Contingent Workers: What UK Businesses Need to Know in 2025

How to manage contingent workers compliantly and tax-efficiently

16 May 2025 | By Alex Schulte

Nearly 20% of the UK workforce now comprises contingent workers. This growing segment includes 1.4 million temporary workers and 4.38 million self-employed individuals.

But what exactly is a contingent worker in the UK context? Simply put, they’re off-payroll workers who provide services without joining your permanent staff. This includes freelancers, contractors, consultants, gig workers, and agency workers with specialised skills who provide work on a project-to-project basis.

Four key factors are driving this trend:

1. Digital transformation has simplified the onboarding and management of contingent workers
2. Changing workforce preferences, particularly among Millennials and Gen Z, who prioritise flexibility
3. Recent legislation, like the Employment Rights Bill (2024), has increased National Insurance costs for permanent employees. 
4. Contingent workers help plug skills gaps in critical industries like manufacturing and energy.

While employing contingent workers can reduce your tax burden, it also introduces significant compliance challenges under employment law. In this context, the responsibility lies with UK employers to conduct Right to Work checks and correctly assess employment status — failures here can result in substantial fines, reputational damage, and legal complications.

The Legal Framework: Three Employment Categories

The UK recognises three distinct employment categories, each with different rights and obligations:

1. Employees – Full statutory protections including sick pay, unfair dismissal protection, and holiday entitlement
2. Workers – Limited protections including National Minimum Wage, holiday pay, and rest breaks
3. Self-employed – Contractual rights only with self-managed tax obligations

Understanding which category your contingent workers fall into is crucial for compliance and financial planning. Incorrect classifications may result in employers paying contingent workers’ income tax or employee benefits.

2025 Financial Implications for Employers

From April 2025, employees are entitled to:

• National Living Wage: £12.21/hour (up from £11.44)
• Minimum Wage (18–20): £10.00/hour (up from £8.60)
• Employer NICs: Rate rises to 15% (up 1.2%); liability threshold drops to £5,000/year (from £9,100)
• Statutory sick pay: £118.75/week (up from £116.75)
• Unfair dismissal award cap: £118,223 (from £115,115)
• Basic award minimum: £8,763 (from £8,533)

These costs highlight why correctly classifying your contingent workforce is vital for business sustainability.

Who Needs to Assess Employment Status?

Under the updated IR35 rules from April 2025, your business must assess the employment status of contingent workers if you meet two of these three criteria:

• Turnover above £15 million (increased from £10.2 million)
• Balance sheet total over £7.5 million (increased from £5.1 million)
• More than 50 employees (unchanged)

SMEs below these thresholds are exempt from making these assessments.

Determining Self-Employment Status

HMRC provides a free online tool that evaluates three critical factors:

1. Control – Who determines work methods and timing?
2. Substitution – Can another person perform the work?
3. Obligation – Must work be offered and accepted?

Since the landmark Uber ruling in February 2021, UK courts have focused on practical working relationships rather than contractual terms. Even when workers are supplied through intermediaries or hired on a temporary basis, courts may determine they’re effectively working for the hiring company, as demonstrated in a 2023 Ryanair case involving a contracted pilot.

Types of Contingent Workers

Right to Work Obligations for UK Employers

Recent legislation requires all UK employers to conduct Right to Work checks on contingent workers if they want statutory protection against inadvertently employing illegal workers. This includes:

• Part-time staff
• Permanent employees
• Temps
• Seasonal staff
• Contract workers, gig workers, and freelancers (if the employer controls their work)

For genuinely self-employed contingent workers, these checks aren’t mandatory, though they are “strongly encouraged” for contractors and labour providers.

Non-compliant businesses found employing illegal workers face:

• Unlimited fines
• Prison sentences up to 5 years
• Business closure.

You can use the government’s free tool or an identity service provider.

The Benefits of Hiring Contingent Workers

1. Cost Effectiveness

The financial advantages are compelling—62% of employers in a 2023 global survey cited cost savings as the primary benefit. By hiring contingent workers, you avoid paying:

• National Insurance contributions (13.8% of salary)
• Payroll taxes
• Statutory benefits
• Health insurance

Lower administrative costs, too, are a benefit of contingent workers. Traditional recruitment typically costs 6-10% of an employee’s annual salary—a figure that drastically reduces when engaging contingent workers. You pay only for completed work without downtime or overhead.

2. “Try Before You Commit”

Consider hiring contingent workers as dating before marriage—both parties test compatibility with specific projects without long-term commitment.

• Performance management proceedings
• Redundancy measures
• Severance packages

It’s essentially a risk-free trial period that can lead to permanent relationships with the right people.

3. Remarkable Efficiency

Need talent quickly? Contingent workers can start almost immediately to complete projects, while onboarding permanent employees might take weeks or months. This agility proves particularly valuable during busy periods when project demands increase.

• Peak business periods
• Unexpected staff shortages
• Special projects requiring specific expertise.

The Risks of Using Contingent Workers

Misclassification: A Costly Mistake

Incorrectly categorising contingent workers as independent contractors when they function as employees can trigger:

• Substantial financial penalties
• Back payments for benefits and taxes
• Retrospective statutory entitlements

Pro Tip: Use HMRC’s online tool and seek expert advice to determine proper classification and save the results as evidence for potential future audits.

Compliance and Security Challenges

Most businesses underestimate the compliance risks when onboarding contingent workers:

• UK employers must verify immigration status through Right to Work checks
• Under UK GDPR, most freelancers qualify as ‘data processors,’ requiring specific contractual clauses.

