OPINION
By Nick Woodward, Group CEO and Founder – The ETZ Group
Recruitment tech entrepreneur Nick Woodward pulls back the curtain on the umbrella industry, exposing how the recruitment supply chain is designed to distance agencies from liability while leaving contractors exposed.
As Joint & Several Liability (JSL) looms, he challenges the supply chain and legal experts to move beyond legal insulation and compliance theatre toward genuine transparency and reform.
I’ve been a contractor. I’ve hired contractors. I’ve built technology for recruitment agencies. I’ve sat at every side of this table. And I’ll say it: The umbrella industry isn’t broken. It’s working exactly as designed.
Here’s how that design works. Contractor generates revenue. Agency clips margin. Umbrella clips margin. Sometimes the Preferred Supplier List (PSL) clips something, too.
Lawyers draft the documents. Everyone nods solemnly about “compliance.” And when something goes wrong? The contractor gets the letter.
For years, the smallest party in the chain carried the largest risk. Now JSL arrives, and suddenly everyone discovers religion.
The Preferred Supplier List (PSL)
Many umbrellas have been supported by agencies that place them on their preferred supplier list, leaving little choice for the contractor.
How many contractors have heard from an agency: “You can choose any umbrella you like… from our approved list.”
Approved how? Let’s not pretend. Some umbrellas are on PSLs because they are operationally excellent. Others are there because they support marketing initiatives or offer “strategic rebates.”
In many cases, an agency and umbrella will be commercially aligned, and the agency understands how the game works.
The contractor, however, never sees that side of the ledger. They just get told: “It’s policy.”
Policy is a powerful word. Yet, what it really means is someone else decided.
The Art of Liability Containment
Everyone specialises in distancing language. No one specialises in ownership.
- Umbrellas say: “We just process payroll.”
- Agencies say: “We just introduce talent.”
- End clients say: “We rely on the agency.”
- Law firms say: “Please refer to clause 14.2.1(b)(iii).”
For years, the model worked because the weakest link — the contractor — absorbed the fallout. Now JSL threatens to move liability upstream and suddenly:
- Compliance conferences multiply
- Webinars bloom
- Insurance products appear
- Law firms polish their drafting knives
The fine print Olympics
Let’s talk about the lawyers. They will now draft indemnities, insert limitations, create exclusions, add non-reliance clauses and define “responsibility” in ways that evaporate on contact.
The goal? Ensure that when liability travels up the chain, it never quite lands.
It is an extraordinary craft. The supply chain will be so layered in legal insulation that liability may need a GPS to find a solvent defendant. However, no amount of drafting changes statutory liability. You can’t clause your way out of Parliament.
The credit time bomb
Now add credit terms between agencies and umbrellas to the mix. Long ones. Uninsured ones. Overexposed ones. Umbrellas extend the risk, and so do the agencies. Everyone is assuming someone else has done the due diligence.
One collapse. One £500k PAYE hole. One chain reaction. And suddenly:
- “We had an accreditation.”
- “We had an indemnity.”
- “We had a balance sheet.”
None of which pays HMRC.
The obvious question
If umbrellas are just payroll processors… Why don’t agencies run payroll themselves?
They already control the worker, contract, timesheet and client relationship.
The answer is: umbrellas absorb operational friction and liability optics. They create distance. And distance has been extremely profitable.
The alternative is payroll, which is software, plus compliance. Not a mystical art.
The contractor illusion
Contractors are told umbrellas protect them. Protect them from what? From employment rights? From tax complexity? From administrative burden? Or from having transparency into the economics of their own labour?
The reality is umbrellas were designed to protect the supply chain. Not the worker. Workers just fund the protection.
JSL is not the villain
Joint & Several Liability is not extreme. It is logical. If the money flows up the chain, the liability should be able to flow up the chain, too.
For years, we said: “Contractors should have known.”
Now the industry says: “We need certainty.”
Interesting symmetry.
What happens next?
One of two things: 1. The industry genuinely reforms. 2. The industry doubles down on paperwork and calls it reform.
More audits. More frameworks and certification badges. More clauses saying “not our responsibility.”
But legislation does not care about marketing decks. If liabilities arise, someone solvent will pay. And suddenly, the moral hazard of the last decade becomes a balance sheet issue.
Provocative thoughts to ponder
Maybe it’s time for:
- Mandatory regulation of umbrella companies
- Transparent disclosure of PSL financial arrangements
- A ban on coercive umbrella-only engagement
- Agencies to decide whether they want margin… or control
- End clients need to accept that outsourcing liability does not eliminate it
Because the umbrella always looks strong in the showroom. It’s only when it rains that you discover whether it was stitched for protection or stitched for profit.