Employment Rights Bill (ERB) and Finance Bill 2025/26 Both Debated in Parliament
In a watershed week for the UK recruitment and umbrella sectors, both the Employment Rights Bill (ERB) and Finance Bill 2025/26 were debated in Parliament.
For every associated party within the temporary labour supply chain, these two legislative pillars redefine the ‘fairness’ and ‘risk’ of the flexible labour market.
The Employment Rights Bill: A Compromise on Rights
On Tuesday, the 15th of December, the ERB passed its final stage in Parliament and is expected to receive Royal Assent imminently, at which point it will become the Employment Rights Act 2025.
The government’s primary objective for the ERB was to strengthen worker protections without stifling business growth.
- Unfair Dismissal & Probation: In a significant concession, "Day One" unfair dismissal rights were abandoned in favour of a six-month qualifying period, which is expected to apply to those starting on or after January 1st, 2027.
- Removal of Compensation Caps: To balance the qualifying period, the government removed the financial cap on unfair dismissal claims. Transitioning from a statutory maximum to unlimited compensation significantly increases potential liability, particularly for high earners.
- Zero-Hours & Agency Protections: Workers gain "reasonable notice" for shifts, and agencies cannot be used to evade the duty of offering guaranteed hours to regular workers.
- Day One rights: SSP, paternity leave, and unpaid parental leave will become Day One rights.
Finance Bill 2025/26: The ‘Umbrella’ Liability Shift
The debate on the Finance Bill 2025/26 was, as anticipated, focused on the impact of taxation changes on the farming and hospitality sectors.
The only mention of any influence on the temporary labour sector was regarding the moves to tackle tax avoidance schemes and the loan charge, in particular. Meaning that the introduction of Joint and Several Liability (JSL) for PAYE tax liabilities is expected to take effect on April 6, 2026, as planned.
- Joint and Several Liability (JSL): If an umbrella company fails to remit PAYE or National Insurance (NICs), HMRC can pursue the outstanding liability directly with the agency (or the end client, where there is no agency in the chain).
- Impact on Supply Chains: This "strict liability" means due diligence is no longer just a best practice; it is a necessity. Agencies will have no statutory excuse and will no longer be able to claim ignorance of umbrella company malpractice.
- Salary Sacrifice: The Bill also targets salary-sacrificed pension contributions above £2,000 per year, which will attract NICs from 2029, impacting the take-home pay of many higher-earning contractors.
Strategic Outlook
As the changes to the ERB and Finance Bill take effect, temporary workers should see long-term benefits, including stronger rights and reduced risk of being caught in tax avoidance schemes.
For agencies, MSPs and end clients, the changes will present more onerous challenges and increased risks. The era of choosing umbrella suppliers based on contractor recommendation or commercial attractiveness is over. The industry will have no choice but to migrate to informed, robust, and transparent compliance frameworks.
Are you feeling unprepared for April 2026?
Parasol is offering a limited number of free compliance workshops to help agencies understand their compliance risk in advance of the regulation changes in April.
Get in touch to find out more.
