Throughout 2023, calls for tighter regulation of umbrella companies intensified across the UK political and business landscape, culminating in a renewed push for government action by the end of the year.

Umbrella companies — which employ temporary workers and contractors on behalf of end clients or recruitment agencies — play a major role in the construction sector, especially since the off-payroll IR35 reforms pushed many contractors out of personal service company structures.

However, investigations and parliamentary reports revealed widespread malpractice among rogue umbrella operators:

• Holiday pay skimming: withholding or misappropriating statutory holiday entitlements
• Hidden deductions: unauthorised fees or unexplained charges from workers’ payslips
• Mini-umbrella company fraud: setting up multiple micro-entities to unlawfully claim tax breaks
• Lack of transparency: workers often unaware of how their pay and deductions were calculated
   

An All-Party Parliamentary Group (APPG) on umbrella companies published damning findings, warning that exploitation was "widespread and systemic" among unregulated operators.

Industry bodies such as the Recruitment & Employment Confederation (REC), major unions, and even parts of the business community called for urgent reform, including:

• Licensing or accrediting umbrella companies
• Mandating better transparency in worker payslips
• Making end clients responsible for choosing compliant umbrella partners
• Passing holiday pay and tax credits back directly to workers
   

By the end of 2023, the government had not yet introduced formal legislation, but ministers indicated they were considering steps, potentially via a Single Enforcement Body overseeing labour rights compliance.

Why This Matters to Construction Clients

Construction companies often engage labour through umbrella models — either directly or indirectly via agencies — particularly for site operatives, project specialists, and short-term contractors.

If umbrella companies used by your labour supply chain are non-compliant, you face significant risks:

• Workers could bring claims for unlawful deductions or lost holiday pay
• HMRC could pursue unpaid taxes if umbrellas collapse or defraud the system
• Reputational damage if unethical practices surface
• Possible future joint liability if regulation is introduced making end clients responsible
   

Practical actions for construction firms include:

• Audit existing umbrella providers: check accreditations (such as FCSA or Professional Passport)
• Demand transparency: insist on clear payslips, employment contracts, and explanation of deductions
• Review contractual responsibilities: ensure you have clauses requiring compliance by labour suppliers
• Monitor government developments: be prepared for new duties if regulation is enacted
   

Given the political momentum, mandatory due diligence on umbrella companies could become law within the next 1–2 years.

Firms that fail to adapt could find themselves liable for abuses they did not directly commit but failed to prevent.

Clients of Ardent Tide are fully protected by rigorous supply chain management and umbrella due diligence services, ensuring that subcontractor and labour supply models meet the highest compliance and ethical standards.