Public Sector Challenges in Engaging Temporary Labour – and How OPRaaS Provides the Solution

Introduction

The UK public sector is under mounting pressure to balance workforce flexibility with robust compliance. Contingent labour remains essential across government departments, NHS trusts, and local authorities, yet scandals in umbrella payroll fraud, IR35 misclassification, and supply chain malpractice have exposed serious weaknesses. High-profile cases such as the £171m Ducas fraud and £263m of IR35 liabilities reported by the NAO underline the risks. Ultimately, the taxpayer bears the cost when oversight fails.

The challenge is not simply about filling vacancies. It is about ensuring that every worker is paid correctly, every statutory deduction reaches HMRC, and every supply chain participant meets legal and ethical standards. Against this backdrop, OPRaaS Labour Supply Chain Assurance (LSCA) offers a proven solution – one that has been reviewed by HMRC on multiple occasions and independently validated by internal audit teams in major organisations.

The Scale of the Challenge

Two numbers illustrate the stakes: £171m and £263m.

• In December 2024, the High Court froze £171m of assets linked to Ducas Ltd. HMRC alleges the firm operated a complex NIC fraud in NHS staffing chains, with tens of thousands of workers paid gross via falsified RTI submissions. The public sector, as the end-hirer, was exposed to reputational and financial fallout. Freezing Order in £171m NHS PAYE fraud - www.rossmartin.co.uk
• The National Audit Office (NAO) identified £263m of liabilities from IR35 errors in 2020–21 alone, a figure that has since grown. Departments that made inaccurate or blanket status determinations now face multimillion-pound bills. The NAO investigation into off payroll working reforms | CIPP
   

These failures demonstrate that public sector employers face liabilities far beyond the margins of their staffing contracts. Risks are compounded by umbrella fraud, mini-umbrella structures, holiday pay abuses, and pensions manipulation. Compliance gaps directly affect service continuity, procurement integrity, and public trust.

Key Workforce Compliance Headaches

1. IR35 Liability
Government departments remain responsible for determinations and PAYE. Even with April 2024 changes allowing set-offs, penalties and interest still apply. Incorrect or risk-averse approaches risk financial exposure or skills shortages.

2. Umbrella Company Fraud
HMRC continues to warn of mini-umbrella schemes, disguised remuneration, and payroll company fraud. The April 2026 reforms will introduce Joint & Several Liability (JSL), transferring unpaid PAYE/NIC debts up the chain to agencies, MSPs and potentially end-hirers.

3. Supply Chain Due Diligence
Under VAT/Kittel case law, organisations can lose VAT recovery if they ‘knew or should have known’ of fraud. Weak checks expose public bodies to severe penalties.

4. Worker Rights Risks
Holiday pay misapplication, unlawful deductions, and underpayment of pensions undermine worker trust and can lead to collective claims, reputational damage, and tribunal costs.

5. Right to Work (RTW)
Updated Home Office guidance and IDSP requirements increase complexity. Weak RTW checks expose organisations to fines, reputational damage, and contract terminations.

6. Procurement Act 2023
Effective February 2025, this Act strengthens exclusion and debarment powers. Public bodies must evidence supply chain compliance or risk audit challenge.

7. Construction Industry Scheme (CIS) Reforms
VAT compliance now feeds into Gross Payment Status tests. HMRC can rapidly revoke status, halting supply chains mid-project.

8. Criminal Finances Act 2017
Failure to prevent facilitation of tax evasion can create corporate liability, even where the wrongdoing occurred further down the chain.

April 2026 Umbrella Legislation – A Turning Point

The draft Finance Bill 2025 introduces sweeping reforms. From April 2026:

• Umbrellas, agencies, MSPs, and end-hirers will all face Joint & Several Liability for non-compliance.
• HMRC will demand evidence of payroll integrity, RTW checks, and accurate PAYE/NIC remittances.
• Hybrid models, disguised remuneration schemes, and mini-umbrella structures will be directly targeted.
   

