JSL has redefined supplychain accountability for UK employers, but the critical question remains: do you have complete oversight of every party in your labour supply chain and the assurance that each is compliant?
For years, many organisations have focused on managing their recruitment agencies.
They agree on rates. They monitor performance. They negotiate contracts. They approve invoices.
But modern labour supply chains are rarely that simple.
Behind the recruitment agency there may be an umbrella company, payroll provider, intermediary or other organisation involved in engaging and paying workers.
And since 6 April 2026, understanding those relationships has become even more important.
Under the new Joint and Several Liability rules, where an umbrella company employs workers within a labour supply chain, HMRC can transfer certain PAYE underpayments upstream to the employment business supplying the worker — and, in defined circumstances, to the end client. This transfer only occurs where HMRC determines that PAYE should have been operated, it was not, the umbrella fails to meet the liability, and the upstream party either knew or should have known about the noncompliance or failed to take reasonable steps to prevent it.
So the question businesses need to ask is no longer simply:
"Who supplies our temporary workers?"
It is:
"Who is actually involved in supplying, employing and paying them?"
What is a labour supply chain audit?
A labour supply chain audit is a structured review of the organisations processes, systems, controls and relationships involved in providing temporary or contingent workers to your business.
The purpose isn't simply to find something wrong.
It's about creating visibility.
A good audit should help you understand:
Which recruitment agencies you use
Which suppliers operate across different sites or departments
Whether umbrella companies are involved
Who employs your temporary workers
How workers are paid
How PAYE and National Insurance obligations are managed
Whether appropriate compliance checks are being completed
Where potential risks or inefficiencies exist
If you cannot confidently answer these questions, your labour supply chain may be less transparent than you think.
Why JSL makes auditing more important
The introduction of JSL has put greater emphasis on supply-chain due diligence.
HMRC's guidance makes clear that the rules apply to payments made to workers from 6 April 2026 where an umbrella company is part of the relevant labour supply chain. The agency with the contract to supply workers to the end client is responsible for ensuring PAYE is operated correctly, with specific circumstances also bringing the end client into scope.
This creates a powerful reason to review your supply chain now.
Because if you don't know which organisations sit between your business and the worker, how can you properly assess the risk?
Step 1: Map your entire supply chain
The first step is simple:
Work out who is actually involved.
Start with every recruitment agency supplying temporary workers.
Then look one step further.
Are workers engaged directly by the agency?
Are umbrella companies being used?
Are different agencies using different umbrella providers?
Are there subcontractors or other intermediaries involved?
This exercise can reveal a surprisingly complicated network.
A supply chain that appears to involve one recruitment agency may actually involve several organisations behind the scenes.
Mapping those relationships gives you the foundation for everything that follows.
Step 2: Identify how workers are engaged
Not every temporary worker is necessarily engaged in the same way.
Your audit should identify the employment status of the worker and respective ‘payroll’ model being used.
For example, are workers:
Directly employed?
Employed as a ‘worker’ through an agency?
Employed through an umbrella company?
Engaged through their own ‘One Man Limited Company?
Operating under another intermediary arrangement?
Understanding the employment status and respective ‘payroll’ model is crucial because different rules and risks can apply.
It can also help identify inconsistencies between Hiring Managers, departments, locations or recruitment suppliers.
Step 3: Check your umbrella company arrangements
If umbrella companies are part of your supply chain, they deserve particular attention under JSL.
You should know:
Which umbrella companies are being used?
Who selected them?
What due diligence was undertaken to ensure compliance?
How are workers being paid?
What evidence exists that PAYE & NIC is being operated correctly?
What evidence exists to ensure correct Tax Month liabilities have been made to HMRC?
HMRC states that umbrella companies remain responsible for operating PAYE correctly, but agencies and certain end clients can also be exposed to liability where the relevant conditions are met.
That means businesses should not simply assume that because an umbrella company is responsible for payroll, the issue is entirely outside their control.
Step 4: Review compliance controls
Once you've mapped the supply chain, examine the controls each supplier has in place.
This can include reviewing:
PAYE and National Insurance
How does the supplier calculate and report PAYE & NIC?
What processes are in place to identify errors?
What evidence can they provide?
Right to Work
Are workers being appropriately checked before they start work?
National Minimum Wage & National Living Wage
Are workers receiving the correct legal minimum?
Are all Statutory Deductions being calculated and deducted correctly?
IR35 and employment status
Where One Man Limited Company contractors are involved, are appropriate employment-status processes being followed and a valid ‘Status Determination Statement being produced?
Modern Slavery
Are appropriate controls in place to identify and mitigate exploitation risks?
GDPR
Is worker and candidate data being handled securely and appropriately?
A labour supply chain audit should take a broad view of compliance rather than focusing on one individual regulation.
