Umbrella company ‘kickback’ ban: How the 2026 regulatory overhaul could change your payslip
THIS ARTICLE HAS BEEN UPDATED ON 9 FEBRUARY, 2026 AT 1430 PM
As the government moves to shut down opaque deductions and forced payroll models, we break down the new “Make Work Pay” consultation through expert commentary and what it means for your freedom as a freelancer to choose how you work
The consultation: What it means for contractors
The Department for Business and Trade has launched a landmark consultation to bring umbrella companies under strict regulation, promising contractors better pay protection and an end to forced engagement models.
For years, the umbrella sector has operated in a regulatory grey area, often leaving contractors caught between agencies and payroll providers with little recourse when things go wrong. The new government consultation, Make Work Pay: Modernising the Agency Work Regulatory Framework, aims to change that by officially bringing umbrella companies into the scope of the Conduct Regulations 2003.
The positive impact: More security and clarity
Guaranteed pay: One of the most significant proposals is a “duty to pay.” Currently, some umbrellas withhold pay if they haven’t been paid by the agency first. The new rules would force umbrellas to pay workers for all work done, regardless of upstream cash flow.
Transparency on take-home: No more “assignment rate” confusion. The government wants to force a two-stage transparency process where you are given a clear breakdown of actual gross pay and all deductions before you sign up.
Choice of payroll: The government plans to ban “forced umbrella use.” Agencies would no longer be allowed to make a job offer conditional on you using a specific umbrella company, theoretically opening the door for you to choose your own provider or stay on agency PAYE.
The negative impact: Potential friction and costs
Reduced take-home?
If kickbacks (payments from umbrellas to agencies for being on a preferred list) are banned, agencies may look to recoup that lost revenue elsewhere, potentially affecting assignment rates.
Increased admin: While the “Key Information Document” (KID) is being simplified, the extra layers of compliance could lead to slower onboarding as agencies scramble to vet providers more strictly.
The backlash: Where the friction lies
Despite the pro-worker branding, all involved should anticipate significant pushback in two areas:
The end of the ‘opt out’
The government is considering removing the Regulation 32 opt-out entirely. Currently, many highly-paid professional contractors “opt out” of Conduct Regulations to maintain a business-to-business relationship. Removing this could be seen as a “nanny state” intervention that restricts the freedom of genuine freelancers.
Payroll bureaucracy
Small recruitment agencies often don’t have the infrastructure to run in-house payroll. If they are banned from forcing umbrella use, they may struggle to find a way to pay workers who refuse an umbrella, potentially leading to fewer opportunities for those who don’t want to use intermediaries.
Regulation, along with upcoming tax reforms arriving this April, could play an important role in stopping non-compliant tax avoidance schemes from wreaking havoc.
Sam Cox, Director of Qdos-affiliated UmbrellaSure, said the consultation has been “a long time coming.” Cox suggested its arrival is a “clear signal of intent” from the government, which has tabled plans to regulate the umbrella industry in 2027.
Cox, who speaks from the perspective of umbrella companies, said any changes must strike a balance between protecting workers and ensuring that this “vital cog in the labour market can continue to unlock the flexibility that businesses and the economy desperately need – something that policymakers would be wise to consider as they shape regulation across the wider industry.”
Expert analysis
Three experts welcome the move toward regulation; however, their focus and perceived risks differ.
Who are the expert commentators?
- Rebecca Seeley Harris: An independent expert in employment status, including IR35, off-payroll working (OPW), self-employment, and other non-permanent roles
- Dave Chaplin: IT contractor turned founder of two contractor service companies, Contractor Calculator and IR35 Shield, he is also the author of the Contractors’ Handbook and IR35 & Off-Payroll Explained
- Crawford Temple: CEO and founder of Professional Passport, an independent assessor of provider compliance in the UK
Points of agreement
Necessity of regulation: All agree that bringing umbrellas under the definition of an employment business is a logical and necessary step.
Transparency: There is a consensus that assignment rates have caused too much confusion and that clearer pay breakdowns are a win for the sector.
