Year-End Compliance Audit: The 12-Point Checklist for STEM Workforce Compliance

As 2025 draws to a close, engineering and manufacturing organisations face a critical window for compliance review. With significant legislative changes taking effect in 2026, including the Employment Rights Bill, umbrella company regulations, and ongoing IR35 obligations, now is the time to audit your workforce compliance before the new year brings new challenges. 

Why Year-End Compliance Matters Now 

Failure to stay compliant can lead to substantial financial consequences, including back taxes, penalties, legal costs, higher insurance premiums, and operational disruption. Beyond the monetary impact, compliance lapses can seriously harm an organisation’s reputation, making it harder to attract and retain scarce STEM talent. 

1. Complete Contractor Population Mapping 

Gain full visibility of all contractors, their engagement models, payment routes, supply-chain agencies, and contract end dates. 

Red Flags: Missing contracts, long-term contractors treated as employees, inconsistent engagement models, expired end dates. 

2. Audit IR35 Status Determinations 

Verify all SDSs are issued, reflect real working practices, include defensible reasoning, follow the disagreement process, and ensure inside-IR35 workers are paid correctly. 

Key Questions: Has working practice changed? Is substitution genuine? Who controls work? Are contractors integrated? Do contracts match reality? 

3. Validate Umbrella Company Compliance 

Identify all umbrellas and check NMW compliance, correct employment cost accounting, payslip transparency, HMRC registration, and insurance. 

Warning Signs: High take-home promises, loan schemes, poor transparency, sudden contractor movements, recent name changes. 

4. Review Agency Compliance 

Check agency contracts, their IR35 processes, umbrella oversight, insurances, PAYE payroll accuracy, and documentation standards. 

5. Assess PAYE Contractor Obligations 

Confirm correct PAYE/NI operation, NMW compliance, pension auto-enrolment, holiday pay, and AWR 12-week thresholds for equal treatment. 

6. Document Review and Gap Analysis 

Ensure all contracts, SDSs, due-diligence records, payroll data, and compliance correspondence are complete, current, and aligned with actual practices. 

Gaps require immediate remediation. 

7. Working Practices vs. Contract Terms 

Identify mismatches between contractual autonomy and real control, integration, business independence, or ability to work for other clients. 

8. Training and Awareness Audit 

Assess whether hiring managers, procurement, finance, and project teams understand IR35, supply chain compliance, and their obligations. Schedule updates where needed, especially ahead of 2026 changes. 

9. Policy and Procedure Review 

Review engagement policies, responsibilities, IR35 processes, umbrella due diligence steps, and contractor tracking. Update for 2026 legislative changes. 

10. Risk Register Development 

Categorise risks (high, medium, low, emerging) and create remediation plans with owners, actions, timelines, and required resources. 

11. Financial Impact Assessment 

Assess current compliance spend, potential liabilities, remediation costs, and the impact of 2026 reforms to inform budgeting. 

12. Implementation Planning for 2026 Changes 

Prepare for unfair dismissal protections, zero-hours restrictions, extended leave entitlements, and fire-and-rehire limitations. 

Create a timeline aligned with the Employment Rights Bill rollout (April 2026, October 2026, 2027). Click here to find out more about the Employment Rights Bill.  

How Owen Daniels Can Support Your Compliance Journey 

At Owen Daniels, we've been supporting STEM organisations with contractor compliance for over a decade. We understand the unique challenges engineering and manufacturing businesses face when managing technical contractor workforces. 

Our Comprehensive Payroll & Compliance Services 

Global Payroll Solutions - Fully compliant international payroll operations. 
IR35 Support - Determinations, SDS management, documentation, and ongoing reviews. 
Workforce Audits - Population mapping, gap analysis, umbrella/agency verification, and risk registers. 
Umbrella Solutions - Full due diligence, compliance monitoring, and supply chain protection. 

Contact us today to speak with our team or explore our Payroll & Compliance solutions to learn more about how we can help your organisation maintain compliance while managing your STEM workforce effectively.