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Hiring legislation hub

Contractor and hiring rules, UK and US, in plain English

In short: in the UK, the off-payroll rules (IR35) still put the status decision on medium and large clients, umbrella company supply chains have carried joint PAYE liability since 6 April 2026, and right to work checks extend to workers and individual sub-contractors from 1 October 2026. In the US, the IRS common law test decides contractor or employee for tax, the Form 1099-NEC threshold is $2,000 from 2026, and the Department of Labor's 2026 proposed contractor rule is not yet final.

Talk to a hiring expert Read the guides

Last reviewed . Every fact links to its primary source. How we research this page

We are recruiters, not lawyers, accountants or tax advisers. Nothing on this page is legal, tax or financial advice. It is general information with a link to every source. Take professional advice for your own situation before you act. Read more

Change log

What changed on this page

Every time a rule changes and we update this hub or a guide, we add a dated entry here, newest first.

  1. Hub published

    We published this hub with four guides: IR35 for hirers, umbrella company rules 2026, employer of record vs contractor, and US contractor classification. Every source was checked on 29 September 2026.

Guides

Go deeper on one question

Each guide is a complete, sourced answer to one hiring question, reviewed on the same schedule as this hub.

UK only

IR35 for hirers

Who decides status, what goes in a status determination statement, the small company test and its 2026 timing, and where liability lands.

Read the guide UK only

Umbrella company rules 2026

Joint PAYE liability since 6 April 2026, what agencies and end clients should check, and what contractors should look for.

Read the guide UK and US

Employer of record vs contractor

Employee, contractor, agency worker or employer of record: the risks of each for UK and US hires and offshore teams.

Read the guide US only

US contractor classification

The IRS test, Form 1099-NEC, the Department of Labor rule, California's ABC test and New York's Freelance Isn't Free Act.

Read the guide

Hiring contractors in the UK?

Our contract desk puts these rules into practice. Contracts, right to work checks, insurance verification and the April 2026 umbrella rules are handled in house, and you get three shortlisted contractors per role inside three working days.

See the contract desk Talk to Mark
Dates to plan around

What changes next, and when

Confirmed dates first. Where the government has only said "2027", we say so rather than guess a month.

  1. UK

    Right to work checks extend to workers and individual sub-contractors

    The Border Security, Asylum and Immigration Act 2025 extends the right to work scheme to people engaged on a worker's contract, individual sub-contractors and online matching services. The Home Office draft guide says it does not apply to people operating an independent business in their own name or through their own company. Home Office draft right to work guide

  2. UK

    Employment Tribunal time limit rises from 3 to 6 months

    The time limit for bringing a claim to an Employment Tribunal increases from 3 to 6 months. GOV.UK Employment Rights Act timeline

  3. UK

    Budget 2026

    Any change to IR35, National Insurance, dividend tax or umbrella rules would be announced here. We will update this page after it. HM Treasury, Budget date

  4. UK

    Stronger duties to prevent sexual harassment

    Employers must take "all reasonable steps" to prevent sexual harassment of their employees, and must not permit harassment of their employees by third parties. GOV.UK Employment Rights Act timeline

  5. UK

    Unfair dismissal qualifying period falls to 6 months

    For dismissals from 1 January 2027, alongside uncapping compensatory awards and new fire and rehire protections. This changes the risk of a short permanent hire. GOV.UK Employment Rights Act timeline

  6. UK

    Earliest tax year a client can leave IR35 under the new size thresholds

    HMRC's own worked example shows a company moving outside the off-payroll rules from the 2027/28 tax year. Your own date depends on your filed accounts. HMRC ESM10006a

  7. UK

    Umbrella companies regulated, and guaranteed hours for zero hours workers

    Both are listed for 2027, with timing to follow consultation. Hirers will by default be responsible for guaranteed hours offers to qualifying agency workers. GOV.UK Employment Rights Act timeline GOV.UK zero hours factsheet

