April 2026 marks the first round of important changes under the Employment Rights Act 2025 (“ERA 2025”) for those operating in the labour supply chain.
Here’s a summary of the most relevant upcoming legal changes for umbrella companies from April and beyond.
Paternity and Parental Leave
From 6 April 2026, employees gain dayone rights to paternity leave and unpaid parental leave. For umbrella employers, this requires immediate updates to handbooks and policies to reflect the new eligibility criteria. Note, however, that eligibility for statutory paternity pay remains subject to a qualifying period of 26 weeks’ continuous employment as at the “expected week of childbirth” (which is the 15th week before the baby is due), meaning that any paternity leave taken before week 26 would be unpaid.
SSP Reform
Another change coming into effect from 6 April 2026 relates to Statutory Sick Pay (“SSP”), which will become payable from day one of employment, provided the worker has done some work under their contract (i.e an individual cannot simply sign up with an umbrella company and claim SSP without starting work on an assignment). Additionally, the Lower Earnings Limit will be abolished, meaning that all eligible employees will be entitled to some form of SSP irrespective of their level of earnings. For lower earners, SSP will the lower of the flat weekly rate (currently £118.75) or 80% of their normal weekly earnings. This is not a minor payroll tweak. Umbrella companies will need to reconfigure systems to calculate the 80% rule correctly for low earners and adjust absence policies and employment contracts that still refer to “waiting days”.
Fair Work Agency
April 2026 will also mark the introduction of the Fair Work Agency, a new Government body which will bring together certain existing state enforcement functions, specifically the Gangmasters and Labour Abuse Authority (“GLAA”), the Employment Agency Standards Inspectorate (“EASI”) and HMRC’s National Minimum Wage Enforcement Team. The Fair Work Agency’s remit will include investigating and enforcing the payment of SSP and holiday pay, so umbrella companies and agencies should audit their payroll practices now to make sure they are compliant.
Employment Tribunal Time Limits
Later on in 2026 (likely October), we will see Employment Tribunal time limits being doubled. Currently, in most cases, a worker must bring a claim in the Employment Tribunal within 3 months of the act complained of, but the Government has stated that this will be extended to 6 months, giving workers more time to take legal action.
2027
Beyond 2026, much of the ERA 2025 remains frameworklevel and will be “filled in” through secondary legislation, codes of practice and guidance over 2026 and 2027.
Zero Hours Contracts and Guaranteed Working Hours
One of the most significant proposed changes for agencies and umbrellas in 2027 are the planned rules that target zero and low hours contracts. The ERA 2025 sets out a structure for a guaranteed hours offer to be made to a worker after a reference period, reasonable notice of shifts, and compensation for shortnotice cancellations. However, the thresholds, reference period, compensation levels and any sector carveouts will all be set out within regulations that have not yet been finalised but are widely expected to be implemented in 2027. As a result, for now we suggest that employers sit tight and wait for further information rather than attempting to make contract and policy changes now. We are expecting a consultation on the proposed measures to be released in the coming months, and we would urge umbrella companies and agencies to make their voices heard by submitting a response.
Amendments to the Conduct Regulations
The Government has also confirmed its intention to bring umbrella activities within the definition of an “employment business” so that umbrella companies fall under the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“Conduct Regulations”). This will also mean that umbrella companies will fall within the remit of the newly created Fair Work Agency. However, there will be a consultation about the proposed changes before they are implemented, with a go-live date not anticipated until sometime in 2027.
Unfair Dismissal
Finally, following its u-turn on day 1 unfair dismissal rights, the Government proposes that employees will be able to bring claims of unfair dismissal after 6 months’ continuous service. Again, the go-live date is yet to be confirmed, but it could be as early as 1 January 2027. Whereas unfair dismissal claims from umbrella employees are currently rare as their continuous employment with one umbrella company often does not extend beyond 2 years, such claims will inevitably increase once the qualifying period is reduced. Umbrella companies should review their inactive processes to ensure that employees who are no longer on assignment are contacted regularly to ascertain their work status, so that an appropriate termination process can be followed if necessary. Umbrella companies which rely on the notion of ‘deemed resignation’ or ‘deemed termination’ may need to re-think this approach, as this could potentially be viewed as an express dismissal leading to an unfair dismissal claim, depending on the circumstances.
What now?
With the exception of the provisions which are coming into force in April 2026, most other aspects of the ERA still lack key details, which we will only see once draft regulations are released. Whilst there are a lot of legal changes for employers to get their heads around, the Government is adopting a staged approach which should mean that there is sufficient time for businesses to get to grips with the details and take legal advice before the changes take effect. We recommend keeping up to speed on Government announcements and industry updates, in order to have the maximum available time to digest the details of the new rules as and when they are released.
