Dave Chaplin, CEO of contracting authority ContractorCalculator, on the implications for recruiters of the Government’s aim to modernise agency work.
On 6 February 2026, the Department for Business and Trade published the consultation titled Make Work Pay: Modernising the Agency Work Regulatory Framework. The paper sets out proposals to update the Conduct of Employment Agencies and Employment Businesses Regulations 2003 to reflect the modern temporary labour market, particularly the widespread use of umbrella companies. The consultation runs until 1 May 2026, with legislative changes intended to come into force in early 2027. These reforms are designed to improve worker security, pay transparency and genuine choice.
For many recruiters, the impact will be material, and they need to prepare. Umbrella companies will sit squarely within the regulatory perimeter. Key points are:
- Always paid: Workers using umbrellas must be paid in full for the work they do, even if the agency has not paid them.
- Gross rates only: Agencies must offer workers a gross rate (a PAYE rate) before accepting offers, effectively ending the umbrella “assignment rate.”
- No mandatory umbrella: Agencies will no longer be able to make the use of an umbrella company a condition of accepting work.
Agencies with commercial models built on umbrella-only offers that use assignment rates will no longer be viable. All recruiters will need to run their own payroll to cater for workers who do not wish to work via an umbrella.
The changes are structural and designed to ensure fairness for workers and prevent them from being forced into unwanted arrangements as a condition of work.
Regrettably, the unregulated umbrella market has been engaged in a “race to the bottom” for a long time, where competition was often not based on service quality, but on how much margin they can extract from workers’ wages or how aggressively they can manage tax liabilities, to then fund a commercial “kickback” to the agency.
Historically, some recruiters have been significantly rewarded for steering workers toward a particular disguised remuneration umbrella scheme.
To stop these very sensible reforms, one would have to defend the existing system as being preferable to the proposed new regime.
Pay transparency
Consider pay transparency. One of the central changes requires that workers agree on an actual gross rate of pay before accepting an engagement. This policy would remove the widespread use of umbrella assignment rates, which bundle figures such as employer National Insurance, the apprenticeship levy, pension costs, and umbrella margins. Assignment rates are routinely presented in job adverts, yet they do not reflect what the worker will actually receive.
Opposing the change requires arguing that opacity and disguise are better than clarity, and that workers are better off being quoted synthetic numbers that cannot easily be reconciled with their payslips.
Transparent agreement of gross pay is fair and removes the ability to compete through ambiguity.
Choice
The new changes also prevent agencies from giving workers a Hobson’s choice – i.e., making offers of work conditional on being an employee of an umbrella company. Many recruiters have historically converted internal payroll costs into a profit by receiving commissions or other benefits from umbrella companies.
The combination of forced usage and commission payments fuelled the race to the bottom, opening the door to the non-compliant umbrellas.
To defend the existing structure, one must argue that a worker should be forced to be employed by a company they may not want to work for. Removing conditionality means workers will only choose and pay for an umbrella if they can see a benefit to using it themselves. Otherwise, they will need to be on agency payroll.
The original regulations already prohibit making offers of work conditional on a worker paying for another service that charges a fee, which the use of umbrellas has circumvented. The changes merely bring the long-standing rules back into play.
Payment
Payment protection reinforces the principle that agency-based workers should be paid in full for work completed, regardless of disputes or failures elsewhere in the chain. The use of umbrellas has been used to remove those rights, which will be restored.
To oppose this change, one must argue against what the Conduct Regulations were initially intended to do – ensuring the worker gets paid.
What should agencies do?
The changes are entirely sensible, fair to workers, and restore long-standing intended rights. The arguments required to preserve the status quo cannot withstand scrutiny. The changes are inevitable.
Agencies should accept that change will occur and prepare accordingly.