  8. US

    The $2,000 Form 1099-NEC threshold may be adjusted for inflation

    The IRS says the threshold "may be adjusted for inflation beginning in calendar year 2027". IRS Form 1099-NEC instructions

  9. US

    Final Department of Labor independent contractor rule

    The rule was proposed on 26 February 2026 and comments closed on 28 April 2026. We found no final rule on the Department of Labor's page or in the Federal Register as at 29 September 2026. US Department of Labor, 2026 rulemaking

UK: IR35

IR35 and off-payroll working

The short answer: if your organisation is in the public sector, or is a medium or large private sector company, you decide whether each contractor working through their own limited company is inside or outside IR35, and you must give them a status determination statement with your reasons. If your company is small and private, the contractor's own company decides.

Read the full guide: IR35 for hirers
  • The off-payroll rules have applied to public sector clients since 6 April 2017 and to medium and large private sector clients since 6 April 2021. They apply contract by contract. GOV.UK, understanding off-payroll working
  • Inside IR35, the deemed employer deducts Income Tax and employee National Insurance, and pays employer National Insurance and, if applicable, the Apprenticeship Levy. GOV.UK, understanding off-payroll working
  • HMRC's Check Employment Status for Tax (CEST) tool gives HMRC's view, and HMRC "will stand by all results given by the tool, as long as the information you give remains accurate and is in accordance with our guidance". GOV.UK, CEST
  • A company is small if it meets two of three tests: turnover of £15 million or less, a balance sheet total of £7.5 million or less, 50 employees or fewer. These thresholds apply to financial years beginning on or after 6 April 2025, but status follows filed accounts over two consecutive years, so HMRC's example only leaves the rules from 2027/28. HMRC ESM10006a
  • Since 6 April 2024, where HMRC pursues a deemed employer it can set off tax and National Insurance the worker or their company has already paid. HMRC ESM10037

What is next: we found no announced IR35 reform for 2026/27. We will check the Budget on 28 October 2026. HM Treasury, Budget date

UK: umbrella companies

Who is liable if an umbrella company does not pay PAYE?

The short answer: for money paid to workers on or after 6 April 2026, the agency that contracts with the end client is jointly and severally liable with the umbrella company for unpaid PAYE and National Insurance. If there is no agency in the chain, the end client is. HMRC's manual says it does not matter which party pays, as long as the amount is paid in full.

Read the full guide: umbrella company rules 2026
  • The rules sit in a new Chapter 11 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003, sections 61Y to 61Z1. HMRC ESM2405
  • HMRC: "It does not matter which party pays or how much each party pays as long as the amount is paid in full." HMRC ESM2420
  • HMRC's guidance for labour supply chains covers money paid to workers on or after 6 April 2026. GOV.UK, umbrella PAYE rules
  • An end client can also be liable where it contracts with a non-UK agency, an agency connected to the umbrella, or the umbrella directly, and the definition of umbrella company is broad enough that it could catch employers of record. KPMG commentary, December 2025
  • Employment businesses must give umbrella workers a key information document, including a representative example pay statement. GOV.UK, key information document
  • The Employment Rights Act 2025 brings umbrella companies inside the Employment Agencies Act 1973, to be regulated by the Fair Work Agency, which was set up on 7 April 2026. GOV.UK umbrella companies factsheet

What is next: regulation of umbrella companies is listed for 2027. The government's response to its February to May 2026 consultation on the agency work framework has not yet been published. GOV.UK agency work consultation

Where Hurren & Hope is the agency contracting with you, this liability sits with us, not you.

UK: employment and tax

Employment and tax changes that affect hiring

The short answer: in 2026/27, employer National Insurance is 15% above £5,000 a year, dividend tax rose from 6 April 2026, several day one employment rights are already in force, and the next big change for permanent hiring is the 6 month unfair dismissal qualifying period from 1 January 2027.

National Insurance and levy, 2026/27

  • Employer National Insurance: 15% above a secondary threshold of £5,000 a year (£96 a week).
  • Employee National Insurance: 8% between £12,570 and £50,270, and 2% above.
  • Employment Allowance: £10,500. Apprenticeship Levy: 0.5% of pay bill, with a £15,000 allowance.
  • The £5,000 threshold is set to stay at £5,000 from April 2028 until April 2031.

