A new enforcement body launched on 7 April 2026, and it has more power than anything that came before it. The Fair Work Agency has absorbed three existing organisations, inherited a budget and a workforce of 550 inspectors, and been handed the legal authority to investigate your payroll without waiting for an employee to raise a complaint first.
It has been somewhat overshadowed by the wider noise around the Employment Rights Act 2025 – the unfair dismissal reforms, fire and rehire, zero hours. But the Fair Work Agency may turn out to be the change that affects the most businesses, most quickly.
What is the Fair Work Agency?
The Fair Work Agency (FWA) was created under the Employment Rights Act 2025 as part of the government’s Make Work Pay agenda. It sits within the Department for Business and Trade, and its purpose is to replace a fragmented patchwork of enforcement bodies with a single, joined-up regulator.
In practice, it has absorbed three existing organisations:
- HMRC’s National Minimum Wage Enforcement Team – which ran the naming rounds and issued penalty notices for underpayment
- The Employment Agency Standards Inspectorate – which policed agency worker rights
- The Gangmasters and Labour Abuse Authority (GLAA) – which tackled labour exploitation and modern slavery
On top of inheriting all of that, the FWA has been given two significant new enforcement powers that did not previously exist – the ability to enforce holiday pay and statutory sick pay directly, without needing a worker to bring a tribunal claim.
Why the old system wasn’t working
To understand why this matters, it helps to understand how fragmented enforcement was before April 2026.
Take holiday pay. The law on this has been clear for years – for workers with variable pay, regular overtime or commission, holiday pay must reflect normal earnings, not just basic salary. The government estimated around 900,000 workers had holiday pay withheld each year. But because enforcement relied on individual workers bringing tribunal claims, most of those workers simply never did. The time, cost and stress of a tribunal is beyond most people on low or variable pay.
Statutory sick pay was similar. It was technically enforceable by HMRC, but in practice, it was almost never enforced. Employers who got it wrong faced very little real risk.
Minimum wage enforcement had more bite, but it was still reactive – someone had to complain first, and even then, a related holiday pay problem was a different team’s concern.
The Fair Work Agency closes all of those gaps. One body. One investigation. And no need to wait for anyone to raise their hand.
What the FWA can actually do to your business
This is where employers need to pay close attention. The FWA’s powers are broad, and the financial consequences of a finding of non-compliance are serious.
It can come to you without warning
The FWA can open proactive investigations based on its own intelligence and risk assessments – targeting specific sectors, geographic areas or types of employer – without needing a worker complaint to trigger it.
If your industry has a track record of non-compliance (hospitality, care, retail, cleaning and logistics are specifically in its sightlines), you should not assume you will receive advance notice before an inspector arrives.
It can enter your premises and inspect your records
FWA enforcement officers have the power to enter business premises, examine payroll records, inspect timekeeping systems and interview staff. They can request access to employment contracts, holiday records and more.
Obstructing an FWA inspector or providing false information to one can result in unlimited fines and up to 51 weeks in prison.
It can look back six years
The FWA can investigate historical breaches going back up to six years. The fact that a problem was corrected two years ago does not mean the business is off the hook for the period before that correction was made.
It issues penalty notices automatically
Where an investigation finds a breach, the FWA issues a notice of underpayment. The employer has 28 days to pay.
The penalty is 200% of the underpaid amount, capped at £20,000 per worker with a minimum of £100. That reduces to 100% if paid within 14 days – but it is on top of the arrears themselves.
It can bring tribunal claims on your workers’ behalf
This is significant.
Where a worker has the right to bring a tribunal claim, the FWA can bring those proceedings itself, without any action from the worker. It can also provide legal advice and representation to employees in employment cases.
If your workers are not the type to bring claims, that is no longer the protection it once was.
It can charge you for the investigation
The FWA can recover its enforcement costs from non-compliant employers. Based on estimates modelled on the HSE’s cost recovery framework, this could range from around £1,000 for a straightforward breach to over £20,000 for a complex investigation. That is on top of the arrears, the penalty, and any reputational
damage from public naming. Ouch!
Holiday pay – the risk that just got very real
Holiday pay is worth addressing separately, because this is where the FWA represents the most significant shift in risk for most employers.
Holiday pay has been calculated incorrectly across a large number of UK businesses for years. The legal position is not ambiguous – for workers with variable pay, regular overtime or commission, holiday pay must reflect actual normal earnings. But calculating that correctly is genuinely complicated, and many
payroll systems are not set up to do it automatically.
