with the change in tax policy for Joint and Several liability in the labour supply chain, the amended regulations should have a significant impact on compliance. It's been a long time coming."

'Proposals could reshape how the temporary labour market is regulated'

The Freelancer & Contractor Services Association (FCSA) confirmed that potentially seismic change is contained in the consultation about new rules for umbrella companies and their employees.

"[This] consultation…could reshape how the temporary labour market is regulated," it began on Friday in a social media post.

"[Under the] four pillars [of] Security, Transparency, Choice, and Modernisation, the proposals include bringing umbrella companies within scope of the Conduct Regulations, restricting kickbacks, preventing workers from being forced into umbrella arrangements, and streamlining administrative burdens for compliant businesses."

The association added: "We've been calling for fit-for-purpose regulation for years. Now we need to make sure the detail matches the ambition."