For more than a decade, the labour supply chain has struggled with a fundamental lack of clarity around responsibility, compliance, and accountability. As legislation has evolved, so too have the structures designed to work around it, leaving businesses uncertain about where risk truly sits.
The upcoming umbrella reform seeks to address these challenges by tightening definitions, reinforcing standards, and encouraging greater transparency across agencies, intermediaries, and end hirers.
What's your take on the upcoming umbrella reform?
"For a long time, the industry has operated with a lot of ambiguity around what “good” actually looks like. Umbrella companies sit across both employment law and tax law, which makes the space murky at the best of times. On top of that, different businesses have different risk appetites and different objectives, which has created an uneven playing field.
Over the years, many businesses have been calling out for clarity. There’s been a great deal of noise and a wide range of opinions, leaving people uncertain about who to trust. In that sense, the reform feels like a positive step - something that should help rebuild trust and set clearer expectations across the supply chain."
Where did it all begin?
"If you go back to around 2014, one of the most significant issues was the use of offshore intermediaries. Under those arrangements, workers were paid offshore, tax was often not deducted correctly, and while the worker technically retained a personal tax liability, that risk was not shared transparently by those promoting the schemes.
Over time, activity moved back onshore, but many of the underlying issues remained. The introduction of the onshore intermediary framework, particularly around self-employment, brought with it the concepts of supervision, direction, and control. In response, new legislation would emerge, and, as has so often been the case, “someone very clever would find a workaround.” Businesses relied on increasingly sophisticated contractual structures, hiding behind carefully drafted wording relating to supervision or personal service, even where the contractual position did not reflect the practical reality. This persisted despite relevant case law, which increasingly pointed toward a more hybrid employment status model.
More recently, the real catalyst for today’s reform was the call for evidence in 2021, which followed heightened scrutiny of micro-umbrella company structures, including investigations linked to COVID testing supply chains. That scrutiny brought long-standing concerns into the mainstream and significantly accelerated the momentum for change."
How did it get so messy?
"There has long been a significant degree of grey area, and advantage has consistently been taken of loopholes and legislative wording. As has been highlighted, umbrella companies themselves have never been clearly or definitively defined.
While the draft legislation does now attempt to provide a definition, essentially describing an umbrella company as an entity that employs workers, that immediately creates further complexity. If an individual is not technically an employee, then they fall outside that definition. In practical terms, this appears to apply only where PAYE is operated, which inevitably leaves scope for alternative arrangements to persist.
For me, the key question is enforcement. Legislation alone is not sufficient; it must be effectively enforced. The real issue is whether there is enough compliance activity to support it. In many respects, there is already sufficient legislation in place under which organisations could fall foul, yet enforcement has historically been limited. There are not enough inspectors, not enough resource, and that has contributed significantly to the situation becoming as complex as it is.
Another concept that frequently arises is “reasonable care,” particularly in relation to internal practices, procedures, and governance. Reasonable care does retain an element of subjectivity. There is no single, definitive threshold that can be applied universally, and it is ultimately for a third party to determine whether reasonable care has been exercised.
That said, there are some clear fundamentals. You cannot bury your head in the sand. Doing so would be the very opposite of reasonable care. Proactivity, transparency, and the existence of clearly documented processes are essential starting points. "
Who in particular will be hit the hardest?
"Based on how the legislation is currently worded, my view is that it does not disproportionately target one part of the supply chain over another. If anything, it encourages greater collaboration across all parties, rather than responsibility simply being pushed up or down the chain. That would be my initial assessment.
That said, agencies may feel that they are impacted more directly, as there is a perception that they are now more explicitly “on the hook.” However, in reality, agencies have always carried a degree of responsibility. Legislation such as the Criminal Finances Act has been in place for several years now, and while the burden of proof is higher in criminal matters, the underlying obligation to prevent wrongdoing has long existed. In that sense, this is less about introducing entirely new accountability and more about making existing expectations clearer."
"Encouragingly, we're seeing organisations take proactive steps. In recent weeks, several companies have approached us to build their own compliance frameworks, conduct audits, and establish more robust internal processes, before the legislation comes into force. In truth, this level of diligence should have been standard practice for many years, but often meaningful action only follows when there is a regulatory “shock” or increased scrutiny.
These conversations are becoming more frequent, particularly with new market entrants seeking guidance on what lies ahead. For newer businesses especially, understanding the regulatory direction of travel and embedding strong compliance principles early will be critical to building sustainable, resilient operations."
The 2026 umbrella shake-up is coming
Hear practical insights from Bar2 Managing Director Joss Lowery on the unseen risks of umbrella reform, and what Recruitment Leaders and End-Hirers must know ahead of the changes.