(And Why It Could Be a Good Thing If You’re Prepared)

Big changes are on the way with the new Employment Rights Bill. It’s set to be the biggest update to UK employment law in years, and if you’re in recruitment, it’s worth knowing what’s coming because it could affect you much more than IR35 did, as mistakes made by an Umbrella provider you work with could end up costing you.

The Bill and the Tax Shift

Two key pieces of legislation are going to hit in quick succession in 2026, but the best way to ensure you don’t fall foul is to prepare now:

  1. The Employment Rights Bill
    Will bring new rights for contractors and temporary workers, including:

    • Statutory sick pay and unfair dismissal protection from day one
    • Rights to guaranteed hours and notice for shift changes
    • Stronger agency regulation and umbrella company oversight
  2. Joint and Several Liability for Umbrella Company Tax (April 2026)
    If an umbrella company fails to pay PAYE or NICs, HMRC can recover the full amount from the recruitment agency that placed the worker. This applies even if the agency didn’t know anything was wrong.

The Key Changes

1. Joint Liability Means Real Risk to You

Recruiters will now be financially responsible for the actions of their umbrella partners. That includes unpaid taxes, penalties and interest.

What this means for you:
You must treat umbrella partnerships like financial risk management. Compliance is now a commercial issue. Agencies need clear audit trails, active monitoring, and proper contractual indemnity. The cost of getting it wrong could be huge.

2. Old Safeguards Are No Longer Enough

Traditionally, Preferred Supplier Lists and annual audits were seen as enough to prove you were working with reputable providers. But those days are over.

What this means for you:
In this new world, auditing once a year or relying on reputation is not enough. Agencies will need to ensure they are compliant and that there is an audit trail of data. Otherwise, they could be liable for huge fines.

3. Umbrella Companies Will Come Under New Rules and Regulation

Umbrella companies will soon be regulated in the same way as employment businesses. That means clearer responsibilities, more transparency and fairer treatment for workers.

What this means for you:
It should help level the playing field. Recruiters doing things properly won’t be undercut by dodgy setups, and contractors will have more trust in how they’re paid.

Agencies need to assess:

  • Are our umbrella partners aware of what’s coming?
  • Can they meet the new standards?
  • Will we be safe working with them in 2026?

4. A New Enforcement Body

A new Fair Work Agency will bring together several regulators into one, with more powers to enforce rules around pay, umbrella company use and agency conduct. As part of this, HMRC is hiring 5,000 new tax inspectors (source).

What this means for you:
Support is coming for ethical agencies. With better enforcement, there’s less risk of being dragged down by bad actors in the market.

The Real Cost of Getting It Wrong

The risks for agencies are real and rising:

  • Tax liability for unpaid PAYE or NICs
  • Legal exposure if worker rights are denied
  • Operational disruption if an umbrella collapses mid-contract
  • Reputational damage from worker complaints or public exposure by the authorities

Add the admin costs of resolving disputes, reviewing placements or rebuilding trust, and the price of a poor decision can escalate quickly.

What You Can Do Now

Recruitment businesses that want to stay ahead are already:

  • Auditing umbrella relationships more deeply
  • Using technology for real-time payroll and compliance checks
  • Working only with accredited providers
  • Training internal teams on the new risk landscape

How Sonovate Can Help

At Sonovate, we support recruitment businesses with the tools to stay in control. From fast, flexible funding to fully compliant PAYE models, our platform is built by recruitment experts, with genuine payroll and compliance expertise, ensuring we are built to handle what’s coming.

We help you:

  • Keep contractor payments clean and on time
  • Stay ahead of evolving regulation
  • Protect your business from costly mistakes
  • Give you the peace of mind you need

This article is for information purposes and does not constitute legal, tax or compliance advice. Recruiters and agencies should seek their own independent advice to understand how the upcoming legislation may impact them.