On 6 February 2026, the Government published the consultation titled 'Make Work Pay: Modernising the Agency Work Regulatory Framework'. The consultation sets out proposals to update the Conduct of Employment Agencies and Employment Businesses Regulations 2003 to reflect changes in the temporary labour market, particularly the growth of umbrella companies and increasingly complex supply chains.
Three stated policy objectives underpin the consultation:
- Security: ensuring workers are paid correctly and on time
- Transparency: improving clarity around pay and rights
- Choice: ensuring workers have a choice over how they are engaged
The consultation forms part of the wider Plan to Make Work Pay and follows legislative changes introduced through the Employment Rights Act 2025.
The Government consultation seeks views, by 01 May 2026, from workers, agencies, umbrella companies, hirers and representative bodies on how the framework should be modernised while remaining proportionate for businesses.
Reasons for the Changes
The consultation identifies that the current regulatory framework was designed for a simpler labour supply model involving a direct relationship between the worker, an employment business and the end hirer.
Since the Conduct Regulations came into force, umbrella companies have become a common intermediary, employing workers and handling payroll on behalf of agencies and clients. However, there is evidence of persistent non-compliance in parts of the umbrella market, including a lack of clarity over pay, deductions and employment rights.
Survey evidence drawn upon (including from ContractorCalculator) indicates that workers paid through umbrella companies are more likely to report confusion about who employs them, how their pay is calculated, and whether they are receiving their full statutory entitlements.
The consultation seeks to refocus regulation on areas of tangible harm.
Security and Pay
Umbrella companies will be brought within the scope of the Conduct Regulations by triggering the commencement date of Clause 34 of the ERA2024, thereby extending the statutory definition of an "employment business." The change will make umbrella companies subject to the same regulatory framework and enforcement mechanisms as other recruitment intermediaries.
The consultation also proposes amending Regulation 12, which currently prevents employment businesses from withholding pay for work done. Under the existing framework, this protection does not apply effectively where workers are paid via umbrella companies. The Government proposes extending the obligation so that umbrella companies must pay workers for all work completed, even when payment has not yet been received from an agency.
Transparency
Transparency is a persistent problem, particularly in how pay is presented and understood by workers. "Assignment rates" are commonly advertised to workers, even though these figures include employer costs and umbrella margins and do not represent the amount the worker will receive.
To address the assignment rate problem, the consultation proposes that agency workers should agree on an "actual (gross) rate of pay" before accepting an assignment. Workers would also need to be informed in advance of any deductions that apply and how those deductions are calculated. The intention is to ensure workers can make informed decisions based on the pay they will actually receive, rather than headline rates that can be misleading.
Choice
The consultation places increased emphasis on worker choice, citing evidence that many agency workers are required to work through umbrella companies, but given limited or no choice over whether to do so.
To address this, the Government proposes amending the Conduct Regulations so that employment businesses would not be permitted to make work-finding services conditional on a worker being engaged or paid via an umbrella company. Under the proposals, agencies would still be able to offer umbrella company arrangements, but workers would not be required to accept them as a condition of being offered work. The Government notes that "…some smaller employment businesses do not operate in-house payroll services and would have to look for alternative ways to provide this in instances where workers choose not be engaged through an umbrella company," and points to a payroll bureau as an alternative.
Another proposal is to restrict the use of "opt-outs" under the Conduct Regulations. Umbrella companies would no longer be able to opt workers out on their behalf, with the opt-out either limited to personal service companies (contractors working "Outside IR35") or removed entirely. These measures are intended to ensure that workers retain regulatory protections unless they have made an informed and explicit choice to operate outside them.
How to Respond
The consultation is open until 1 May 2026. Responses can be submitted online, by email or in writing. Respondents are encouraged to address the specific questions set out in the consultation document and provide evidence on the likely impact of the proposals.
The Government has stated that responses will inform decisions on whether further consultation is required and how any revised regulatory framework will be implemented alongside other employment and tax reforms.
ContractorCalculator Comment:
Commenting, Dave Chaplin, CEO and founder of contracting authority ContractorCalculator, said:
"The consultation includes several clearly well-thought-out, sensible measures from policymakers which are long overdue.
"Historically, the practice of forcing workers into particular arrangements with opaque arrangements is why many were funnelled into tax avoidance schemes. The proposed approach should curtail that behaviour.
"Recruiters who solely rely on third-party umbrellas will need to offer in-house payroll. The default position looks to be agency payroll, unless the contractor already operates their own limited company (Outside IR35) or has independently chosen an umbrella of their own choice."
"These proposals move the market closer to being fair and balanced."