The UK’s Fair Work Agency
A New Era of Employment Law Risk & Compliance
The UK’s new Fair Work Agency launched on 7 April 2026, and as a result, there will be a fundamental shift in how employment rights are enforced. While presented as a consolidation of existing enforcement bodies, the reality is a move towards proactive, state-led enforcement across a number of areas of employment law. For employers, this means they need to address changes in respect of compliance and when risk arises, is monitored and is enforced, as the risks of non-compliance are severe.
What is the Fair Work Agency?
The Fair Work Agency (FWA) will operate as an Executive Agency of the Department for Business and Trade, with enforcement powers exercised by the Secretary of State through appointed officers. It will consolidate a number of existing enforcement bodies into a single authority, including:
- the Gangmasters and Labour Abuse Authority
- the Director of Labour Market Enforcement
- the Employment Agency Standards Inspectorate
- HMRC’s National Minimum Wage enforcement unit
Its purpose is to create a single enforcement body for employment law, improving accessibility, consistency and efficiency for both workers and employers.
However, the significance lies not just in consolidation, but in the breadth of its remit.
Scope of FWA enforcement
The FWA will be able to enforce a wide range of employment law legislation, including:
- National Minimum Wage (NMW)
- Statutory Sick Pay (SSP)
- Entitlement to annual leave and statutory holiday pay
- Employment agency and employment business regulations
- Gangmasters licensing and labour exploitation
- Modern slavery offences
- Labour Market Enforcement Undertakings and Orders
- Payments due under Employment Tribunal awards and ACAS COT3 agreements
In addition, the Employment Rights Act 2025 introduces a new statutory obligation requiring employers to maintain adequate holiday pay records for six years, with failure to do so constituting a criminal offence under the Working Time Regulations 1998 (as amended).
Over time, the scope and powers of FWA’s are expected to increase, including enforcement of additional statutory payments and sector-specific agreements, such as those arising from Social Care Negotiating Bodies.
FWA powers
The FWA will operate with a unified and enhanced enforcement toolkit, combining existing powers with new mechanisms. These include:
Workplace inspections and investigatory powers
Officers will be able to enter premises, inspect records, and require evidence of compliance.
Civil penalty regime
Where underpayments are identified (including NMW, SSP or holiday pay), employers can be required to repay sums owed and pay financial penalties.
Labour market enforcement undertakings and orders
Employers may be required to formally commit to corrective action. Breach of an order is a criminal offence.
Civil proceedings and legal support (phased introduction)
The FWA will be able to bring tribunal claims on behalf of workers.
Cost recovery powers (phased introduction)
Enforcement costs may be recovered from non-compliant employers.
Criminal enforcement powers
Including the application of provisions under the Police and Criminal Evidence Act 1984 when investigating employment offences.
Phased implementation and penalties
The FWA will be introduced in stages, with a combination of existing and enhanced powers available from April 2026.
From Day One (April 2026)
- Prosecution powers
- Gangmasters licensing functions
- Employment Agency Standards enforcement
- Enhanced investigatory powers
- Civil penalty regime (modelled on National Minimum Wage enforcement)
- Labour Market Enforcement Undertakings and Orders
Phased / Future Powers
- Civil proceedings on behalf of workers
- Cost recovery mechanisms
- Expanded enforcement of additional employment rights (including SSP and holiday pay in full operational scope)
Financial Penalties
The penalty regime represents one of the most significant areas of risk where an employer has underpaid wages, including holiday pay or Statutory Sick Pay:
- Employers may be required to repay underpaid sums within 28 days
- Financial penalties of up to 200% of the underpayment, capped at £20,000 per worker
- Reduced penalties of 100% where payment is made promptly (typically within 14 days)
In addition:
- The FWA may investigate underpayments going back up to six years
- Failure to maintain adequate holiday pay records will constitute a criminal offence, punishable by a fine
- Employers may face naming and shaming, reputational damage, and in serious cases, director disqualification
Holiday Pay
Perhaps the most significant shift is in relation to holiday pay. Historically, enforcement has relied on individual claims, often limited by a lack of awareness and a two-year backstop on unlawful deductions.
