For the first time, umbrella companies are heading into formal statutory regulation. The Employment Rights Act 2025 will bring the sector inside a recognised legal framework from April 2027.
Some of the detail is still being developed. Secondary legislation, statutory guidance, and the Fair Work Agency’s operational model are all subject to further consultation. But the direction is settled. Umbrella companies will be regulated entities. The question is whether your business will be ready when the rules land.
What the Employment Rights Act Confirms
The Employment Rights Act 2025 extends the legal definition of “employment business” to include umbrella companies. That places umbrella employers inside the Employment Agency Standards framework, giving the Fair Work Agency direct oversight powers over how they treat workers.
In practical terms, the regulatory framework will cover:
- Transparency of worker terms and pay arrangements
- Holiday pay calculation and record-keeping obligations
- Statutory Sick Pay compliance
- Prohibition on unlawful deductions from workers’ pay
The FWA brings with it inspection powers, the ability to impose financial penalties, and a six-year recovery window for underpaid amounts. These are not advisory standards. They are enforceable obligations, and umbrella companies will be held to them in the same way that employment agencies have been held to the EAS framework.
The specifics of how the FWA will operate, what its investigation procedures will look like, and what documentation it will expect are still being consulted on. We will update our Members as that guidance is confirmed.
Why Preparation Cannot Wait Until 2027
There is a temptation to treat the 2027 changes as a future problem. We understand it. The industry has already absorbed joint and several liability (live from 6th April 2026), the Fair Work Agency’s launch, and the overhaul of Statutory Sick Pay. Another regulatory change can feel distant.
But compliance infrastructure is not built overnight. The umbrella companies that will navigate 2027 most effectively are those that are building the right processes now, not those that attempt to retrofit them in the months before the rules come into force.
That means documented compliance frameworks that would survive regulatory scrutiny. It means independent assessment against a recognised standard, not self-certification. It means payslip transparency, accurate records, and worker communication that holds up when an inspector asks to see it.
These are not aspirational targets. They are the operating baseline that the regulatory framework is converging towards.
Our Role in What Comes Next
FCSA has engaged with government throughout the development of the Employment Rights Act. We will continue doing so as secondary legislation and FWA guidance takes shape.
Our Codes of Compliance were developed to set the standard that regulators should ultimately expect. Members who have been independently assessed under that standard will enter the 2027 regime from a position of demonstrable compliance. Those who have relied on self-assessment or informal internal review alone will face a harder transition.
Our position has not changed. Strong, independently verified standards protect workers, benefit legitimate operators, and give agencies the confidence to build supply chains they can stand behind. Regulation that reflects those principles is something we welcome.
Find out more about FCSA accreditation and how it prepares your business for the changes ahead at fcsa.org.uk, or contact us at info@fcsa.org.uk.
