Are umbrella companies and self-employed recruiters covered by recruitment agency insurance?

The UK recruitment supply chain is under more scrutiny than ever before. With umbrella company use rising, IR35 reforms reshaping contractor engagement, and clients carrying out more detailed compliance checks, the question of who is covered by recruitment agency insurance is becoming increasingly important. 

Valid insurance is no longer just a safeguard against claims - it has become part of routine onboarding and audit processes. Agencies, umbrella companies, and independent recruiters who can show evidence of cover are more likely to win contracts, avoid compliance delays, and strengthen their reputation with clients. Those unable to provide documentation may face uninsured exposures or risk exclusion from preferred supplier lists. 

So, does recruitment agency insurance automatically cover umbrella companies and independent recruiters? The distinction is important: recruitment agency insurance protects the insured business itself - whether that’s a large agency or a single independent recruiter operating as their own company. It does not, however, typically extend cover to umbrella companies or to contractors placed with clients.  

Who is and isn’t covered? 

Recruitment agencies 

Recruitment agency insurance is designed to protect the agency as the insured business. This applies whether the agency employs dozens of staff or is run by a single recruiter. Cover typically includes professional indemnity, employers’ liability, and public liability. Some agencies also add vicarious liability extensions to cover PAYE temps or contractors under their direct supervision.

Important to note, PAYE temps or contractors under the direct supervision of the end client will not be covered under the Agencies insurance.  

Learn more about recruitment agency insurance. 

Umbrella companies 

Umbrella companies act as the legal employer for contractors. As such, they are responsible for arranging their own insurance policies. These often include: 

• Employers’ liability insurance (a legal requirement in the UK) 

• Public liability insurance 

• Professional indemnity insurance 

These policies are not provided by a recruitment agency’s insurance unless specifically agreed. 

Find out more about umbrella company insurance. 

Self-employed recruiters and consultants 

Independent recruiters are businesses in their own right. If they purchase recruitment agency insurance, it provides the same core protection as it would for a larger agency. 

Essential policies you may wish to consider include: 

• Professional indemnity insurance (to protect against negligent advice or failed placements) 

• Public liability insurance (for injury or property damage claims) 

For many consultants and “one-man bands”, a recruitment agency insurance package is the most practical solution. Explore our recruitment agency insurance options to see how this works in practice. 

Why insurance works this way 

In the recruitment sector, insurance generally follows legal responsibility. 

• Umbrella companies take on employment responsibilities such as payroll, tax, and statutory rights. The responsibility for contractor negligence will still be determined through SDC, whether they are supervised by the end client or whether they should hold their own insurances.  

• Agencies and independent recruiters are responsible for their own placements and advice. If they hold recruitment agency insurance, they are protected against their core risks, with extensions available for temps and contractors where agreed. 

• External contractors engaged through umbrellas or other arrangements are not automatically covered under an agency’s insurance And should ultimately hold their own insurances. 

A crucial point of detail lies in how liability is assigned for a contractor's professional negligence.

Even when a contractor is paid via an umbrella company, the end client's commercial relationship is often with the recruitment agency that introduced them. Should that contractor make a costly error, the client may argue that the agency is vicariously liable for the resulting financial loss, perhaps alleging inadequate vetting or misrepresentation of the candidate's skills.  

This is a key reason why agencies may wish to consider a vicarious liability extension to their professional indemnity insurance, as it is designed to respond to claims arising from the actions of the non-employee contractors they place. 

What cover is required and who checks it? 

• Employers’ liability insurance – a legal requirement for any UK business with staff or PAYE workers, including umbrella companies. Failure to hold this could result in fines of up to £2,500 per day. 

• Professional indemnity insurance – not a legal requirement, but widely expected in recruitment contracts. Clients and agencies often verify this before allowing assignments to begin. 

• Public liability insurance – strongly recommended wherever recruiters interact with clients, candidates, or the public. 

For more detail, see our guide to employers’ and public liability insurance for recruitment agencies. 

Agencies and end-clients are increasingly requesting up-to-date insurance certificates as part of onboarding and compliance checks. Those unable to provide evidence may face delays or even lose out on work. 

Real-world risks and claims 

• Umbrella companies have faced claims for workplace accidents, contractor negligence, and payroll compliance failures. 

• Agencies and independent recruiters sometimes face vicarious liability claims if a client believes the recruiter should take responsibility for the actions of a temp or contractor. 

• Independent consultants have seen claims for misrepresentation, vetting failures, or breach of client contract - highlighting the importance of professional indemnity insurance. 

Beyond placement errors, a significant modern risk involves the vast amount of sensitive data all parties handle.  

Recruitment agencies and umbrella companies are custodians of personal and commercial information, from candidate CVs to client payroll details. A single data breach, whether from a phishing attack or ransomware, could lead to regulatory fines from the ICO, legal costs, and severe reputational damage.  

It is a key consideration that most standard professional indemnity policies specifically exclude these cyber-related incidents. This can leave a significant gap in a business's protection, which is why Kingsbridge Recruitment Insurance offers specialist cyber liability insurance that can be included alongside your main policy. 

The UK market: what’s changing? 

The recruitment sector is evolving quickly. 

• It is estimated that over 700,000 workers in the UK are engaged through umbrella companies, a number that continues to rise with IR35 reforms. 

• From April 2026, new joint and several liability rules are expected. This may mean agencies (and sometimes clients) could share responsibility for certain breaches if an umbrella company defaults. 

• Insurance documentation checks are becoming routine, with agencies, umbrellas, and independent recruiters all expected to provide evidence of cover. 

For agencies handling large amounts of client and candidate data, cyber liability is another growing consideration. Read about cyber cover for recruitment agencies and umbrella companies. 

What Kingsbridge Recruitment Insurance provides 

Kingsbridge Recruitment Insurance offers tailored solutions for every part of the recruitment supply chain: 

• Recruitment agency insurance – professional indemnity, employers’ liability, public liability, and optional vicarious liability for temps and contractors. 

• Umbrella company insurance – bespoke packages including employers’ liability, professional indemnity, and public liability. 

• Insurance for independent recruiters – recruitment agency insurance adapted for consultants and one-person businesses, helping them meet client requirements and secure more work. 

For related reading, see: 

• What is recruitment agency insurance? 

• Why professional indemnity insurance is essential for recruitment agencies 

Best practice for compliance and protection 

• Recruitment agencies should verify insurance documentation from umbrella companies and independent recruiters, and clearly set out liability responsibilities in contracts. 

• Umbrella companies should ensure all insurances remain valid and up to date, providing certificates whenever required. 

• Independent recruiters may wish to maintain professional indemnity and public liability insurance, and be ready to supply certificates to agencies and clients. 

Keeping your recruitment business resilient 

Specialist insurance is not only about managing claims - it also plays a role in winning business and maintaining long-term resilience. Clients expect evidence of robust cover, regulators are tightening compliance frameworks, and onboarding teams want assurance before contracts go live. 

From professional indemnity protecting against negligent advice, to employers’ liability meeting statutory requirements, through to cyber cover addressing data risks, the right combination of policies gives agencies, umbrella companies, and independent recruiters confidence to operate. 

Kingsbridge Recruitment Insurance works exclusively with the recruitment sector. Our role is to help you build the protection that not only meets legal and contractual requirements but also supports your growth in a fast-changing market. Get a quote online today or speak to our team for tailored advice on keeping your business covered.