GOV.UK rates and thresholds 2026 to 2027; Budget 2025 OOTLAR

Limited company contractors

  • From 6 April 2026, dividend tax is 10.75% at the ordinary rate and 35.75% at the upper rate. The additional rate stays at 39.35%.
  • The dividend allowance is £500.
  • Corporation Tax is 19% on profits of £50,000 or less and 25% above £250,000, with marginal relief between.

GOV.UK dividend rate change; GOV.UK tax on dividends; GOV.UK Corporation Tax rates

Employment Rights Act 2025

  • Royal Assent on 18 December 2025.
  • In force from April 2026: statutory sick pay without the lower earnings limit or waiting period, and day one paternity leave and unpaid parental leave.
  • From 1 January 2027: a 6 month unfair dismissal qualifying period, and no cap on compensatory awards.
  • 2027, month not given: flexible working changes, bereavement leave and guaranteed hours.

legislation.gov.uk, Employment Rights Act 2025; GOV.UK timeline, updated 25 September 2026

Agency workers

  • After 12 weeks in the same role, agency workers are entitled to the same basic pay, holiday and certain other conditions as direct employees.
  • Hirers will by default be responsible for guaranteed hours offers to qualifying agency workers once the zero hours reforms start. The consultation closed on 25 August 2026.

Acas, agency workers after 12 weeks; Agency Workers Regulations 2010; GOV.UK zero hours factsheet; GOV.UK zero hours consultation

Right to work

  • The civil penalty is up to £60,000 per illegal worker.
  • From 1 October 2026 the checks extend to worker's contracts, individual sub-contractors and online matching services. The draft guide excludes people operating through their own company.

GOV.UK illegal working penalties; Home Office draft right to work guide

Pensions and salary sacrifice

  • From April 2029, only the first £2,000 a year of employee pension contributions made through salary sacrifice will be exempt from National Insurance.

GOV.UK salary sacrifice change

US: classification

Contractor or employee in the US?

The short answer: for federal tax, the IRS looks at behavioral control, financial control and the type of relationship, and no one factor decides it. Wage and hour law, California and New York each add their own tests, so a worker can pass one and fail another. Read the full guide

IRS common law test

  • Three categories: behavioral control, financial control and the type of relationship.
  • Form SS-8 asks the IRS for a determination; it may take at least six months.
  • Workers who believe they were misclassified can use Form 8919.

IRS, contractor or employee

Form 1099-NEC

  • The reporting threshold is $2,000 for tax years beginning after 2025. It was $600 before.
  • It may be adjusted for inflation from 2027.

IRS Form 1099-NEC instructions

Department of Labor rule

  • Since 1 May 2025, investigators have not applied the 2024 rule; they use Fact Sheet 13 and Opinion Letter FLSA2019-6.
  • A proposed rule of 26 February 2026 would focus on two core factors: control, and the opportunity for profit or loss.
  • No final rule as at 29 September 2026.

DOL, 1 May 2025; Federal Register, 27 February 2026; US Department of Labor, 2026 rulemaking

California: the ABC test

  • To treat a worker as a contractor, the hiring entity must show (A) they are free from its control and direction, (B) the work is outside the usual course of its business, and (C) they are customarily engaged in an independently established trade.
  • Business to business and professional services exemptions can apply the older Borello test instead, if their conditions are met.

California LWDA, ABC test; California LWDA, employment status FAQ

New York: Freelance Isn't Free

  • The statewide Act added Article 44-A to the General Business Law on 28 August 2024.
  • It requires a written contract for work worth $800 or more, alone or with other work for the same hiring party in the previous 120 days, and payment by the agreed date or within 30 days of completion.
  • New York City has its own Freelance Isn't Free Act as well.