Points of contention & specific risks
| Expert | Focus area | Key risks identified |
| Rebecca Seeley Harris | Legal Framework & Security | The funding risk: She notes that moving the risk of non-payment from the worker to the umbrella “changes the cashflow risk in the supply chain.” |
| Dave Chaplin | Contractor Choice | End of coercion: He sees the biggest risk as the historical “forcing of workers into particular arrangements” which led to tax avoidance. |
| Crawford Temple | Supply Chain Viability | Financial pressure: He warns that umbrellas are already on “very tight margins” and may be pushed into “precarious financial positions.” |
Seeley Harris on security:
She highlights that the “modern, tech-enabled and outsourced payment structures” have blurred the lines of responsibility, making the new definitions in the Fair Work Agency (FWA) (launching April 2026) vital.
She notes, in an article, that Regulation 12 currently stops an employment business from withholding pay from a worker for work done, even if the hirer has not paid the agency. This does not, however, currently extend to umbrella companies.
The consultation, therefore, proposes extending that principle to umbrella models, so umbrellas would have an obligation to pay workers for all work done. This is even if the umbrella has not been paid by the employment business.
If adopted, she said this changes the cashflow risk in the supply chain. Someone has to carry the funding risk, but the government doesn’t think it should be the worker.
She also highlights risks linked to Reg 32, which was originally included to allow the Personal Service Company (PSC) to opt out. Umbrella companies routinely, however, opt out of the Conduct Regs on behalf of the worker by default.
The government is, therefore, proposing to amend Reg 32 to ensure that umbrella companies are no longer able to opt out of the Conduct Regs on behalf of workers.
She said in order to do this, the government proposes that the opt-out should be limited to personal service companies (PSCs), and is suggesting that the PSC be defined.
Alternatively, the government is suggesting that the opt-out be removed completely. This would mean that all those who find work through an employment agency or employment business, including those working through their own PSC, would be subject to the protections that the regulations offer.
Dave Chaplin on genuine choice for contractors
“Removing the ability for recruiters to make offers of work conditional on the use of an umbrella company is critical… The default position appears to be agency payroll.”
Chaplin views this as the end of the recruitment sector funnelling workers into high-risk schemes, though he notes agencies will now be forced to offer in-house payroll options.
Chaplin said,
Recruiters who currently rely entirely on third-party umbrellas will need to ensure they can offer in-house payroll, because not all contractors will want to work through an umbrella company.
Chaplin believes the rules will change so that employment businesses cannot make work-finding services conditional upon workers working through an umbrella company.
“The default position appears to be agency payroll, unless the contractor already operates their own limited company or has chosen an umbrella of their own,” he said.
He added,
The consultation also proposes to introduce more clarity and transparency when it comes to rates of pay. The government’s own Agency Worker Survey Report in 2021 found that workers are unclear about who is paying them and at what rate they are being paid.
Transparency around pay and deductions is extremely welcome, signalling the end of the “assignment rate” that has caused so much confusion in the temporary labour market and made it difficult for contractors to understand their payslips.
Crawford Temple on transparency & timing:
Crawford Temple has suggested that in many cases, umbrellas have “limited control” over assignment rates or the behaviour of agencies and end-hirers in the chain, yet are “often closest to the worker and expected to absorb the costs”
“Measures that improve transparency throughout the entire supply chain are therefore essential if these reforms are to be fair and effective,” he said.
Temple said,
Without end-to-end transparency… there is a real risk that umbrellas will be pushed into increasingly precarious financial positions while agencies retain disproportionate control.
Temple expressed most concern regarding the industry’s capacity to adapt, urging a deadline extension because the industry is already “preparing for the introduction of Joint and Several Liability (JSL) legislation” also due in April.
How to add your voice
The consultation is open until 1 May 2026. If you are a contractor, agency owner, or umbrella employee, you can submit your views here:
- Online Response Form: Submit your input via Qualtrics
- Email Feedback: Agencywork@businessandtrade.gov.uk
- Full Consultation Document: Read the Policy on GOV.UK