The UK labour market is entering a period of regulatory change, and the Employment Rights Act 2025 could have significant implications for the recruitment sector.
While much of the debate around employment reform has focused on worker protections more broadly, one aspect has particular relevance for recruiters: the future regulation of umbrella companies.
For many years, umbrella providers have played a central role in supporting the UK’s flexible workforce. Yet the regulatory framework surrounding them has often been less clearly defined than that governing recruitment agencies themselves.
The Employment Rights Act 2025 may begin to change that.
Bringing umbrella companies into the regulatory framework
One of the key changes within the legislation is the move to bring umbrella companies within the scope of employment agency regulation.
The Act amends the Employment Agencies Act 1973, allowing umbrella companies to be treated as employment businesses where they play a role in supplying labour and handling worker pay.
In practice, this means umbrella providers could become subject to greater oversight from enforcement bodies as the regulatory framework is developed through further consultation and secondary legislation.
For an industry that has sometimes struggled with inconsistencies between compliant and non-compliant providers, that development could represent an important step towards clearer standards.
Why the umbrella market matters
Umbrella employment has become a key part of the contractor economy.
For many workers, it offers a straightforward PAYE employment structure while allowing them to move between assignments with different clients.
When operated correctly, umbrella models provide contractors with statutory benefits such as holiday pay, pension contributions and sick pay while ensuring taxes are handled through PAYE.
However, as the umbrella sector has grown, concerns around transparency and consistency across providers have also increased.
Some operators have historically used less transparent payroll structures, creating confusion for contractors and risk for agencies.
Greater regulatory oversight is intended to help address those issues.
Strengthening protections for workers
At the heart of the Employment Rights Act is the intention to strengthen protections for workers across the labour market.
For umbrella contractors, clearer regulation could mean greater transparency around employment rights, pay structures and the responsibilities of the organisations employing them.
It may also help establish more consistent standards across the umbrella sector.
For workers, that additional clarity is likely to be welcome.
For recruiters, it may provide greater reassurance that the employment structures supporting their placements are operating as intended.
What it means for recruiters
Although the legislation is primarily focused on worker protections, it will inevitably influence how recruitment agencies work with umbrella providers.
As oversight of umbrella companies increases, agencies may want to ensure the providers they work with can demonstrate clear, compliant payroll models.
In practice, this may encourage agencies to review their payroll supply chains — not necessarily because regulation requires immediate changes, but because clearer oversight across the sector raises expectations around transparency.
In many cases, agencies already working with compliant PAYE umbrella providers may find the reforms simply reinforce existing best practice.
A more mature umbrella sector?
Regulatory clarity can often have a stabilising effect on an industry.
For the umbrella market, clearer rules and stronger oversight may help reinforce trust in compliant employment models while discouraging those that rely on less transparent structures.
For recruiters, that could ultimately make it easier to identify reliable payroll partners and build supply chains that operate with confidence.
The Employment Rights Act 2025 will be implemented gradually as the detailed regulatory framework is developed.
However, the direction of travel appears clear: greater transparency, stronger worker protections and higher standards across the recruitment supply chain.
Preparing for the changes ahead
As the regulatory landscape evolves, many recruitment agencies are taking the opportunity to review the partners and processes that support their contractor supply chains.
Working with payroll providers that prioritise transparency, strong compliance controls and clear PAYE models can help agencies maintain confidence in how contractors are engaged and paid.
At Cinch Group, we work closely with recruitment businesses to support transparent payroll solutions designed to align with the changing regulatory environment. We are currently progressing through the final stages of FCSA accreditation for both Umbrella and CIS engagements, and we have also completed the VeriPAYE audit through Diligence Hub’s 360 Compliance framework, with our formal launch expected shortly.
For agencies that are reviewing their current arrangements, we are happy to share our compliance overview and due diligence pack, which outlines the standards, processes and checks that sit behind our payroll solutions.
Even if it simply provides a useful reference point as you assess your current supply chain, it can be a valuable exercise ahead of the upcoming reforms.
If you would like a copy or would find it helpful to discuss the changes further, please feel free to get in touch.