New York State Department of Labor; NY General Business Law s1410; NY General Business Law s1411; NY General Business Law s1412; NYC DCWP

How we hire in the US

We recruit permanent and executive roles in New York and San Francisco. Our contract desk supplies contractors in the UK only.

Permanent recruitment
Working strategies

Contractor, umbrella, PAYE or permanent: which fits?

Our view as recruiters: use a contractor for a defined piece of work with a known end, and check IR35 before you start. Hire permanently when the work is ongoing and you will direct how it is done. If you are hiring every month, compare an embedded recruiter with paying per hire.

How the main ways to engage people compare for a UK hirer. The rules behind each row are sourced above.
RouteSuitsWho runs PAYEMain risk to manage
Contractor outside IR35 (own limited company)A defined deliverable, the contractor controls how it is doneThe contractor's companyA wrong status determination; you must issue a status determination statement if you are medium or large
Contractor inside IR35Short term cover where you direct the workThe deemed employer (usually the agency paying the contractor's company)Employer National Insurance at 15% and the Apprenticeship Levy where it applies
Contractor through an umbrella companyContractors who prefer employment by the umbrellaThe umbrella companyJoint and several PAYE liability for the agency, or for you if there is no agency
Permanent employeeOngoing work that you directYouFrom 1 January 2027, unfair dismissal rights after 6 months rather than 2 years
UK contract

A contractor, or a whole squad

Three shortlisted people per role inside three working days, a fixed margin agreed up front, and compliance handled in house.

Contract recruitment Permanent

Pay While They Stay

20% of base salary, paid monthly over 12 months. If the hire leaves, the month you let us know is the last payment.

How it works Hiring every month

Embedded recruitment

A recruiter inside your team for a published monthly fee, plus 8% per hire that stops if the hire leaves.

Embedded recruitment
EOR and offshoring

Employers of record, overseas employers and offshore teams

The short answer: an employer of record can employ people for you where you have no entity, but it does not move every risk off your books. In the UK, if the employer has no UK presence, the UK business the employee works for can be made responsible for PAYE. In the US, you stay responsible for employment taxes if a payroll provider defaults, unless it is an IRS certified professional employer organization.

Read the full guide: employer of record vs contractor
  • Where an employee's employer has no UK presence, section 689 of the Income Tax (Earnings and Pensions) Act 2003 can make the UK business for which they work responsible for operating PAYE. HMRC PAYE81511
  • Agencies must operate PAYE where workers are employed by an overseas employer with no UK presence, unless another party does so. GOV.UK, agency responsibilities with umbrellas
  • The definition of umbrella company in the April 2026 PAYE rules could bring employers of record and organisations that second staff to clients into scope. KPMG commentary, December 2025
  • We could find no statutory definition of "employer of record" in UK law, so read each provider's contract for who carries PAYE, right to work and employment law risk.
  • The IRS says employers are ultimately responsible for employment taxes when they outsource payroll, unless they use a certified professional employer organization (CPEO). IRS, outsourcing payroll

Offshoring: tax, employment and data rules for an offshore team are set by the country where the people work, so take local advice for each one. See how Lavanda built a Philippines engineering team alongside its UK team.

Please read

We are recruiters, not your advisers

Hurren & Hope is a technology recruitment firm. We are not lawyers, accountants or tax advisers.

Nothing on this page or in our guides is legal, tax or financial advice. It is general information about the rules as published by governments and regulators, written so that people hiring can ask better questions. It does not take account of your organisation, your contracts or your circumstances, and the rules can change after our last review.

Before you act, take advice from a qualified professional who can look at your situation: a solicitor or employment lawyer for employment status and contracts, and an accountant or tax adviser for IR35, PAYE and National Insurance. In the US, speak to an employment attorney or a CPA.

What we can do is tell you how we would structure an engagement, where we think a role appears to sit, and what that costs. Your adviser confirms it.

Sources and method

How we research this page

A page about the law is only useful if you can check it. This is how we build and maintain this hub and every guide linked from it.

