Recruitment Compliance in 2026: Key Reforms and How to Stay Compliant

In our earlier article, “Tax liability changes coming April 2026 – Is your umbrella supply chain ready?”, we warned that new rules will shift tax risk up the labour chain, exposing agencies and clients to liability when umbrellas fail.

Now, with the Employment Rights Bill and new PAYE/NIC liability rules, the picture is clearer and the urgency greater. Here’s your updated playbook.

What’s new

1. Umbrella companies become regulated

For the first time, umbrellas will fall under the Employment Agencies Act 1973.
Agencies  should now treat them as  partners, with  due diligence on finances, insurance, and pay transparency.

2. Stronger worker rights from day one

Workers gain:

• Guaranteed hours, notice periods, and cancellation pay
• Unfair dismissal protection from day one
• Expanded parental, redundancy, and flexible working rights

The Fair Work Agency (a new UK body that enforces employment rules), will enforce compliance, pursue liabilities up to six years old, and issue penalties up to 200%.

3. PAYE/NIC liability shared across the chain

From April 2026, agencies and end clients will share strict joint and several liability for unpaid PAYE and NIC if an umbrella defaults.

There’s no defence for good faith or ignorance, even accredited umbrellas won’t shield you.
HMRC can recover unpaid tax from any party in the chain.

In short: if an umbrella fails to pay, HMRC can come straight to you.

Why this matters

Recruiters are now:
• Fully accountable for tax integrity across umbrella partners
• Exposed to retrospective pay and holiday claims
• Expected to maintain robust audit and governance processes

The old “assume the umbrella’s compliant” mindset is no longer safe.

What to do now

1. Audit your supply chain

• Map every partner (agency–umbrella–contractor–client).
• Review contracts, financials, and liability clauses. Identify any gaps or legacy risks.

2. Build stronger umbrella partnerships

• Work collaboratively with umbrella partners to share audited accounts, pay transparency, and accreditation.
• Aim for open-book visibility on PAYE, NIC, and deductions.
• Trust and transparency are now your best risk mitigations.

3. Update contracts

• Include indemnities, audit rights, and retrospective liability terms.
• Ensure clear SLAs on pay, leave, and worker protections.

4. Review  your payroll model

• Whether you manage payroll in-house or outsource, ensure your systems can meet the new compliance standards.
• If outsourcing, look for transparent auditing and reliability with partners.

5. Strengthen your compliance infrastructure

• Use tools to track hours, shifts, cancellations, and holiday accruals. QUBA’s Timesheet App simplifies this, providing real-time visibility across timesheets, approvals, and compliance data.
• Train your team on new rights and maintain a central compliance register and audit log.

6. Review historic activity

• Audit previous umbrella relationships for gaps or errors.
• Seek professional advice on whether voluntary updates or clarifications make sense.
• Revisit older contracts before April 2026 to ensure alignment with new laws.

Turning compliance into opportunity

The agencies that act now can turn compliance into a competitive advantage:

• Position your brand as audited, transparent, and risk-aware.
• Offer clients vetted umbrella solutions and end-to-end visibility.
• Reduce disputes and strengthen client confidence.

You can express your interest in finding out more about our CRM via our wait list to ensure you keep up to date with developments.

Key take aways

• The reforms slated for April 2026 are no longer distant; they will be transformative for recruiters.
• Liability is shifting upward from umbrellas and contractors to your agency balance sheet.
• The Employment Rights Bill and draft liability legislation raise the stakes on compliance, auditing, and process rigour.
• Agencies that act now by auditing supply chains, strengthening contracts, implementing compliance systems, and choosing the right payroll model; stand to survive, and possibly thrive, in the new regime.

Important: Many of these proposed changes are subject to government consultations. The details are subject to change. Article updated 13 October 2025.