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As part of the Autumn Budget, HM Treasury outlined plans to shift PAYE liability from umbrella companies to recruitment agencies or end clients, aiming to reduce tax avoidance in the sector.

This article considers how that proposal intersects with the Employment Rights Bill, its implications for recruitment supply chains, and the role of forthcoming regulatory changes.

 

PAYE liability proposals and sector implications

The measure aims to create greater accountability, particularly where multiple parties operate between the end client and worker. By making agencies responsible for PAYE, the intent is to improve transparency in payroll processes and reduce misuse within the sector.

 

The Employment Rights Bill and its key provisions

The Employment Rights Bill (ERB) has been introduced with a focus on enhancing worker protections. Among its provisions is a move to prohibit fire and rehire practices, supporting greater contract stability for workers. The ERB is part of broader efforts to ensure more secure employment relationships, particularly in contingent and temporary work.

Licensing and enforcement also feature in the Bill, through the proposed Fair Work Agency (FWA). This new body will oversee umbrella companies, set minimum operational standards, and enforce compliance.

 

Contract continuity and workforce impact

One operational consequence of the proposed PAYE liability shift is the need to reissue contracts, as responsibility will move from umbrella companies to recruitment agencies, or to end-clients where no agency is involved, from April 2026.

Agencies may have to prepare new contractual documentation for a significant number of workers. This type of administrative update could require widespread engagement between workers, recruitment firms, and end clients to ensure continuity of employment is preserved.

The Employment Rights Bill places emphasis on contract stability. Therefore, any policy changes affecting worker status or contract terms need to be aligned with that aim to avoid introducing unintended challenges.

 

Regulatory process and policy development

The PAYE liability proposal was influenced by an earlier consultation led by a different department prior to the current administration.

According to a Recruiter Magazine article published in May 2025, an Impact Assessment has not yet been carried out in connection with the PAYE proposal. Such assessments are used to evaluate potential effects across different parts of the labour market, including operational, administrative, and compliance considerations.

Moreover, the FCSA noted in its March 2025 report that the policy may introduce compliance challenges and could affect protections for temporary workers.

 

Potential role of licensing and enforcement

Alongside PAYE reforms, the Employment Rights Bill includes a mechanism for bringing umbrella companies into a licensing framework through the Fair Work Agency. This is intended to support fair practice by ensuring operators meet defined standards.

Licensing could help address practices such as tax evasion or non-compliance, while avoiding unnecessary burden on agencies already operating within the rules. It also supports contract consistency by encouraging transparency across supply chains.

 

Summary of policy alignment

The Employment Rights Bill and PAYE liability proposals both focus on improving outcomes across the temporary labour market. While the approaches vary, there are areas of potential alignment. Measures such as licensing and contract regulation may work best when coordinated to reflect shared aims across departments and delivery partners.

Recruitment firms, umbrella companies, and policy teams will be monitoring how these developments progress, and how future implementation balances compliance with operational clarity.

For a closer look at the FCSA’s commentary on the Bill, read our companion article: FCSA’s Response to the Employment Rights Bill – What Recruitment Agencies Need to Know.

 

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