This is more than regulatory tightening; it redefines accountability. Every public sector organisation will need to move beyond box-ticking and demonstrate active governance, real-time oversight, and defensible assurance.

How OPRaaS Labour Supply Chain Assurance Responds

Mission-Driven Assurance

OPRaaS exists to protect end-hirers from labour supply chain irregularities. Its methodology ensures workers are paid correctly, agencies adhere to agreed rates, and HMRC receives the right deductions. This provides a credible ‘reasonable care’ defence against HMRC challenge re Criminal Finances Act 2017.

Deep, Repeatable Method

• Payroll-by-payroll auditing
• Verification of PAYE/CIS/PSC models
• Detection of holiday and pension abuses
• RTW and compliance checks
• Supplier due diligence aligned to Criminal Finances Act 2017
• Input VAT checks
   

Proven Track Record

• Methodology reviewed by HMRC on multiple occasions, and validated by FTSE250 internal audit teams , and others.
• Exposed large-scale payslip skimming affecting thousands of workers.
• Removed suspect umbrellas including Ducas from labour supply chains mitigating end-hirer risk.
• Identified hybrid models and misclassifications across hundreds of workers.
• Delivered commercial recoveries, including £25,000 for an end-hirer in 2025.
   

Actionable Oversight

OPRaaS doesn’t just identify issues; it provides evidence packs for HMRC, remediation support with suppliers, and dashboards to maintain oversight after engagement. This transforms compliance from a snapshot into a sustained capability.

Future-Proofing

By aligning controls with the April 2026 reforms, OPRaaS ensures end-hirers are ahead of regulatory change. Its LSCA model provides defensible evidence that withstands scrutiny from HMRC, internal audit, and procurement reviewers.

Why This Matters for the Public Sector

Public bodies face unique accountability. Failures are not just financial—they are political, reputational, and operational. When NHS supply chains fund fraudulent umbrellas, or when a department is hit with IR35 liabilities, public confidence erodes. Senior leaders are accountable to Parliament, regulators, and citizens.

The risks are escalating:

• Taxpayer exposure through IR35 errors and NIC fraud.
• Service disruption if supply chains collapse under HMRC action.
• Legal challenge under procurement rules if due diligence fails.
• Reputational damage linked to labour exploitation or unlawful deductions.
   

In this context, OPRaaS LSCA offers more than compliance. It delivers resilience, transparency, and assurance that underpin public trust.

A Framework-Ready Solution

OPRaaS is available through the Crown Commercial Service & Government Frameworks

RM6310 Audit & Assurance Services Two Framework:

• Lot 2 – External Audit: Providing independent, risk-based audits covering PAYE, NIC, IR35, CIS, and financial controls.
• Lot 4 – Independent Assurance: Delivering governance, ESG, labour supply chain, and programme assurance.
   

This framework route gives departments, NHS bodies, and local authorities an efficient, compliant way to engage OPRaaS and embed assurance into contingent labour management.

• RM6219 –DPS-  Learning & Training Services – OPRaaS Ltd
• RM6237 – Low Value Purchase System - OPRaaS Labour Supply Chain Assurance Consultancy & Training
   

Conclusion

The risks associated with temporary labour engagement in the public sector are no longer hypothetical. They are evidenced in taxpayer losses, frozen assets, and reputational damage. The April 2026 reforms will only heighten scrutiny and liability.

OPRaaS LSCA is uniquely positioned to meet these challenges. With a methodology reviewed by HMRC multiple times, proven detection of fraud and malpractice, and tools that deliver both oversight and remediation, OPRaaS provides the assurance public bodies need.

For public sector leaders, the choice is stark: continue with fragmented oversight and absorb escalating risks, or adopt a tested, future-ready model that protects budgets, workers, and public confidence.

OPRaaS LSCA delivers the latter.