Until now, the practical consequence of getting this wrong has only materialised if an individual worker chose to bring a tribunal claim. Most did not.
From 7 April 2026, the state can step in directly. The government has been explicit that it intends to use the FWA’s new powers to recover holiday pay for the estimated 900,000 workers who have it withheld each year.
From 6 April 2026, employers also have a legal duty to keep adequate records of annual leave and holiday pay for up to six years. If an FWA inspector asks to see your holiday pay calculations and you cannot produce clear, auditable records, that is a problem in itself – regardless of whether the underlying numbers
are right.
Action points
- Review your holiday pay calculations now, particularly for workers with variable hours, regular overtime or commission.
- Confirm that your payroll system is capturing the right earnings figures and producing an auditable calculation trail.
- Check that your record-keeping arrangements meet the new six-year retention requirement.
Who is most at risk?
The FWA applies to every UK employer regardless of size. But some businesses are more exposed than others.
You are in a higher-risk group if:
- You have workers on variable hours, shift patterns or irregular schedules
- You use agency workers, umbrella companies or outsourced labour
- Your payroll and HR systems operate separately and do not communicate with each other
- What head office documents and what actually happens on the ground are two different things
- You operate in hospitality, care, retail, cleaning, logistics or agriculture
- You run salary sacrifice schemes for lower-paid workers and have not reviewed them since the minimum wage went up
That last point is worth flagging specifically. Salary sacrifice arrangements that were fine at £11.44 per hour may not hold at £12.71. Every April NMW rate increase brings more employees closer to the minimum wage threshold – and makes it easier to accidentally fall below it.
Action points
- Review all salary sacrifice arrangements and confirm that no employee falls below the minimum wage after deductions.
- Check that your payroll flags automatically when an employee moves into a new age band.
- If you use agency workers who have passed the 12-week qualifying period, confirm they are receiving the same basic pay and conditions as comparable permanent employees.
- If you use umbrella workers, review your supply chain arrangements now. Separate PAYE legislation that changed in April 2026 shifted responsibility for accounting for tax and NI to the recruitment agency, or the end client, where there is no agency.
What compliance actually looks like in practice
The FWA does not create new legal obligations. Employers are supposed to be doing all of this already. What changes is the likelihood of being caught if they are not.
That said, compliance is not just about having the right numbers – it is about being able to demonstrate that you have the right numbers, clearly and quickly, to an inspector who has walked through your door.
The questions worth asking yourself now:
- Can you show, for every employee, that their effective hourly rate in every pay period was at or above the National Minimum Wage? Not on average across the year – in each individual pay period.
- Are your holiday pay calculations correct and auditable? Do they reflect actual normal earnings, including regular overtime and commission? Can you produce a clear calculation trail for any worker you are asked about?
- Do your records capture all working time? That includes mandatory training, pre- and post-shift duties, travel between sites, security checks and any other time an employee is required to do something.
- Do any deductions push anyone below minimum wage? Uniforms, salary sacrifice schemes, equipment – everything needs checking.
- Are your SSP records up to date? From 6 April 2026, SSP is payable from day one, the lower earnings limit no longer applies, and the rate is £123.25 per week (or 80% of average weekly earnings for lower-paid staff). If your systems have not been updated, that needs to happen immediately.
- Are your age band triggers automated? Does your payroll flag when an employee turns 18, 21 or moves into a higher rate band?
What the Fair Work Agency really means
For years, significant areas of employment law existed on paper but were only inconsistently enforced in practice. Employers who knew the rules but chose not to follow them could make a reasonable calculation that the risk of being found out was low.
That calculation has changed.
Over 550 inspectors, the power to investigate proactively, the authority to bring tribunal claims on workers’ behalf, and the ability to dig back six years – that is a different enforcement environment to the one that existed before April 2026. And given that the FWA is a centrepiece of the government’s employment reform agenda, expect it to come out of the gate with something to prove.
The good news is that if your payroll is accurate, your records are clean and your processes match your policies, there is nothing to worry about. The FWA is designed to go after employers who cut corners – not those who genuinely try to get things right.
At Ascend, we have been preparing for the FWA’s launch for months. Our systems are updated, our team knows the new rules inside out, and our clients will not be facing any nasty surprises. If you are not sure whether your current setup is ready, or if you would simply like a second pair of eyes on your payroll before the FWA comes knocking, let’s have a conversation.
