Rights of UK Contractors to Choose an Umbrella Company

Contractors’ Freedom to Choose an Umbrella Company

In the UK, independent contractors (including agency umbrella company workers) generally have the right to choose their own umbrella company. By default, contractors are protected by the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“Conduct Regulations”), which apply to all “work-seekers” – a term that includes both individuals and intermediary companies like personal service companies (PSCs) and umbrella companies.

Under these regulations, a recruitment agency cannot lawfully force a contractor to use a particular umbrella company as a condition of finding or continuing work. In fact, Regulation 5 of the Conduct Regulations explicitly prohibits agencies from making their work-finding services conditional on the work-seeker using any other goods or services (whether provided by the agency *or by any other business). An umbrella company’s payroll service is treated as such an “additional service,” so an agency must not demand that a contractor use a specific umbrella or pay for a specific service as a precondition for work.

In short, the law entitles contractors to choose their umbrella company freely, and any “you must use our preferred umbrella” ultimatum from an agency is likely unlawful if the Conduct Regulations apply.

The Conduct of Employment Agencies Regulations 2003

The Conduct Regulations 2003 provide important protections for contractors against unfair practices by agencies. These regulations set minimum standards for agency conduct, such as banning fees for finding work and preventing forced use of ancillary services.

As noted above, an agency cannot insist on a contractor purchasing or using additional services (like an umbrella payroll service) as a condition of offering work. This means agencies cannot restrict you to a single umbrella or a short list for their own benefit if you are covered by these regs. Any attempt to make a job offer contingent on using a particular umbrella company would put the agency in breach of the law.

The UK’s Employment Agency Standards Inspectorate (EAS) – the government body that enforces the Conduct Regulations – has explicitly warned agencies that **“work-seekers cannot be forced to work through or be paid by umbrella companies.” **
If an agency only operates via a certain umbrella or payment method, they must disclose that upfront, so you can decide not to proceed with them.

In practice, reputable agencies may recommend or have a preferred supplier list (PSL) of umbrella companies (often for compliance or quality reasons), but they should not coerce you into using their choicepurely for their own commercial gain.

Opting In vs. Opting Out of the Regulations

A crucial factor is whether you have opted in or opted out of the Conduct Regulations. By default, all contractors are “opted in,” meaning these legal protections apply automatically.

It is possible for certain contractors (specifically those operating through a company, such as a PSC or umbrella) to opt out of the Conduct Regulations – a step often included in contract paperwork at the request of agencies. 

Opting out must be done voluntarily and in writing _before _you are introduced to a client. Agencies cannot lawfully force or pressure you to opt out as a condition of offering you work.
In fact, Regulation 32(13) makes it illegal for an agency to make providing work-finding services conditional on you (and your company) agreeing to opt out of the Conduct Regulations. If an agency or client tries to insist that “you must opt out to get this contract,” that is unlawful, and the EAS would view it as denying you your right to remain protected.

**Opting in (not opting out) **

• If you remain opted in, the full protections of the 2003 Conduct Regulations apply to you. This means the agency cannot require you to use any particular umbrella company or other paid service to obtain work. You retain the right to choose any umbrella company or to use your own limited company, as you prefer. The agency also must not withhold payment just because they haven’t been paid by the client, among other protections. Essentially, opted-in contractors have legal backing to refuse an imposed umbrella choice.

Opting out 

• If you opt out of the Conduct Regulations (a step some contractors take, for example, to avoid any implication of being under agency “control” for tax/IR35 reasons), you waive the above statutory protections. Once validly opted out, the Conduct Regulations no longer govern the agency’s dealings with you. This means that certain practices which would be illegal under the regs (such as insisting on a particular umbrella) may not be prohibited if you have opted out. In other words, an agency dealing with an opted-out contractor has more leeway – they **could **contractually stipulate use of a specified umbrella company or an approved list of umbrellas as a condition of the engagement. 

Practically, many agencies do impose such requirements on opted-out contractors. For example, a legal commentary notes that if a contractor’s company opts out, the agency can then lawfully include a contract term requiring that the contractor use the agency’s chosen insurer or umbrella company as part of the deal. Importantly, however, the initial decision to opt out is yours to make – you should never be forced to relinquish your rights.

If you did not knowingly sign an opt-out, you are likely still opted in and protected.

Can Agencies Make Contracts Conditional on a Specific Umbrella?

In general, no – agencies should not make a contract award conditional on using a particular umbrella company. When the Conduct Regulations apply (i.e. you have not opted out), any such condition would be unlawful. Requiring a contractor to “use our preferred umbrella or you don’t get the job” is viewed as a breach of the Conduct Regulations. The law considers this equivalent to charging a fee or imposing an unfair restriction on the work-seeker.

For instance, an agency making you join a specific umbrella (especially one from which the agency gains financially) would effectively be making you pay for a work-finding service, which is not permitted. The government’s guidance makes clear that agencies cannot dictate that you be paid through a particular umbrella – you must have a choice in the matter.

That said, if you have opted out of the regulations, the agency is not bound by these rules. In an opted-out scenario, the agency legally can insist on using a certain umbrella or a shortlist of umbrellas as part of the commercial terms.