Under the FWA:
- Enforcement becomes state-led and proactive
- Investigations can proceed without employee complaint
- Underpayments can be pursued up to six years retrospectively
- Penalties of up to 200% can be imposed
In addition, employers will have a new statutory duty to maintain detailed records demonstrating entitlement to annual leave, calculation of holiday pay and timing and method of payment.
Statutory Sick Pay (SSP)
SSP enforcement will also be within the FWA’s remit. This will increase scrutiny of eligibility assessments, calculation accuracy and consistency of application. As with holiday pay, employers will need to ensure that systems are robust, transparent, and auditable.
National Minimum Wage (NMW)
NMW enforcement will transfer from HMRC to the FWA over time, but will remain a focus of enforcement activity. Given rising wage thresholds, more employers will find themselves operating close to minimum wage levels, increasing exposure to inadvertent underpayments and technical breaches (e.g. working time calculations, deductions, salary sacrifice arrangements).
What employers need to do
The FWA does not create new rights, but it significantly increases the likelihood that existing rights will be scrutinised and enforced. Employers should act now:
Conduct a full compliance audit
Focus on NMW, holiday pay, and SSP, particularly areas involving variable pay or complex calculations.
Review payroll and systems
Ensure calculations are accurate, transparent, and capable of audit.
Strengthen record-keeping
Maintain clear, accessible records for at least six years, particularly in relation to holiday pay.
Audit third-party arrangements
Review the use of umbrella companies and ensure compliance with tax and employment law.
Update policies and procedures
Align documentation with current legal requirements and future enforcement expectations.
Train managers and HR teams
Ensure consistency in application and understanding of obligations.
Improve internal communication
Make it easy for employees to raise issues internally before escalation.
Prepare a response strategy
Have a clear plan for dealing with investigations or identified breaches.
Comment
At first glance, the Fair Work Agency appears to be an exercise in administrative consolidation. But it actually represents a much more significant shift. Historically, compliance risk emerged during employment with contracts, policies, and payroll processes.
The reality under the FWA is that compliance will now begin much earlier in the recruitment and employment process. It will include taking a close look at all recruitment communications and job advertisements, interview discussions and offer documentation. And it will be essential to have clear and unambiguous records of the process and discussions that reflect the reality of the ultimate terms, conditions and circumstances of employment. It is also likely that a number of employers will be “caught out” not because they are being deliberately misleading or underpaying, but through careless, imprecise or inconsistent records.
Employers need to be aware that compliance will be much more actively monitored, and enforcement will be much more proactive too, rather than reactive.
Holiday Pay
Holiday pay is often presented as a simple entitlement. In practice, it is often made much more complex by variable hours, overtime arrangements, commission structures, shift patterns and salary sacrifice schemes. Case law has developed incrementally over many years and is often difficult to apply consistently across a workforce.
The introduction of the new FWA means that what may previously have been viewed as a low-risk technical area now carries material financial exposure. Minor miscalculations, repeated over time and across multiple workers, can quickly become significant liabilities.
Statutory Sick Pay
Statutory Sick Pay presents a different, but equally important, challenge. The administrative aspect of compliance involves accurate eligibility assessments, correct application of waiting days and entitlement rules, consistency across the workforce and alignment between HR records and payroll systems. But errors will no longer just result in individual disputes. They may trigger broader investigation and enforcement action.
Record keeping
The introduction of a statutory duty to maintain “adequate” holiday pay records for six years marks a notable shift. Previously, record keeping was largely driven by good practice and defensive preparation for claims. Now it’s not just a legal obligation, but also subject to inspection, and enforceable as a criminal offence if not complied with. For many organisations, this will require a reassessment of how HR, payroll and operational systems interact.
The case for earlier legal involvement
Traditionally, solicitors have been engaged after a claim is issued or during a dispute. But the new requirements necessitate employers to identify risks before they materialise, audit complex areas such as holiday pay proactively and design systems and documentation capable of withstanding investigation.
The result is that this is no longer just an HR issue but should also involve your legal team. Early engagement with solicitors allows organisations to:
- interpret complex and evolving case law correctly
- stress-test existing practices
- design compliant and defensible systems
- address issues before they become enforceable liabilities
But all this said, for employers that embrace the new regime and its requirements, the FWA and its new remit is a great opportunity to strengthen systems, improve transparency and build organisational credibility.
If you’d like to discuss any of the issues raised by this article, please get in touch.
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