By Natasha Chell, Senior Partner and Head of the UK Practice at Laura Devine Immigration in London. Natasha has been advising SMEs on business immigration for more than 25 years.

Using contractors, gig/casual or agency workers? You have two months to prepare for new laws to prevent illegal working

Imminent changes to prevent illegal working could catch many UK SMEs by surprise, with potentially serious penalties.

Currently, a business is liable for a criminal and civil penalty only if it employs an illegal worker.  On 1st October 2026 that will change.

Under the new rules any business that uses subcontractors, agency workers or flexible staffing arrangements could be liable even where they don’t directly employ the illegal worker.

For SMEs this isn’t simply another HR requirement, it is a board-level risk and compliance matter. Affected businesses should start reviewing their procurement processes, supplier relationships and contracts now so they have systems in place to complete right to work checks on these additional workers and contracts are updated to comply with additional contractual requirements, where applicable.

Why this is important for SMEs

Businesses that fail to follow the new rules could face fines of up to £60,000 per illegal worker identified in their work supply chain, as well as criminal liability if they knew or had reasonable cause to believe that a worker did not have the right to work. In the most severe cases that could mean an unlimited fine and a prison sentence of up to 5 years.

A Home Office investigation can be highly disruptive to operations and take up a significant amount of resources.

Businesses should start preparing now and keep clear, comprehensive records in the event that illegal working is suspected or identified in their workforce. This will be crucial to establish a defence and also mitigate the potential reputational damage if illegal working is identified.

Many SMEs hold sponsor licences to enable them to hire migrant workers.  This adds another layer of risk because failure to complete the required checks can result in the Home Office revoking a sponsor licence.

Could your business be affected?

You could be caught by the new rules if your business engages:

• agency staff
• outsourced workers
• subcontractors
• seasonal labour
• casual or zero hours workers
• online matching services or gig economy workers

Who is not affected

People who are genuinely self-employed and operating businesses in their own right providing a service directly to customers will be exempt from the new rules.  Such as a graphic designer engaged on a specific project through the designer’s own business and which invoices you directly.

In addition, end-users or consumers purchasing a completed service for their own use will not be in scope.  This would include a business that hires a cleaning company to clean its own office for its internal benefit.

What will actually change?

From October 2026, businesses will be required to undertake right to work checks on those who fall within the new arrangements.  For businesses who contract with third parties to assist in the provision of their services to clients/customers they will need additional contractual provisions in place with those third parties.

Contracts in scope suppliers and subcontractors will need to include new terms and conditions that:

• require right to work checks be completed on workers before commencing work
• prohibit further sub-contracting without prior written consent
• enable enforcement action in the event of non-compliance, including but not limited to suspension/termination of contract
• mandate co-operation with Home Office illegal working investigations
• require the ’employer’ to ensure checks are completed compliantly on all substitutes before commencing work, where contracts permit substitution

Businesses using in scope sub-contractors, online matching services and contracts which permit substitution will require proportionate systems to verify their workers’ identities, such as identity cards or workplace passes, facial recognition technology or biometric or attendance management systems, for instance.

Essential next steps

Report the new requirements up the line – this is a board level risk and compliance matter because of its complexity, impact on business engagements and the increased resources required

• Map out who works for you and who they are employed/engaged by
• Update your onboarding systems so that you can identify all new workers who are in scope of the new rules
• Consult with employment lawyers to make sure any changes you make are compliant with employment laws
• Revise existing contracts with suppliers and contractors where required
• Consider whether you’ll need ID verification systems to comply
• Prepare to update your right to work policies as soon as the Home Office has published the final version of its right to work guidance
• Training – HR, managers, operation and procurement staff are your gatekeepers. They will be at the forefront of these arrangements and they need to understand the changes and what they need to do differently to protect the business.