FCSA backs Employment Rights Bill amendment to license umbrella companies

A new amendment to the Employment Rights Bill (ERB) would have the effect of licensing every UK umbrella company.

Tabled by Lord Holmes, the amendment would require “employment businesses…to be subject to a licensing authority”.

The Freelancer & Contractor Services Association (FCSA) is backing the Tory peer’s amendment, which he tabled at the bill’s “committee stage.”

‘Put forward amendments’

Although this examination stage of the bill is ongoing, an online post by the FCSA supporting the amendment (to ERB Clause 34) has won many ‘Likes.’

But the detail of the amendment wasn’t shared in the post.

And nor is the wording of the amendment easy to find, as it is buried in a 138-page PDF of all the bill's “put forward amendments”.

Published by parliamentary records-keeper Hansard, the PDF says the amendment would be inserted after section 5(1) of the Employment Agencies Act 1973.

‘Employment businesses participating in employment arrangements’

Reproduced below, the full text of the amendment to Clause 34 of the Employment Rights Bill is; that it would require:

“Employment businesses participating in employment arrangements to be subject to a licensing authority nominated by the Secretary of State.”

Speaking last night, the FCSA’s Chris Bryce clarified that the ERB’s new definition of ‘employment businesses’ “brings umbrella companies in scope.”

‘Licensing of payment intermediaries’

Mr Bryce, the association’s chief executive, also told ContractorUK:

“Among [our March 2025] recommendations [to the government]… we presented an outline for the licensing of payment intermediaries.

“Many politicians now believe [licensing] to be a valuable tool in reducing the harm done by payroll pirates to contractors, compliant businesses and taxpayers.

“During our meeting with Lord Holmes…he recognised the value of a licensing regime. We’re pleased to assist him with the wording of his amendment.”

‘Focus on licensing payroll providers’

Since Lord Holmes tabled the amendment, the FCSA has taken to LinkedIn to warn (again) against HMRC’s plan to shift umbrella contractors’ PAYE to agencies.

But the real significance of the warning is that it implied a strong confidence in the amendment being agreed to by other peers examining the ERB.

The FCSA’s warning (posted four days after Lord Holmes tabled the change to Clause 34), concludes with: “Let’s [now] focus on licensing payroll providers”.

‘Employment businesses may not have the best PAYE compliance guidance’

At the time of writing, the Employment Agency Standards Inspectorate can inspect, penalise, and launch criminal prosecutions against recruitment agencies.

But for seemingly being “employment businesses participating in employment arrangements” agencies appear “subject” to the same “licensing authority” tabled for umbrella companies.

“[In the UK] there are many recruitment agencies or, technically, ‘employment businesses,’” says ReLegal Consulting.

“But they may not have the best guidance on PAYE compliance.

“[In fact], there are about 40,000 recruitment agencies, but only about 15% are represented by the likes of APSCo, TEAM Network or REC.”

‘Umbrella tax compliance plan must target bad practice, without impacting contractors’

Deborah Murphy, FCSA’s head of operations, says ministers must strive for a policy that ‘targets bad practice, without impacting contractors or compliant businesses.”

Murphy was referring to HMRC’s plan to shift umbrella worker PAYE to agencies, which 11 contractor outfits have objected about to the chancellor.

Also of the FCSA, Mr Bryce hopes that licensing “payment intermediaries” will now get the parliamentary go-ahead, but he says the objection to the ‘PAYE shift plan’ still stands.

‘No lobbying let-up despite Lord Holmes’ tabled ERB amendment’

He told ContractorUK: “No, [Lord Holmes’ tabled amendment does not mean] we are letting up on lobbying [against the plan].

“FCSA will continue working with HMRC and HM Treasury on this.”

Following a Whitehall meeting on Friday, tax lawyer Rebecca Seeley Harris said the “waiting game” to “find out what will be in the draft legislation” to implement the plan continues.

‘Recruitment sector grappling with Employment Rights Bill changes’

ReLegal Consulting’s founder, Seeley Harris told ContractorUK: “I think it became obvious [at] the previous Umbrella Company Industry Working Group meeting that more time was needed [to properly implement the PAYE shift plan].

“This is partly because the recruitment sector is already having to grapple with the Employment Rights Bill changes -- let alone looking at any potential changes in umbrella policy.

“This is especially important for the smaller recruitment companies. And these make up the majority of the market.”

‘Joint and several liability’

The tax lawyer says she believes the government should adopt a “joint and several liability” policy, under which umbrellas would retain the Employer’s Reference Number, but “employment business” would have the liability. 

ReLegal Consulting is one of the 11 contractor organisations which has asked Rachel Reeves to delay the PAYE shift plan 24 months -- until April 6th 2028.

Recspand, an advisory to staffing agencies, also signed the letter to the chancellor.

‘Monumental changes from HMRC and in the ERB warrant a pause’

The advisory’s managing director Andy Hallett told ContractorUK: “Each of the [11] organisations is coming at it from their own angle.

“But we all believe a realistic outcome is that there is a pause before [the currently scheduled] implementation [date of April 6th 2026].

“The changes [proposed by HMRC], combined with the Employment Rights Bill, are monumental.

“And I don't think organisations will have the time to adapt and implement [the PAYE shift plan] properly, regardless of whatever [legislative] detail we see in the summer.”

‘Labour government has three mouths, and no ears’

Orca’s Rob Sharp, who has 20 years of experience in the umbrella PAYE market, hints that a ‘pause’ just won’t cut it.

Although he was speaking before the tabling of the ERB amendment designed to license payroll intermediaries, Orca Payroll Group’s CEO said: “I am sorry to say this, but this is the most incompetent government in my lifetime -- and that is saying something!

“They have three mouths and no ears. They were told not to increase Employer’s National Insurance and they did.”

Mr Sharp continued: “Then, [deputy prime minister] Angela Rayner when asked live on Sky News [whether she] could name one business [supportive of] the Employment Rights Bill…couldn't name one. But plough on they do. We are in an absolute mess. It’s disaster after disaster after disaster.”

‘Trust’

Ken Davis, a contractor, reckons there’s another party better placed than agencies and umbrellas to shift umbrellas’ PAYE tax payments to, not that they are infallible either.

“Who would you trust more to get your tax right? An umbrella, an agency or an accountant?” Davis asked in a thread. 

“My personal experience is that umbrellas do not get it right, and you get a big HMRC bill at the end of the year. Agencies, albeit not all of them, don't even understand how it works. And my previous accountants? They also ended up landing me with a big tax bill.”