  1. Primary sources first

    We use legislation, regulators and government departments: legislation.gov.uk, HMRC, GOV.UK, the Home Office, Acas, the IRS, the US Department of Labor, the Federal Register, and California and New York state and city agencies.

  2. A few named experts for commentary

    Where a rule needs explaining, we use a small number of named professional bodies and advisory firms, and we say so next to the fact. On these pages that is ICAEW, KPMG UK and Dechert LLP.

  3. Never recruitment agencies

    We never use recruitment agencies, staffing firms or their trade content as a source.

  4. Every statement is linked

    Each fact links to the page it came from. Where we give our own view as recruiters, we label it as ours.

  5. Checked every week

    We check every source every week and record the date we checked it. Every source below was checked on .

  6. Changes are logged

    When a rule changes, we update the page, add a dated entry to What changed, and update the "last reviewed" date shown at the top.

Last reviewed: . Next scheduled check: the week beginning 5 October 2026, and again after the Budget on 28 October 2026.

Every source used on this hub and its guides

UK legislation

HMRC and GOV.UK guidance

UK other: government departments, regulators and Acas

US federal

US state and city

Professional commentary

Hiring contractors and not sure where you stand?

A 15 minute call with Mark or Mike. We will tell you how we would structure the engagement, and what it costs, before you commit.

Talk to a hiring expert
Good to know

Hiring legislation questions

Who decides whether a contractor is inside or outside IR35?

In the UK, if your organisation is in the public sector, or is a medium or large private sector company, you do, and you must give the contractor a status determination statement with your reasons. If your company is small and in the private sector, the contractor's own limited company decides.

What counts as a small company for IR35?

Meeting two of three tests: turnover of £15 million or less, a balance sheet total of £7.5 million or less, and 50 employees or fewer. The higher limits apply to financial years beginning on or after 6 April 2025, but because status follows filed accounts over two years, HMRC's own example only leaves the rules from 2027/28.

Who is liable if an umbrella company does not pay PAYE?

In the UK, for money paid to workers on or after 6 April 2026, the agency that contracts with the end client is jointly and severally liable with the umbrella company. If there is no agency, the end client is liable. HMRC's manual says it does not matter which party pays, as long as the amount is paid in full.

Do I need to check a contractor's right to work?

In the UK, from 1 October 2026 the right to work scheme extends to people on worker's contracts, individual sub-contractors and online matching services. The Home Office draft guide says it does not apply to people operating an independent business through their own company. The civil penalty is up to £60,000 per illegal worker.

How much is employer National Insurance in 2026/27?

15% on earnings above a secondary threshold of £5,000 a year. Inside IR35, the deemed employer pays it, plus the Apprenticeship Levy where it applies: 0.5% of the pay bill, less a £15,000 annual allowance.

When does the unfair dismissal qualifying period change?

For dismissals from 1 January 2027, the qualifying period for unfair dismissal falls to six months, according to the government's Employment Rights Act timeline.

How does the IRS decide if someone is a contractor or an employee?

It looks at behavioral control, financial control and the type of relationship, and no one factor decides it. A business or worker can ask the IRS for a determination on Form SS-8, which may take at least six months.

What is the Form 1099-NEC threshold for 2026?

$2,000 for tax years beginning after 2025, up from $600. The IRS says it may be adjusted for inflation from 2027.

Is this page legal or tax advice?

No. We are recruiters, not lawyers, accountants or tax advisers. This page is general information with a link to every source, and you should take professional advice on your own situation before you act.

Do you supply contractors in the US?

No. Our contract desk supplies contractors in the UK only. In New York and San Francisco we recruit permanent and executive roles.

The rules keep changing. Your hiring shouldn't stall.

A 15 minute call with Mark or Mike
Contract, permanent or embedded: the route that fits
Compliance handled in house when we place a contractor
Book a call
020 3833 0334[email protected]
Dates to know
1 OctUK right to work checks extend to workers and sub-contractors
28 OctUK Budget 2026
1 Jan2027: UK 6 month unfair dismissal qualifying period
$2,000US Form 1099-NEC threshold from 2026
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