Employment Rights Bill 2026: What Recruitment Agencies Need to Know (and Do) Now

The Employment Rights Bill, coming into force in April 2026, is the biggest shake-up of UK employment law in decades.

It promises better conditions, stronger rights, and a level playing field for workers. But for recruitment agencies? It brings pressure. Complexity. And risk.

At People Group Services, we see this as a turning point. Below, we break down the most important parts of the Bill for agencies, what it means for your operations and, crucially, what steps you should take right now.

The Key Changes: What Agencies Must Prepare For

For each change, here’s what the legislation introduces and how your agency can respond effectively.

1. End of One-Sided Flexibility

• What’s changing: Workers – including contracting (agency) staff – gain new rights to guaranteed hours, reasonable shift notice, and cancellation pay.
• How to prepare: Implement scheduling systems that provide advance notice. Ensure contracts reflect new entitlements and update internal policies to support predictable working patterns.

2. Day-One Rights to Unfair Dismissal Claims

• What’s changing: Unfair dismissal protections now apply from the first day of employment.
• How to prepare: Introduce clear probation periods with documented performance reviews. Provide line managers with training to handle early-stage terminations fairly and lawfully.

3. Fire-and-Rehire Restrictions

• What’s changing: Employers can no longer dismiss staff for rejecting new contract terms unless no alternative exists.
• How to prepare: Review your contractual processes and consult legal advisors before implementing significant changes. Prioritise negotiation and documentation when revising terms.

4. Regulation of Umbrella Companies

• What’s changing: Umbrella companies are now regulated under the Employment Agencies Act 1973.
• How to prepare: Only engage umbrella providers with transparent, audited processes. Request evidence of compliance and be ready to demonstrate due diligence in your supply chain. And talk to us about your umbrella options.

5. Expanded Worker Protections

• What’s changing: Day-one rights for paternity leave, strengthened flexible working, and redundancy consultation duties increase.
• How to prepare: Audit employment terms for compliance. Set up systems to track leave requests, ensure flexibility policies are consistent, and communicate these rights to workers clearly.

6. Establishment of the Fair Work Agency

• What’s changing: This new watchdog will investigate unpaid holiday pay, enforce National Minimum Wage compliance, and bring cases directly to tribunal. It will unify state enforcement powers under one roof – making it easier for workers to challenge underpayment and tougher for non-compliant businesses to hide. Agencies can expect higher levels of enforcement and visibility.
  With an estimated 900,000 UK workers having their holiday pay withheld annually (totalling around £2.1bn), this enforcement is long overdue – and will reshape expectations in sectors reliant on temporary labour. Crucially, agencies could now face enforcement action for up to six years’ worth of historic holiday pay liabilities, with penalties reaching 200%, and maximum fines as high as £200,000.
• How to prepare: Ensure holiday pay is accurately calculated and transparently reported. Audit your systems and processes to demonstrate real-time compliance. Be prepared to respond to formal inspections and data requests from the new authority.

The Big Decision: In-House vs Outsourced Payroll

A detailed cost-benefit analysis reveals that the in-house PAYE model, though traditionally popular, may soon become financially and operationally unsustainable for agencies engaging temporary workers.

Current Challenges of In-House PAYE

While agencies may benefit from total PAYE control, branding strength, and short-term cash flow advantages, the operational burden is rising fast:

• Annual costs for payroll staff and RTI-compliant software typically range from £27,000 to £60,000 per year, depending on business size and system complexity.
• Insurance alone can add over £30,000 annually, covering Employers’ Liability, Cyber Security, Public Liability, and Professional Indemnity for roles like drivers or medical staff.
• Legal and compliance risks are mounting, especially with the complexity of holiday pay, right-to-work checks, and NMW enforcement.
• Inflexibility around tax codes, tribunal exposure, and weekly payment admin introduces further strain.

By 2027 further reforms in Employment Rights Bill Phase 2 (such as mandatory justifications for dismissal, statutory bereavement leave, and enhanced gender/harassment protections) will further intensify compliance needs.

The Cost Comparison

Maintaining PAYE in-house exposes agencies to rising legal costs, IT investments, and tribunal risks – while limiting worker flexibility and reducing competitive agility.

According to Crawford Temple, CEO of Professional Passport: “The April 2026 changes represent a significant liability shift onto recruitment agencies. Those who begin comprehensive preparation now will be well-positioned to navigate these changes successfully. Those who don’t may find themselves facing unexpected tax bills, penalties, and reputational damage.”

The message is clear: future liability for tax, employment rights, and enforcement sits firmly with the agency. If your supply chain isn’t watertight, your business could be carrying risk you don’t even know about.

Before April 2026, agencies face a clear fork in the road:

Option 1: Bring everything in-house

• You gain total control and mitigate third-party compliance risk.
• BUT: You also absorb every cost, responsibility, and legal liability. That includes real-time RTI reporting, complex holiday and sick pay calculations, accurate record-keeping, and watertight dismissal procedures.
• You are solely responsible for getting it right – every time. Any errors, underpayments, or compliance breaches fall squarely on your agency, opening the door to HMRC scrutiny, tribunal claims, and substantial financial penalties.

• You’ll also need to stay continuously up to date with evolving employment law, understanding the nuance behind every reform and interpreting each risk correctly – without the safety net of expert guidance.

Option 2: Outsource with robust protections

• Offload cost, complexity, resource burden, admin and liability – but only if your payroll partner offers true transparency and full indemnity.

At PGS, we believe Option 2 is the smarter, safer, and ultimately more scalable choice.

But only if it’s done right.

Why People Group Services can provide the solution Agencies need

We go beyond the standard third-party model. Our approach provides:

• Two weeks’ free payroll credit (subject to terms), removing financial risk from joint and several liability.
• Live real-time payslip view and custom Key Information Documents (KIDs) for full clarity on pay breakdowns and responsibilities.
• Real-time RTI and Holiday Pay reporting, supporting compliance and candidate satisfaction.
• Proactive holiday pay distribution, especially useful during seasonal downtimes like education breaks.
• Live demonstration of Tax, NI, and VAT payments, updated as transactions occur.
• Insurance-backed audit compliance via Professional Passport – the UK’s original independent payroll audit body.
• Free agency enrolment with Professional Passport, providing updates, best practices, and reassurance.
• Longstanding APSCo and TEAM partnerships, reflecting our commitment to industry integrity.

We also have in-house legal expertise at your disposal – able to interpret complex legislative changes and provide free, practical consultancy to our partner agencies. This means fast, reliable guidance without the cost or delay of external legal advice.

Next steps for Recruitment Agencies

1. Audit your current Payroll Model – Are you exposed to new liabilities under the Bill?
2. Evaluate your providers – Do they meet audit standards? Can they show live compliance?
3. Talk to PGS – We’re ready to give your agency a live no-obligation demonstration of how our model protects your business.
4. Plan ahead – Don’t wait for April 2026. Transitioning now gives you time to adapt smoothly.

Final Word

This Bill is not just a compliance headache – it could be an opportunity. Agencies that act now to modernise, streamline, and protect their payroll operations will gain a competitive edge.

At PGS, we’ve spent nearly two decades anticipating change and protecting our clients from legislative upheaval. With the Employment Rights Bill, we’re not just reacting – we’re prepared and we’re here to help.

Talk to us today
hello@peoplegroupservices.com
0345 034 1530