Many agencies operate a preferred supplier list (PSL) of umbrella companies for compliance purposes, and if you are opted out, they may refuse to engage via an umbrella outside that list. While this practice is “frowned upon” in the industry and raises ethical questions, it is not expressly illegal once the Conduct Regulations don’t apply.

Essentially, the agency could say, “we will only contract with you if you go through Umbrella X,” and an opted-out contractor would either have to accept that or walk away. What agencies cannot do, however, is require you to opt out in the first place or mislead you about your rights. 

If you stay opted in, they cannot lawfully refuse you work solely because you won’t use their chosen umbrella – doing so would expose them to regulatory action.

Recourse if You Are Pressured or Coerced

If a recruitment agency pressures, coerces, or misleads you into using a particular umbrella company (or into opting out of the regulations), you have several avenues of recourse:

• Assert Your Rights: First, inform the agency (in writing, for record) that you understand your rights under the Conduct Regulations. You can cite that Regulation 5 forbids them from restricting your choice of umbrella and that forcing you to use their umbrella or to opt out is unlawful. Sometimes, demonstrating that you know the legal position deters bad practices.

• Contact the EAS (Government Regulator): If the agency persists, you can file a complaint with the Employment Agency Standards Inspectorate (EAS), which is the government enforcement body for agency conduct. The EAS can investigate complaints of agencies breaching the Conduct Regulations, such as reports of an agency refusing to offer work unless a contractor uses a specified umbrella. The EAS has the power to issue warnings, prosecute agencies, and even seek to ban individuals from running agencies if serious non-compliance is found. Notably, the EAS has stated in its official guidance that workers cannot be forced into an umbrella – highlighting that you would be on solid ground with such a complaint. Complaints to EAS can be made confidentially via GOV.UK, and they will gather evidence and follow up with the agency on your behalf.

• Industry Bodies: If the recruitment agency is a member of a professional body like the Recruitment and Employment Confederation (REC) or APSCo, you can also report the issue to that body. These organizations require their members to uphold the law and ethical standards. For example, REC can investigate and discipline member agencies for misconduct. While industry bodies don’t have legal powers, the threat of losing membership or being publicly censured can prompt an agency to rectify its behavior.

• Seek Legal Advice: In extreme cases (e.g. if you suffered a loss of work due to refusal to comply), consider getting independent legal advice. A solicitor familiar with employment agency law can advise if you have grounds for a civil claim (for instance, under contract or misrepresentation law) or other action. Keep records of any communications where the agency pressured you, as these would be evidence in any complaint or action.

• Opt-Out Considerations: If you inadvertently signed an opt-out and now find the agency is imposing conditions (like a specific umbrella) that you’re unhappy with, you might still raise the issue. While the legal protections of the Conduct Regulations won’t automatically apply, you can withdraw consent for the opt-out on future engagements (opt-outs are per assignment and must be agreed before each assignment). You might inform the agency that you will opt in going forward to retain your rights. However, be aware the agency could choose not to work with you in that case – which may be better than being stuck in a coercive arrangement.

Bottom line

A UK contractor should never be “forced” into using an umbrella company against their will. If you have not opted out of the Conduct Regulations, the law is squarely on your side in protecting that freedom. Even if you did opt out, you are not without options – you can push back or walk away from agencies that engage in high-pressure tactics.

Agencies cannot lawfully make an engagement conditional on using their preferred umbrella when the Conduct Regulations apply, and regulators are prepared to step in when agencies cross the line. Always remember that opting out is your choice – and if you choose to remain protected, you have the right to choose any compliant umbrella company for your contract. By knowing these rights and the support available, contractors can resist undue pressure and report bad actors, helping to keep the contracting market fair and compliant for everyone.

Sources:

• [Employment Agency Standards Inspectorate – “Brief guide for agencies on the Conduct Regulations” (UK Government Guidance)](https://assets.publishing.service.gov.uk/media/5fb53e94d3bf7f63def366c3/eas-brief-guide-for-agencies.pdf#:~:text=15 Regulation 5 states that,such goods and services without)

• [Brabners LLP (via FCSA) – “The Conduct Regulations: rights, restrictions and responsibilities”](https://fcsa.org.uk/the-conduct-regulations-rights-restrictions-and-responsibilities/#:~:text=Crucially%2C umbrella companies%2C employment businesses%2C,to remain within the Conduct)

• [ContractorCalculator – Agency conduct insights (Contract offers conditional on umbrella usage breach Conduct Regs)](https://www.contractorcalculator.co.uk/offpayroll_private_sector_reforms_category.aspx?PAGE_NUMBER=3#:~:text=Conduct Regulations pose Off,challenges for agencies)

• UK Legislation: [The Conduct of Employment Agencies and Employment Businesses Regulations 2003 (SI 2003/3319), especially Reg. 5 and Reg. 32(13) (protections unless opt-out)](https://assets.publishing.service.gov.uk/media/5fb53e94d3bf7f63def366c3/eas-brief-guide-for-agencies.pdf#:~:text=15 Regulation 5 states that,such goods and services without)