After being introduced on 10th October 2024, the new Employment Rights Bill (ERB) has just undergone its first in-depth review. What does that mean? After intense scrutiny of the outlined proposals, the government has updated the ERB with several additions and amendments.
In this blog, Chris Bloor, Director of Compliance at Parasol, takes a closer look at the responses published on 5th March 2025 and explores how they could affect recruitment agencies and agency workers.
Zero-hours contracts
In the original ERB document, the Labour government set out to ban ‘exploitative zero-hours contracts’. They are following through on this promise with a new addition to the bill, introduced on March 5th, which makes it clear that agency workers will now need to be offered a contract stating a guaranteed minimum number of hours each week.
There is some worry, however, that the inclusion of agency workers within this ban will uproot the flexibility afforded by zero-hours contracts that many agency workers rely on. For example, in sectors like hospitality, teaching and the NHS, zero-hours contracts offer increased practicality when last-minute cover is needed.
Chris Bloor reflects, “Whilst I appreciated that certain types of workers should be protected from being exploited, the government needs to realise that most contractors make an informed decision about their contracted hours. The government urgently need to classify what they mean by genuinely temporary roles and outline potential exclusions for particular roles or employers.”
As well as agency workers, agencies themselves will be impacted and therefore it is essential that they think about how they can adapt to deal with changing legislation.
Chris adds: “The proposed amendments offer agency workers more than just guaranteed hours; they could secure full employment rights due to the direct relationship with the end client. For hirers, this shift means greater responsibility and moving beyond funding holiday pay and pensions to covering full employment protections and termination costs. For this reason, I expect that we will see much more lobbying from businesses that rely heavily upon agile workers.”
“My experience of this industry suggests that where we see where we see increasing costs and compliance burdens for agency workers, it usually results in a drive toward contrived, or self-employment models aimed at bypassing new requirement laws. It is essential that this is considered to avoid what we have seen in the past, the prime example being IR35 -Off Payroll in 2017 and 2021.”
We hope that the new legislative changes will not conflict with existing protections for agency workers, which provide them with both flexibility and security in the workplace.
Changes to Umbrella Regulations
Following a consultation which closed on 29th August 2023, the government continues with plans to crackdown on non-compliance in the umbrella sector and ensure workers receive the same rights and protections when working through an umbrella company as in traditional employment.
Last week, the government amended the ERB to define and regulate umbrella companies by bringing them within the scope of the Employment Agency Standards Inspectorate’s remit, which will eventually become part of the yet to be created Fair Work Agency.
There was also further confirmation that from April 2026, recruitment agencies will be responsible for ensuring that all PAYE is collected and paid, instead of the umbrella company employing the worker. If there is no agency involved, the responsibility will sit with the end client. This change is a result of responses to the consultation which showed a belief this would improve compliance. The proposals should technically drive out non-compliant umbrella models however there is still some concerns about the intentions of the policy that the government needs to address in the coming months.
Chris Bloor added: “The government responses do offer some cautious optimism that the policy makers are listening to the industry concerns (as seen in the government’s response to tackling non-compliance in the umbrella company market) around reducing non-compliance. However, there still remains a number of unanswered questions. The umbrella industry needs to work closely and collaboratively with the government to get the required clarity that ensure these measures are implemented effectively and without any unintended consequences.”
The industry has already started to come together and will be reaching out to recruitment businesses in the coming weeks to raise awareness and encourage that they support our attempts to ensure an outcome that suits all parties and, most importantly, the worker.
What can agencies do to prepare now?
On this point, Chris says: “Barring a last minute of tack, these reforms do now appear to be inevitable, and once implemented, it is likely to make agencies more cautious about which umbrella companies they work with. I expect that we will be provided with more details in early summer. However, as we now have a flavour of the general direction of travel, it will be important for employment businesses to immediately start to review their current Preferred Supplier Lists. It’s now more crucial than ever to understand if their due diligence processes are effective enough to deal with the proposed changes in responsibility. I would suspect that some agencies may perhaps shift their workers to more well-established umbrella providers who offer transparent and compliant payment structures.”
“I feel that, wherever the government lands with the final detail, there will be some changes required. My hope is that for businesses like Parasol, who have demonstrated a history of compliance and value strong agency relationships, the impact will be somewhat reduced.”
We expect there will be guidance for those employed by umbrella companies that outlines how changes will affect them, notably the implication of having various employers when it comes to tax.
Conclusion
A leading employment and payroll solutions provider with over two decades’ worth of experience in the umbrella sector, Parasol has managed payments for over 250,000 contractors and 3,000 agencies thus far. We understand that compliance forms the backbone of the umbrella industry, so it’s at the heart of everything we do. Not only are we FCSA accredited, but we’re also one of the founding members. Plus, we’re certified by Cyber Essentials PLUS, ensuring only the best when it comes to security and safeguarding data.
Parasol is committed to bringing you key Employment Rights Bill and umbrella regulation updates. Make sure you check back in on our Knowledge Hub for regular insights and commentary on the latest changes over the coming months. We’ll also be holding a Roundtable Discussion about the upcoming changes in due course.
In the meantime, if you need clarification on anything mentioned in this blog or want more information on how these changes will affect you, we’re here to help. Get in touch with our team today.
