Make Work Pay Could Finally Restore Balance To The Umbrella Landscape

Pressure rises ahead of April

Agencies and end clients are already reshaping their engagement models ahead of April’s Joint and Several Liability rules, narrowing Preferred Supplier Lists to a small set of umbrella providers. Many contractors report being steered towards a single mandated umbrella, even where alternative providers can demonstrate robust compliance. The trend raises urgent questions about choice, fairness and the direction of travel for umbrella market oversight.

Why PSLs are tightening now

Joint and Several Liability creates a powerful incentive for agencies and hirers to reduce perceived risk by concentrating engagement through a handful of familiar umbrellas. The logic is simple: fewer suppliers, clearer oversight and faster assurance loops. Yet this risk-averse approach has a cost. By freezing out umbrellas that can show audited compliance, agencies may be entrenching a closed market that insulates incumbents and limits innovation, price competition and service quality. A narrower funnel also increases single-point-of-failure risk if a preferred umbrella faces operational issues, reputational shocks or HMRC scrutiny.

Compliance proof is not opening doors

Umbrellas report that applications to join PSLs are being declined even when they present independent audits, real-time PAYE controls and transparent margin models. In practice, many PSLs appear effectively closed. This suggests the driver is not just compliance capability but administrative simplicity and perceived liability management. Agencies anticipate the new rules and aim to avoid any future debt transfer exposure, even if the marginal compliance uplift from a smaller PSL is largely theoretical.

Are we finally nearing meaningful regulation?

The missing piece may be direct, effective regulation of umbrellas. HMRC and government have long signalled concerns about disguised remuneration, mini-umbrella fraud and opaque deductions. The government’s Make Work Pay consultation now appears to acknowledge these structural weaknesses more openly, including proposals to strengthen how the Conduct of Employment Agencies and Employment Businesses Regulations operate within umbrella arrangements. One credible route is to extend and clarify the Conduct Regulations so that they apply across umbrella models in a way that genuinely bites. If Conduct protections were clearly embedded and consistently enforced for umbrella engagements, much of the current risk-offsetting via ultra-tight PSLs would be unnecessary. Market discipline would be driven by consistent, externally verified standards rather than private gatekeeping.

What real reform could unlock

Clear and enforceable Conduct Regulations coverage for umbrella engagements, as contemplated within the Make Work Pay consultation, would reinforce a contractor’s right to choose their own umbrella or select an alternative engagement model such as direct agency payroll. It would also standardise information disclosure on pay, holiday accrual, employer’s NIC treatment and margins. With transparent terms and enforceable rights, competition could shift back to service quality, speed of onboarding and fair pricing. Agencies would still run PSLs, but those lists would be open to any umbrella meeting objective and regulatory criteria rather than locked to a handful of legacy relationships.

Contractors already have rights - but many do not know

Technically, contractors who remain opted in to the Conduct Regulations already retain rights that support freedom of choice. Opting out can narrow those protections, yet many have done so at speed during onboarding without fully grasping the consequences. The current landscape amplifies that information gap. Where agencies strongly encourage a single umbrella, contractors may assume the choice is illusory or fear losing roles if they push back. Clear communication of Conduct Regulation rights, plus documentation that explains the implications of opting out, would level the playing field.

Legal and commercial risks for agencies

Overly restrictive PSLs, especially when combined with explicit conditions that future work is contingent on using a single umbrella, create genuine risk. There are potential Conduct compliance questions, complaints to the Employment Agency Standards Inspectorate, and exposure under consumer protection laws if pay illustrations are misleading. There are reputational hazards if contractors view the policy as coercive, as well as data protection risks where forced transfers of personal data occur before a lawful choice is made. Concentrated PSLs may also heighten vicarious risk in the very area agencies seek to de-risk: if an approved umbrella misapplies holiday pay or processes unlawful deductions, the agency could still attract scrutiny under the new liability framework.

The backlash risk is real

This pre-emptive tightening of control could trigger a significant industry response. Umbrellas excluded from PSLs despite strong compliance will likely challenge restrictions, pressing for transparent criteria, audit-based admission routes and independent dispute resolution. Contractors who feel denied work for refusing a mandated umbrella will become more vocal, escalating complaints and seeking advice on Conduct rights. The public conversation will not be kind to opaque practices, and social channels can turn individual disputes into brand-level issues quickly. A rigid PSL that appears anti-competitive is unlikely to withstand sustained scrutiny in an environment calling for fair choice and clean payroll.

A sustainable path forward

The most durable solution aligns three elements: proportionate oversight of umbrellas, transparent PSL admission standards, and consistent enforcement of the Conduct Regulations protections. Agencies can safeguard against liability by requiring verifiable compliance evidence - audited payroll controls, transparent reconciliation, and clear holiday pay treatment - while also publishing how new umbrellas can qualify. Contractors should be given a documented choice between direct agency payroll and at least more than one compliant umbrella, along with clear pay illustrations and fee disclosures before any data is transferred. HMRC moving to effective umbrella regulation would underpin this framework and reduce the urge to close markets prematurely.

Contractor News view

We expect some consolidation pressure to continue until the new rules settle. However, transparent PSL criteria and clearer Conduct Regulations communications would reduce friction and restore confidence. If umbrella standards are formalised and enforced, the market can support both robust compliance and genuine contractor choice. In the meantime, open dialogue, clear documentation and fair onboarding processes are likely to deliver the best outcomes for all parties.