Umbrella Company regulations – what’s coming and what you need to know

The umbrella industry is facing major regulatory changes, and as an SG Umbrella employee, it’s essential to understand what’s coming and how it affects you. With HMRC cracking down on non-compliant providers, hidden deductions, and mini-umbrella fraud, new legislation is set to improve transparency, strengthen employment rights, and enforce licensing for umbrella companies.

In this blog, we break down the upcoming regulations, explain what they mean for your pay and protections, and show why working with a fully compliant umbrella company like SG Umbrella ensures your employment is secure, transparent, and stress-free.

Why are Umbrella Company regulations being introduced?

The umbrella sector has experienced rapid growth in the past few years alone, most noticeably since the IR35 changes which ended up pushing many contractors away from using their Limited Companies.

Sadly, with such growth there has been a significant rise in:

• Non-compliant or unethical umbrella schemes (take a look at the gov.uk list of current tax avoidance schemes that have been reported to HMRC)
• Hidden deductions and poor transparency
• Tax avoidance and mini-umbrella fraud
• Employees being misled about pay, rights, and employment status

The government’s response? Stronger regulation and oversight. Their goal is to protect workers, stamp out tax fraud, and restore people’s trust in the Umbrella Company model.

What changes are likely?

We’re still awaiting the final legislation, but the following proposals have been announced and are expected to be rolled out late 2025 / early 2026:

1.Mandatory Umbrella Company regulation

The government is expected to introduce a licensing or registration system, meaning:

• Only approved Umbrella Company’s will be allowed to operate
• Clients and recruitment agencies will be required to use regulated providers
• Non-compliant providers will be shut down and blacklisted

What does this mean for Umbrella employees?

Greater protection as an SG Umbrella employee. You’re already working with a trusted, vetted Umbrella Company that has the accreditations and credibility to prove this, rather than operating as a tax avoidance scheme.

2. Improved transparency of pay and deductions

Umbrella Companies will be required to clearly display:

• The employees gross pay rate
• All statutory deductions (tax, NI, Apprenticeship Levy)
• Employer and employee costs – clearly separated
• Your actual take-home pay

What this means for you

There won’t be any confusion or surprise deductions, and your payslip will be clear with a full breakdown. Here at SG, we already do this for our employees, so you’ll continue to see the clarity and compliance in your payslips that you currently do today.

3.Stronger employment rights oversight

As an Umbrella employee you’re entitled to:

• Holiday pay
• Sick pay
• Pension auto-enrolment
• Maternity/paternity leave
• Protection from unlawful deductions

The new rules will ensure all Umbrella Companies won’t be able to exploit or deny these rights, and enforcement will be strengthened.

What this means for you

You’ll have greater protection if things go wrong, and greater confidence in your chosen Umbrella Company that it’s acting in your best interest.

4. Action against mini-Umbrella fraud

Thousands of mini-umbrella companies have been created and used to avoid tax and National Insurance Contributions (NICs) by exploiting temporary worker rules.

HMRC is expected to introduce:

• Tighter due diligence requirements
• Penalties for recruiters who use known schemes
• Greater transparency in supply chains

What this means for you

You’ll be less likely to get caught up in shady schemes without knowing it, especially if your chosen Umbrella Company has always followed the rules (like SG Umbrella!).

What should you do now?

As an SG Umbrella employee, the answer is simple – nothing! We’ve got you covered.

We’re fully compliant, transparent, and proactive at keeping up to date with all the upcoming changes. Many of the proposed rules reflect the ways in which SG Umbrella already operates:

• Clear pay breakdowns
• Proper employment contracts
• Statutory employee benefits
• Straightforward communication
• FCSA accreditation
• Externally audited by Payslip Buddy
• SafeRec certified

Final thoughts

The upcoming regulations aren’t just policy updates; they’re a shift in how the entire umbrella sector operates. Here at SG, we don’t wait for legislation to force changes to the way in which we operate. Our compliance, clarity and care come as standard and will always operate in our employee’s best interests.

If you have any questions about the upcoming legislative changes simply reach out to the SG Umbrella team, who will be happy to discuss any questions you may have.

SG Umbrella – employment you can trust.
No nonsense. No loopholes. Just full-service umbrella support you can rely on.