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The Government's Employment Rights Bill (ERB) has been introduced with the stated aim of improving conditions for workers. While few would dispute the value of safeguarding workers’ rights, the legislation in its current form risks undermining the very structures that enable compliant, flexible employment.

 

Understanding FCSA's Response

The Freelance and Contractor Services Association (FCSA) has been at the forefront of responding to the ERB, raising urgent concerns over its unintended consequences for workers, agencies, and the broader economy. FCSA’s position is that the government’s approach demonstrates a fundamental lack of understanding of the temporary labour market. A fundamental part of that solution is the urgent need to establish clear legal definitions of both an "umbrella company" and "inherently temporary" work. Without these definitions enshrined in law, loopholes remain open, enabling fraud and making enforcement ineffective. These definitions are essential to determine when protections apply and to ensure legislation targets the correct entities in the supply chain.

Additionally to the ERB bill, the proposed new regulation for the umbrella company market (The legislation) has been developed without proper impact assessment, and an unrealistic timetable, leaving compliant businesses exposed to significant risk.

The FCSA has been explicit that shifting tax responsibilities from umbrellas to recruiters will not stop fraud, with existing models like Mini-Umbrella and Gross Payment Fraud thriving despite similar measures (Umbrella Regulations). 

Compliant umbrella companies operate within tight margins, and there is little clarity in the bill about how costs such as Statutory Sick Pay and guaranteed hours would be absorbed. Shifting these responsibilities without due consideration not only creates financial pressures but risks pushing workers towards self-employment, where protections are significantly weaker.

 

Why Engagement with MPs is Essential

This is why FCSA is urging its members, including Payme, to engage directly and urgently with their local MPs. Legislative reform in this area (Umbrella Regulations) requires input from those who understand its day-to-day realities. Only by involving the agencies and umbrella companies responsible for ensuring compliance can policymakers hope to create a framework that works in practice. 

 

How Payme is Supporting the Recruitment Industry

As an accredited provider, Payme ensures rigorous compliance with existing regulations, and it shares FCSA’s view that the focus should be on upstreaming due diligence across the supply chain. By requiring all participants – from end-hirers to agencies to umbrella companies – to meet clear standards, there is a better chance of closing loopholes and reducing fraud.

Alongside this, FCSA and its members, including Payme, are calling for compliant umbrella companies to be formally included within the remit of the new Fair Work Agency (FWA). However, the FWA will not even be operational by the time these changes come into effect, further increasing the risk of chaos and leaving the sector without the necessary regulatory support during implementation.

 

What Recruitment Agencies Need to Do Next

Recruitment agencies that work with umbrella companies have a particular stake in these reforms. The timeline for implementation only adds to these concerns. FCSA is therefore calling for a delay to April 2028 to allow for meaningful consultation and a policy informed by a thorough independent review of the labour supply chain.

FCSA has warned that poorly designed reforms risk serious economic harm. Without urgent changes, the legislation could reduce job creation, force more workers into self-employment with fewer rights, and drive up costs that ultimately suppress wage growth and benefits. The Regulatory Policy Committee has already flagged these dangers, underlining the need for the government to fully understand the broader consequences before proceeding, after rating the Employment Rights Bill's impact assessments as “not fit for purpose” across multiple critical areas [RPC, 2024].

The absence of meaningful consultation with the industry only compounds these risks, leaving fundamental questions unanswered and creating uncertainty across the entire labour supply chain. The FCSA and industry leaders such as Rebecca Seeley Harris – who is leading the Independent Review – are clear that what is needed is not piecemeal amendments but a holistic rethink of the labour supply chain to ensure lasting, workable solutions. 

Led by Rebecca Seeley Harris, this review will provide the comprehensive evidence required to map the labour supply chain and expose the points of vulnerability that fraudsters exploit. FCSA is clear that no meaningful reform can proceed without this analysis, and the government must pause implementation until the review's findings inform a workable, evidence-based policy. Compounding the situation, HMRC’s proposals have been developed in isolation from the ERB, creating further confusion and increasing the risk of conflicting obligations within the sector.

The need for reform is underscored by real-world cases such as the Ducas and PPS Umbrella scandals, where millions of pounds intended for NHS workers were lost through fraud. These examples demonstrate the serious economic damage that poor regulation can cause, highlighting the need for robust, coordinated policies.

More immediately, agencies should review their existing practices and relationships. Partnering with accredited payroll providers like Payme offers not only assurance of compliance but also the operational stability needed during this period of regulatory uncertainty. Fraud remains widespread, particularly through Mini-Umbrella and Gross Payment Fraud models, which continue to thrive despite legislative changes. FCSA has warned that simply moving tax responsibilities from umbrella companies to recruiters will do little to stop these practices unless supported by proper enforcement and clear accountability throughout the supply chain.

 

Preparing for the Changes Ahead

Beyond providing payroll solutions, Payme supports agencies by offering the resources and expertise required to navigate legislative changes. As the ERB progresses, the value of working with providers who understand the full scope of these developments will only increase. Reviewing contracts, understanding new obligations as they emerge, and engaging in industry dialogues are all essential.

By working together, recruitment agencies and their suppliers can safeguard not just their businesses but also the rights and livelihoods of the contractors.

Payme stands ready to support its partners throughout this period of change.

Connect with Payme to safeguard your agency against the risks of the Employment Rights Bill and stay ahead of regulatory changes.