Good contingent workforce management manages these risks by outlining clear contracts early on. Your contracts must clearly specify:

• What data is being processed
• Who the data relates to
• How it will be used and for how long
• Security measures

Additionally, contingent workers, if freelancers, must agree to:

• Act only on your written instructions
• Maintain data confidentiality and security
• Support your data protection obligations
• Delete or return data upon completion
• Obtain approval before engaging subcontractors
• Allow compliance audits

Important: Generic privacy policies, legal agreements or copied GDPR language won’t protect you. Specify security measures and review them regularly, particularly for international data transfers.

Management Challenges

Leading contingent workers requires a different approach. Unlike your permanent team, these professionals often:

• Work independently
• Set their own hours
• Use their preferred methods

This requires shifting focus from direct oversight to clear deliverables and outcomes. Without this adjustment, productivity suffers and relationships deteriorate.

Good contingent workforce management prioritises team integration as contingent workers may feel like outsiders compared to the regular workforce, while permanent staff might view them as temporary or threatening.

Best Practices for Contingent Workforce Management

Streamline Onboarding

With 63% of contingent workers rejecting assignments due to poor onboarding experiences, focus on:

• Digital documentation
• Role-specific information
• Designating a contact person

Prioritise Clear Communication

Set expectations early and reinforce them often through:

• Regular check-ins
• Collaborative project tools
• Explicit deliverables, timelines, and quality standards

Focus on Outcomes, Not Hours

Establish clear goals, provide constructive feedback, and recognise exceptional performance. Measure results, not time spent.

Foster Inclusion

Invite contingent workers to relevant meetings, social events, and knowledge-sharing sessions. Creating a sense of belonging improves morale and output quality.

Maintain Legal Compliance

• Classify contingent workers correctly from the start
• Stay current with evolving tax and labour laws
• Remember that prevention costs significantly less than remediation

Leverage Technology

Implement a Vendor Management System (VMS) or similar platform to centralise:

• Contract management
• Payment processing
• Performance tracking

Optimise Spending

• Develop standard rate cards
• Hire contingent workers only when genuinely needed
• Match roles to the appropriate worker type

Build a Talent Pool

Maintain relationships with high-performing contingent workers for future opportunities to leverage their niche skills.

• Reduce recruitment effort
• Improve quality
• Accelerate deployment when needs arise

Key Legal Considerations

The UK government is passing critical legislation that concerns the contingent workforce.

Changes to IR35 Rules

IR35 legislation targets “disguised employment”—contractors working essentially as employees without corresponding tax obligations. HMRC actively investigates potential violations.

Small businesses (below £15 million turnover) are exempt from determining contractors’ employment status.

Agency Workers Regulations (AWR)

The AWR establishes equal treatment for agency workers. After 12 weeks in the same role, agency workers gain rights to the same employee benefits:

• Equal pay rates
• Comparable working hours
• Matching rest breaks
• Equivalent annual leave

Tip: Review contingent worker classifications regularly for tax purposes as working relationships evolve—what begins as genuine self-employment can drift into de facto employment over time.

Umbrella Company Regulations

From April 2026, the government’s expanded definition of ’employment businesses’ under the Employment Agency Act 1973 will include umbrella companies. This means:

• Recruitment agencies will be responsible for PAYE
• If there’s no staffing agency (only an umbrella company), the end-hirer becomes responsible

The Future of the Contingent Workforce in the UK

The growing contingent workforce will continue to expand, prompting increased government regulation. The Employment Rights Bill, currently being implemented, will bring significant changes in 2026, including:

• Protection against unfair dismissal from day one
• Compensation for cancelled shifts for agency workers

It’s a compliance nightmare. Working with trusted partners to streamline legal and tax liabilities is more important than ever.

Centuro Global is your trusted advisor for contingent work, international staff deployment and employment law. Our legal specialists have years of combined experience helping companies manage non permanent workers compliantly and tax-efficiently. If you need any advice on your staffing arrangements, get in touch today.

Frequently Asked Questions (FAQs)

Do contingent workers pay tax in the UK?

Yes. How they pay depends on their engagement model:

• Staffing agency or umbrella company workers: Tax and National Insurance deducted via PAYE
• Freelancers or limited company contractors: Self-managed through Self Assessment or Corporation Tax

What is the difference between contingent and temporary workers?

While often used interchangeably, there’s a subtle distinction:

• Temporary workers typically work fixed-term roles under direct supervision
• Contingent workers represent a broader category, including temps, freelancers, consultants, and independent contractors—anyone brought in on a non-permanent basis

Are contingent workers entitled to holiday pay in the UK?

It depends on employment status:

• Agency workers and zero-hours workers classified as “workers” are legally entitled to 5.6 weeks per year pro rata
• Freelancers and independent contractors operating through limited companies are usually considered self-employed and not entitled to statutory holiday pay

What is IR35, and how does it affect contingent workers?

IR35 tackles “disguised employment”—working like an employee while being paid through a limited company, avoiding appropriate tax contributions.

What is an umbrella company and how do they work?

Umbrella companies act as employers for workers on agency assignments, handling:

• Payroll
• Tax
• National Insurance

By law, they must follow PAYE rules and provide benefits like holiday pay and pensions. Choose a compliant provider as HMRC monitors them closely.

How do National Insurance contributions work for UK contingent workers?

It depends on employment type:

• If independent contractors are effectively full-time employees, the company pays NI contributions
• Self-employed workers pay NICs through Self Assessment
• Umbrella company workers have NICs deducted like regular employees
• Under IR35, contractors may pay employee-style NICs even when using a limited company

If unsure, conduct an assessment using HMRC’s free online tool.

What are Right to Work checks, and why do they matter?

Right to Work checks verify legal eligibility to work in the UK. Employers must examine documents like passports or visas, even for independent contractors and temporary staff. Skipping this step risks £60,000 fines per worker.