Examples of good practice for umbrella companies in the temporary labour market
Source: gov.uk (2025-09-17)

Actions you can take as an umbrella company to support compliance and best practice in the temporary labour market.

This guidance for umbrella companies:
- sets out practical examples of how you can demonstrate good practice — it is not a list of everything you are legally obliged to do
- addresses concerns that businesses, legal experts and others have consistently reported to the government about the conduct of umbrella companies
This guidance does not create any new legal obligations for umbrella companies.

If you’re a worker, recruitment agency or others in the supply chain, you may also use these examples to help choose which umbrella companies to engage with.

To tackle non-compliance in the umbrella company market, the government is:
- introducing new Pay as You Earn (PAYE) rules for labour supply chains that include umbrella companies from 6 April 2026 (https://www.gov.uk/guidance/paye-rules-for-labour-supply-chains-that-include-umbrella-companies-from-6-april-2026)
- working to include umbrella companies in the legal definition of an employment business, so that they’ll be regulated through the Employment Rights Bill
Operating responsibly

As an umbrella company, you must follow company, tax and employment law that is relevant to you. You should also apply them in a way that is consistent with the aims of those laws. It is your responsibility to identify and comply with your legal obligations.

Umbrella companies should be run by fit and proper people

You should set up and manage your business diligently and understand your responsibilities.

Actions you can take include:
- making it easy to identify and contact individuals named on Companies House who own and run the company — such as the directors, company secretary or those with significant control
- being suitably informed to run the umbrella company — such as having an understanding of the UK temporary labour supply market and its associated legal requirements
- having a stable company with no frequent change in officers, directors, or partners — including no history of repeated insolvency of the same type of business or intention to do so to avoid any legal obligations
Umbrella companies should be financially viable

You should be able to meet ongoing financial commitments. Actions you can take include:
- making sure that you can make your next payroll on an ongoing basis, even if you are not paid by the recruitment agency or end client
- demonstrating appropriate and adequate levels of insurance as an employer of staff
Umbrella companies must follow the statutory requirements that apply to all employers

Actions you can take include:
- undertaking right to work checks on your employees before you engage them under a contract
- providing your employees with payslips and a contract of employment, and making sure that they have confirmed that they accept their contract of employment
- making sure your employees explicitly know their statutory rights associated with their employment
- setting out your employees’ entitlements in their contract of employment
- staying up to date with any changes to relevant employment, tax, and company law
For more information on some of the statutory rights that apply to your employees, check the:
- Pensions Act 2004 (https://www.legislation.gov.uk/ukpga/2004/35/contents), which covers workplace pensions (https://www.gov.uk/workplace-pensions)
- Employment Rights Act 1996 (https://www.legislation.gov.uk/ukpga/1996/18/contents), which covers a wide range of employment rights including documentation employees should receive (https://www.gov.uk/government/publications/employment-status-and-employment-rights/employment-status-and-employment-rights-guidance-for-hr-professionals-legal-professionals-and-other-groups)
- National Minimum Wage Act 1998 (https://www.legislation.gov.uk/ukpga/1998/39/contents), which covers the National Minimum and Living Wage (https://www.gov.uk/national-minimum-wage)
- Working Time Regulations 1998 (https://www.legislation.gov.uk/uksi/1998/1833/contents), which covers holiday entitlement (https://www.gov.uk/holiday-entitlement-rights)
- Agency Worker Regulations 2010 (https://www.legislation.gov.uk/uksi/2010/93/contents), which covers some of the entitlements of temporary workers (https://www.gov.uk/government/publications/agency-workers-regulations-2010-guidance-for-recruiters)
Umbrella companies must accurately operate the payroll for their employees

You must accurately calculate all deductions from your employees’ pay and pay them what they are entitled, without delay or any contrived arrangement to hide non-compliance.

Actions you can take include:
- using payroll software that calculates pay, tax liabilities and any levy such as the apprenticeship levy accurately
- paying your employees all their entitlements as contractually agreed and legally required — such as paying workers at the frequency set out in their contracts
- paying your employees at least National Minimum or National Living Wage (https://www.gov.uk/national-minimum-wage-rates)
- making the correct pension, student loan and other statutory deductions from your employees’ pay and remitting them to the employees’ pension, student loan and other accounts in good time or by the deadline
- only where your employee agrees they want them
- from net pay and applying the appropriate VAT treatment
- paying into your employee’s bank account the net pay amount on their payslip, and the payment should be made by you (the umbrella company) and not a third party
- having starter and leaver processes in place and promptly administered, even with high turnovers of staff, such as putting employees on the correct tax code and paying accrued holiday pay
Umbrella companies should compete based on lawful practices

You should operate compliant business models to attract employees and business.

