In today’s ever-changing business environment, hiring freelance and contract workers remains a vital strategy for UK organisations seeking flexibility and specialist expertise. However, against a backdrop of political shifts, commercial pressures and regulatory changes, UK businesses must stay ahead of the curve when it comes to compliance.
In this article, we outline the key compliance updates and checks UK businesses should be aware of when engaging contract workers:-
1. Regulation of Umbrella Companies & Fair Work Agency
The Government has committed to bringing umbrella companies within the definition of employment businesses, aligning them with the Conduct of Employment Agencies and Employment Businesses Regulations 2003. This means umbrella companies will be regulated by the Employment Agency Standards Inspectorate (and later, the new Fair Work Agency)ensuring they adhere to the same statutory standards as recruitment agencies.
2. Tax Liability Shifts & Introduction of Joint & Several Liability
As outlined in the draft Finance Bill, from April 2026 HMRC will introduce joint and several liability (JSL) for PAYE liabilities across the supply chain. This means HMRC can hold recruitment agencies, or even end-clients, liable for unpaid PAYE where a non-compliant umbrella company has made the incorrect tax deductions.
This represents a major shift in the contingent workforce model, requiring agencies and end-clients to conduct robust due diligence and hold their umbrella partners accountable for accurate tax deductions.
3. Staying Alert on IR35 and Employer NIC Costs
While the private sector off-payroll reforms have been in place since 2021, their implications continue to ripple through the contractor market. Many skilled contractors still avoid assignments that are deemed inside IR35, with some exiting the workforce altogether.
End-clients must continue to show ‘reasonable care’ in how they assess IR35 status accurately and ensure that Employer NIC obligations are properly accounted for.
4. Engaging International Contractors & Remaining Compliant
With increasing demand for global talent, many UK organisations are now engaging international contractors. However, this brings additional compliance challenges, including:
Right-to-work and visa guidance
Local payroll and tax withholding support
Adherence to cross-border employment laws
Contract structuring to ensure legal and tax compliance
As a specialist recruitment agency operating both in the UK and internationally, we support our clients by navigating complex overseas employment laws, offering compliant payroll solutions and facilitating visa sponsorship using dedicated, in-country partners. This ensures that international engagements are legally sound, tax-efficient and low risk.
5. Enhancements to Worker Protections and Employment Rights
The ongoing Employment Rights Bill features over 200 amendments to bolster worker rights, including:
Day-one unfair dismissal protection
Tighter rules on zero-hour contracts, particularly for agency workers
Improved sick pay, bereavement leave and redundancy consultation penalties
Increased regulatory enforcement powers via the new Fair Work Agency
While the Bill is expected to receive Royal Assent in the coming weeks, the reforms will likely begin rolling out from April 2026, with further phases scheduled into 2027.
Final Thought
The recruitment landscape is evolving quickly, with significant responsibility shifting toward agencies and end-clients. Ensuring compliance will require proactive updates to your contracts, payroll systems and risk management processes.
For more information on the above updates and for further compliance checks that your business needs to ensure it is undertaking, please don’t hesitate to contact us.
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