For many recruitment agencies and end hirers, rising costs, tighter margins, and increasing compliance pressures have made it tempting to focus purely on short-term savings. But when it comes to agency rates and supply chain compliance, “doing nothing” can quickly become the most expensive decision a business makes.
A £20,000 loss might not come from one dramatic event. More often, it builds quietly through hidden costs, poor umbrella company practices, payroll errors, non-compliance risks, contractor disputes, and reputational damage. In today’s market, agencies can no longer afford to ignore what is happening within their labour supply chain.
With the introduction of new Joint and Several Liability (JSL) legislation, businesses are facing increased accountability for the conduct of umbrella companies and payroll providers within their supply chain. This means agencies and end clients could now be held financially responsible for unpaid taxes or non-compliant practices, even if they were not directly involved.
The message is clear: if you are not checking the umbrella companies being used in your supply chain, you are exposing your business to significant financial and reputational risk.
On paper, lower agency rates can look attractive. Businesses under pressure to reduce spending may naturally choose the supplier offering the lowest margin or the cheapest labour solution. However, unusually low rates often come with hidden risks.
In many cases, those savings are achieved through questionable payroll practices, non-compliant umbrella arrangements, or tax avoidance schemes designed to artificially reduce employment costs. While these models may initially appear commercially beneficial, they can create serious consequences further down the line.
Workers caught in disguised remuneration schemes or non-compliant umbrella arrangements often face unexpected tax bills, reduced holiday pay entitlement, or incorrect deductions. Once issues emerge, agencies and end clients frequently find themselves dealing with disputes, HMRC investigations, contractor dissatisfaction, and damaged client relationships.
The true cost is not just financial. It impacts trust, brand reputation, contractor retention, and long-term business stability.
The new Joint and Several Liability legislation, introduced in April 2026 represents a major shift for the recruitment and staffing sector.
Historically, some businesses assumed responsibility ended once workers were passed to a third-party umbrella company. That position is becoming increasingly difficult to defend.
Under JSL rules, HMRC will have greater powers to pursue multiple parties within a labour supply chain where tax avoidance or non-compliance is identified. This means recruitment agencies, end hirers, and other intermediaries may all be held jointly responsible for unpaid tax liabilities.
Simply claiming a lack of awareness will no longer be enough.
Businesses are now expected to demonstrate reasonable due diligence when selecting and monitoring supply chain partners. Agencies that fail to properly vet umbrella companies could face financial penalties, investigations, and reputational fallout.
The reality is simple: ignorance is no longer a defence.
Many agencies still rely on informal checks or longstanding relationships when approving umbrella companies. In the current regulatory climate, that approach is no longer sufficient.
Robust due diligence should now form part of every agency’s compliance strategy. Businesses need clear visibility over who is operating within their supply chain, how workers are being paid, and whether payroll providers are operating compliantly.
As a minimum, agencies should ensure umbrella companies are accredited by SafeRec and the FCSA.
SafeRec provides real-time payroll auditing technology designed specifically for the temporary labour market. The platform verifies that contractor pay matches assignment rates and ensures deductions are transparent and accurate.
This level of oversight helps agencies identify potential payroll discrepancies early, reducing the risk of non-compliance or contractor exploitation.
SafeRec accreditation demonstrates that an umbrella company is willing to operate transparently and undergo independent payroll verification, something that is becoming increasingly important under JSL.
The Freelancer and Contractor Services Association (FCSA) is one of the leading compliance bodies within the umbrella sector.
FCSA-accredited providers undergo regular independent audits covering tax compliance, employment law, payroll processes, and operational standards. Accreditation gives agencies greater confidence that umbrella companies are operating responsibly and ethically.
While no accreditation removes all risk entirely, using FCSA-accredited providers demonstrates that an agency has taken meaningful steps towards supply chain compliance and worker protection.
Many businesses underestimate the true cost of supply chain failures.
A single HMRC investigation can result in legal costs, tax liabilities, operational disruption, and reputational damage that far exceed any short-term savings made through lower agency rates.
For example, an agency placing multiple contractors through a non-compliant umbrella provider could face liabilities running into tens of thousands of pounds if unpaid taxes are identified. Add legal fees, contractor disputes, lost clients, and internal resource costs, and the financial impact escalates quickly.
That is before considering the damage to trust.
Clients increasingly expect agencies to demonstrate ethical and compliant supply chains. Contractors are also becoming more aware of umbrella company risks and are more likely to avoid agencies associated with poor payroll practices.
In a competitive market, compliance is no longer just a legal issue, it is a commercial differentiator.
The recruitment industry is entering a period of greater scrutiny and accountability. Agencies that continue to take a passive approach to umbrella compliance risk being left exposed.
The businesses that will succeed are those taking proactive steps now:
Doing nothing is no longer the low-risk option.
In fact, it may be the most expensive mistake your business makes.
As JSL legislation reshapes responsibilities across the recruitment sector, agencies and end hirers must recognise that compliance cannot simply be outsourced. Accountability now extends across the entire labour supply chain.
The question businesses need to ask themselves is not whether they can afford to strengthen their compliance processes, it is whether they can afford not to.
At Datum RPO, we help agencies and businesses build safer, more compliant labour supply chains. From reviewing umbrella company arrangements to strengthening due diligence processes, we support organisations in reducing risk, improving transparency, and protecting both contractors and clients.
We understand the growing pressures created by JSL legislation and the importance of working with trusted, accredited partners. That is why we encourage the use of SafeRec and FCSA-accredited umbrella companies as part of a robust compliance strategy.
By taking a proactive approach now, businesses can protect their reputation, avoid unnecessary financial exposure, and create a stronger, more sustainable workforce solution for the future.