Actions you can take include:
- treating all income that your employees are contractually entitled to be paid as taxable earnings subject to PAYE tax and National Insurance contributions, and not engaging in tax avoidance (https://www.gov.uk/guidance/tax-avoidance-an-introduction)
- not engaging in mini umbrella company fraud (https://www.gov.uk/guidance/mini-umbrella-company-fraud), and employing the employees you supply to recruitment agencies without unnecessary use of multiple subsidiaries for that employment
- engaging only with recruitment agencies and end clients where arrangements follow National Minimum and National Living Wage (https://www.gov.uk/government/publications/national-minimum-and-living-wage-compliance-in-labour-supply-chains), including taking additional care as some deductions reduce pay below those thresholds, and calculating pay based on actual hours worked (https://www.gov.uk/guidance/calculating-the-minimum-wage/enforcing-the-minimum-wage) rather than expected hours or rotas
- making sure that any expenses policy that you have complies with the tax rules for travel and subsistence expenses (https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim32135)
Providing a good service

Your employees and the recruitment agencies you work with should understand what to expect from you. You should provide them with good levels of support and engagement.

Umbrella companies should be clear, open and honest in the information they provide their employees

You should provide your employees with all necessary information in a way that they can understand.

Actions you can take include:
- being transparent with your employees about your margin, including being clear where a small margin is part of an inducement that will increase later and where there may be additional charges for items like copies of payslips
- explaining rates of pay to distinguish between your income as the umbrella company and your employer deductions, and your employees’ pay
- providing your employees with a reconciliation statement (sometimes known as a pay statement) to show how you have arrived at their gross pay and net pay from the assignment rate you received from the recruitment agency
- publishing example annotated payslips and reconciliation statements on your website to help your employees understand deductions made from rates of pay
- clearly providing your employer (PAYE) reference number and the employee tax code and year to date figures, as well as rolled up holiday pay (where applicable) separated out from gross pay on payslips
- giving employees a copy of their agreed employment contract, and passing on assignment information from recruitment agencies as new assignments arise, for their records
- itemising in the contract how your umbrella company structures pay, for example basic pay and discretionary bonus
- making sure your employees understand who employs them, including in circumstances where their employment moves to another entity that they did not ask for
- telling your employees to check their personal tax, pension, and student loan accounts so they can verify that you are paying in their contributions correctly and promptly
- making sure references on your website to any accreditations your business may hold are up to date and can be verified
- advising your employees to check government guidance on working through an umbrella company
- encouraging your employees to work out pay from an umbrella company (https://www.gov.uk/guidance/work-out-pay-from-an-umbrella-company) so that they understand their take-home pay and make sure their tax payments are correct
Umbrella companies should provide employee care

You should tell your employees that you are their employer and that the recruitment agency or end client is not their employer. This will mean they will know who to come to for support.

Actions you can take include:
- making reasonable adjustments for your employees and supporting those who need extra help, such as employees whose first language is not English
- providing employees with internal policies — such as an employee handbook, with information on where to go to raise issues or grievances, for example in relation to pay, and the processes in place to address them
- making sure current and former employees have access to payslips
Umbrella companies should provide recruitment agencies with the information they need to meet their legal obligations

You should have processes in place to support the recruitment agencies or end clients you work with, so that they can properly fulfil their own legal obligations and undertake due diligence on your business.

Actions you can take include:
- publishing your Companies House number on your website for others in the supply chain to check your credentials
- providing evidence showing that you are a well-run company, including publishing verifiable compliance information, for example relating to the actions set out in this guidance
- keeping up to date records, such as of accurate deductions being remitted in a timely manner
- explaining contractual relationships and changes in your supply chain, such as subcontracting or moving an employee to another umbrella company
- giving recruitment agencies what they need to meet their responsibilities, such as completing and maintaining Key information documents (KIDs) (https://www.gov.uk/government/publications/providing-a-key-information-document-for-agency-workers-guidance-for-employment-businesses) and providing them to candidates before their engagement as your employees, and on authorisations that may be needed for roles such as right to work checks
- co-ordinating with recruitment agencies and your employees so that processes run smoothly, such as getting signed timesheets from employees
- reporting information in a way that allows recruitment agencies to fulfil their legal obligations such as the Conduct Regulations 2003 (https://www.gov.uk/government/publications/conduct-regulations-2003-guidance-for-employment-agencies-and-employment-businesses) and Agency Worker Regulations