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Update: FCSA builds on its LME consultation response

In December 2024, the Freelancer and Contractor Services Association (FCSA) submitted its initial response to the Department for Business & Trade’s consultation on the Labour Market Enforcement (LME) Strategy for 2025/26.

This consultation originally sought evidence on employment rights enforcement, communication, resourcing, and the potential establishment of a Fair Work Agency (FWA). While the initial response laid the groundwork, the FCSA has since expanded its position following a roundtable discussion with Margaret Beels, Director of Labour Market Enforcement, and other key stakeholders.

The roundtable, held after the consultation deadline for logistical reasons, offered a valuable platform to discuss critical issues such as mini-umbrella company (MUC) fraud and gross payment fraud – two pervasive challenges undermining compliance within the labour supply chain. The FCSA has now submitted an addendum that builds on its December response, emphasising the need for targeted enforcement and a collaborative approach to tackle these problems.

Tackling Mini-Umbrella Company and Gross Payment Fraud

During the session, Margaret Beels covered the issue of MUC fraud, which exploits schemes such as the VAT Flat Rate Scheme and Employment Allowance. Fraudulent operators use these schemes to artificially fragment businesses, avoiding taxes and gaining an unfair competitive advantage. However, as the FCSA noted, the proposed shift of payroll tax responsibilities from umbrella companies to recruitment businesses, set to take effect in April 2026, may do little to disrupt these fraudulent practices. Instead, this change risks complicating enforcement by transferring responsibility to a far larger number of recruitment businesses, estimated at around 40,000.

The issue of gross payment fraud is equally concerning. This practice involves workers being engaged through their own Personal Service Companies (PSCs), often bypassing both employment rights and tax obligations. While distinct from MUC fraud, gross payment fraud similarly thrives on systemic loopholes and weak enforcement mechanisms. The FCSA’s addendum argues that these forms of “payroll piracy” cannot be adequately addressed through legislative changes alone; effective enforcement of existing rules is paramount.

The case for enhanced enforcement

FCSA members have highlighted that the regulatory framework already offers robust protections for temporary workers, including the Agency Workers Regulations (2010), the National Minimum Wage Act, and the Employment Rights Act (1996). FCSA accredited umbrella companies also adhere to high compliance standards, such as offering overarching contracts and ensuring workers receive consistent benefits.

However, these protections are undermined by insufficient enforcement. Reports of non-compliance often go unacknowledged, eroding trust and discouraging whistleblowers. The FCSA advocates for better communication from enforcement bodies and greater transparency in addressing reported issues. Naming and shaming serial offenders, while protecting compliant firms, could serve as a powerful deterrent.

The addendum also recommends “upstreaming compliance” by holding all parties in the labour supply chain accountable—from payment intermediaries to end-hirers. Measures such as mandatory due diligence and clear supply chain transparency could prevent rogue operators from exploiting systemic gaps.

End clients should have greater oversight of the agencies they work with and insist on using compliant, industry-recognised accredited payroll providers. This would create a transparent supply chain, reducing the need for external monitoring and ensuring accountability at every level.

Our view

At Liquid Friday, we fully support the FCSA’s efforts to address MUC fraud, gross payment fraud, and other forms of non-compliance. As our COO, Joe Taffurelli, states: “I sincerely support the FCSA’s continued efforts to combat fraudulent practices in the labour market, such as mini-umbrella company and gross payment fraud. Effective enforcement is critical to safeguarding workers, maintaining fair competition, and ensuring the integrity of the industry. By fostering collaboration and transparency across the labour supply chain, we can build a stronger, fairer labour market that benefits everyone involved.”

As a proud member of the FCSA, we echo their call for targeted enforcement and greater collaboration across the labour market. Effective enforcement is not just about rooting out bad actors—it’s about protecting workers, ensuring fair competition, and upholding the integrity of our industry. By strengthening enforcement and promoting transparency and best practice, we can create a labour market that works for everyone.

Read the FCSA full consultation response and addendum here.