Step 5: Examine your management information
You cannot effectively manage a supply chain without reliable information.
Your organisation should ideally have visibility of:
Total temporary worker numbers
Agency spend
Supplier performance
Fill rates
Worker engagement models
Umbrella company usage
Compliance performance
Supplier issues and corrective actions
Good management information doesn't just help with compliance.
It can also highlight opportunities to reduce costs, improve recruitment performance and eliminate unnecessary complexity.
Step 6: Look for inconsistencies
One of the biggest warning signs is inconsistency.
Perhaps one site uses three recruitment agencies while another uses ten.
Perhaps different departments use different umbrella companies.
Perhaps one supplier follows a rigorous compliance process while another relies heavily on self-certification.
Perhaps nobody has a complete picture of total agency spend.
These inconsistencies can create unnecessary risk.
A properly structured audit can identify where processes differ and where standardisation could improve governance.
Why independent auditing matters
There is a major difference between asking suppliers to confirm that they are compliant and independently assessing whether their processes stand up to scrutiny.
Supplier questionnaires have their place.
But they don't always tell the whole story.
An independent audit can provide an objective assessment of your labour supply chain and help identify areas requiring further investigation.
It can also provide evidence that your organisation is actively monitoring and managing supplier risk.
In the new JSL environment, that visibility is increasingly valuable.
How Compliance.One can help
Compliance.One helps organisations gain greater visibility and control over their recruitment and labour supply chains through independent compliance auditing.
Rather than relying solely on supplier assurances, Compliance.One can provide an independent assessment of recruitment agencies and the processes operating within the wider supply chain.
This can help organisations identify potential risks relating to:
JSL and payroll supply-chain exposure
PAYE and National Insurance
Umbrella companies
Right to Work
National Minimum Wage and National Living Wage
IR35 Off Payroll and employment status
Statement of Work frameworks
CIS Self Employed
Modern Slavery
GDPR
Worker documentation
Recruitment and onboarding processes
The objective is not simply to produce an audit report.
It's about helping organisations understand what is happening within their labour supply chain, where the risks are and what needs to be done to mitigate that risk.
For businesses using multiple recruitment agencies and temporary workers, that independent perspective can be invaluable.
Don't wait for HMRC to find the problem
The biggest mistake an organisation can make is assuming that everything is fine because no issue has been identified yet.
JSL has changed the risk equation.
HMRC can recover certain PAYE & NIC underpayments from relevant parties in the supply chain, meaning organisations need to take their supplier relationships and due diligence seriously.
The good news is that businesses don't have to wait for a problem to emerge.
They can audit their supply chain now.
They can map their suppliers.
They can identify umbrella companies.
They can review payroll and compliance controls.
And they can introduce independent oversight.
The first step is knowing what's happening. The second is proving that you're managing it.
FAQs
1. What is a labour supply chain audit?
A labour supply chain audit is a structured review of the organisations, processes and governance involved in supplying temporary and contingent workers. It can identify recruitment agencies, umbrella companies and other intermediaries while assessing areas such as compliance, worker engagement, payroll and supplier management.
2. Why does JSL make labour supply chain audits more important?
JSL came into force on 6 April 2026 and means that, where the relevant conditions apply, an agency — and in certain circumstances an end client, can be liable for PAYE & NIC that an umbrella company has failed to account for correctly. This makes understanding who operates within the supply chain and how PAYE & NIC is managed increasingly important.
3. What should businesses check when auditing their labour supply chain?
Businesses should consider mapping all recruitment suppliers and intermediaries, identifying umbrella companies, reviewing how workers are engaged and paid, examining PAYE and National Insurance processes, checking Right to Work and minimum-wage compliance, reviewing IR35 arrangements where relevant, and assessing wider areas such as Modern Slavery and GDPR.
4. Why is Compliance.One a leading company offering Independent Compliance Audits?
Compliance.One provides an independent approach to assessing recruitment and labour supply-chain compliance. Its audits can examine multiple areas of potential risk rather than focusing on a single regulation, helping organisations gain greater visibility of their recruitment suppliers, identify potential weaknesses and strengthen their overall governance. In an environment where JSL has increased the importance of supply-chain due diligence, independent verification can provide organisations with valuable evidence and greater confidence in how their contingent workforce is managed.
The bottom line
JSL has made one thing abundantly clear:
You need to know what's happening throughout your labour supply chain.
It isn't enough to know the name of your recruitment agency.
You need to understand who employs your workers, which umbrella companies are involved, how payroll is being managed and whether your suppliers have effective compliance controls.
For organisations looking to take a proactive approach, an independent labour supply chain audit can be an excellent place to start.
Compliance.One can help you look beyond the paperwork, uncover potential risks and build a clearer picture of your entire labour supply chain, before a compliance problem becomes an expensive one.
