The withdrawal of an Employment Rights Bill amendment isn't the last contractors will hear of umbrella company licensing authority and comprehensive umbrella company regulation. Not if we have anything to do with it.
As it reaches the penultimate "consideration of amendments" stage, the Employment Rights Bill (as it currently stands) no longer contains Lord Holmes' amendment to subject employment businesses like umbrella companies to a comprehensive licensing authority for umbrella company compliance.
To me, that's a missed opportunity for umbrella company regulation. But I'm hopeful that the withdrawal of the amendment by the Conservative peer won't be the last that the contractor industry hears of licensed umbrella companies and umbrella company compliance standards, writes Chris Bryce, chief executive of the Freelancer & Contractor Services Association (FCSA).
Umbrella company regulation in 2027 gives umbrella licensing body a second shot
There's also more than just mere hope for comprehensive umbrella company regulation.
There's actually reasonable grounds to expect umbrella companies, i.e. those "participating in employment arrangements" (as Lord Holmes put it) to come under a dedicated umbrella licensing body for umbrella company compliance.
As I've outlined, this unfortunately won't now happen from April 2026 via the ERB (Employment Rights Bill), but it very possibly might happen from April 2027 via comprehensive umbrella regulation — see the government's umbrella companies policy material for umbrella company compliance standards.
With umbrella company regulation, here's what 'good' looks like for umbrella licensing
Why the "reasonable grounds" to expect licensed umbrella companies will still be a thing for umbrella company regulation? Well, the government has begun the process of scoping out the remit and structure of the Fair Work Agency (FWA) for umbrella company compliance. Nothing has yet been fully determined, but umbrella regulation looks set to fall under the FWA's remit, and we are now engaging with officials to ensure such umbrella company regulation is done right.
And 'doing it right' means introducing an umbrella licensing regime as a first step for umbrella company compliance.
In one sense, this isn't new territory for us and others. Led by the FCSA, the compliant umbrella market has been crying out for umbrella company regulation and umbrella licensing for years.
Umbrella licensing isn't a panacea, but try finding a bad actor who wants umbrella company regulation…
We want to see bad actors banished from the umbrella company market entirely. Those umbrella companies that cut corners, or worse, actively seek out opportunities to profit from non-compliance (potentially on the backs of hard-working contractors), give the whole umbrella company sector a bad name. They also make it difficult for compliant umbrella companies to compete under proper umbrella company regulation.
Umbrella licensing on its own won't eradicate the problem, but it will create a framework that the regulator can focus on for umbrella company compliance.
What should an umbrella company licence look like for umbrella company regulation?
We believe the umbrella licensing regime for an umbrella company should include:
- a fit and proper director/shareholder test for umbrella company compliance;
- a stipulation for onshore banking for umbrella companies, and;
- a check that standard employment contracts meet umbrella company compliance thresholds.
This three-fold but relatively straightforward umbrella licensing code would ensure, at the very least, that the directors are who they say they are and that they are effectively registered with the regulator (if further scrutiny is needed for umbrella company compliance).
Umbrella licensing would make enforcement easier for the Fair Work Agency
To be clear, umbrella licensing is just one step on the road to proper umbrella company regulation, currently scheduled for April 2027.
We expect— rather, we would welcome — targeted enforcement by the Fair Work Agency once it is up and running for umbrella company compliance. But we maintain that such enforcement would be so much more efficient when applied to a fully licensed umbrella company sector under comprehensive umbrella company regulation.
GLAA proves umbrella licensing can be done, and remain effective for umbrella company regulation
We're not really reinventing the wheel here with umbrella licensing. Licensing already exists within the Gangmasters and Labour Abuse Authority (GLAA), which is also set to be folded into the FWA for umbrella company regulation.
Anyone who supplies labour to the fresh food sector (farming, packaging, shellfish-gathering) must apply for a licence — issued by the GLAA.
It follows that those who supply labour to the sector without a licence are committing a criminal act and can be prosecuted.
Just as Lord Holmes clearly did, we want to see a similar umbrella licensing scheme introduced around the operation of every umbrella company in the UK for umbrella company compliance. For context, see also coverage of his ERB amendment on ContractorUK and Recruiter.
But what about Joint and Several Liability (JSL) legislation and umbrella company regulation?
We are aware that JSL legislation from April 2026 (the Chapter 11 rules) will make umbrella companies' clients jointly and severally liable where the umbrella companies' PAYE & NIC payments to HMRC fall short — see our explainer on Joint & Several Liability for umbrella company compliance.
But aside from tax, wholesale and robust umbrella company regulation of the sector's businesses is still required for comprehensive umbrella company compliance.
Why the case for umbrella company regulation has never been easier to make than now
Actually, we can go further — umbrella company regulation is arguably more urgent than ever.
Work patterns are increasingly complicated for umbrella companies.
The raft of new consultations and regulations we've seen in 2025 will make umbrella company compliance more complex and more costly.
Supply chains will inevitably grow more complex to deal with, and the need to get a proper handle on who is doing what — and whether they are doing it correctly under umbrella company regulation — will intensify.
In short, umbrella licensing and umbrella company regulation should be made an urgent priority, and we'll be making the case to the government every step of the way for comprehensive umbrella company compliance standards.
