The Fair Work Agency: Preparing Your Business for the New Enforcement ERA

The Employment Rights Act 2025, which received Royal Assent on 18 December 2025, represents the most substantial overhaul of UK employment law in decades. Among its transformative provisions is the establishment of a single state enforcement body, the Fair Work Agency (FWA), designed to modernise and strengthen the enforcement of worker rights. Launching on 7 April 2026, the FWA aims to streamline enforcement, enhance compliance and deliver more efficient remedies for rights violations. Employers must understand how the FWA operates and what practical steps they should take to ensure they are prepared for these changes.

What is the Fair Work Agency?

The FWA replaces current fragmented enforcement by bringing together HMRC’s National Minimum Wage team, the Employment Agency Standards Inspectorate and the Gangmasters and Labour Abuse Authority, albeit the latter two are abolished. There are also new functions for monitoring holiday pay and statutory sick pay (SSP) compliance. Operating as an administrative executive agency under the Department for Business and Trade, the FWA is guided by an advisory board comprised of business, trade unions, and independent experts.

The policy intention is for the FWA to be a single, central point of support for both workers and employers, streamlining processes under one leadership team with a unified strategy. Its purpose is twofold:

• to help businesses comply via guidance and best-practice support; and
• to enforce those rights where necessary.

Over time, the FWA’s remit is likely to expand to cover a broader range of employment protections, strengthening its role as the UK’s primary enforcement body.

The Government has stated that operational matters, such as transferring functions from existing agencies to the FWA, remain under review and that a transitional period is likely. For instance, moving National Minimum Wage enforcement from HMRC to the FWA will take time, and HMRC may continue to perform this role for a period after the FWA is established. It isn’t clear what level of financial resources will be allocated to the FWA, but the Government has said that it is committed to ensuring the FWA has the resources it needs to do its job.

What will the FWA be able to do?

• Issue Underpayment Notices: Require underpaid wages, holiday pay or SSP to be paid within 28 days. The FWA is able to investigate arrears dating back six years. Employers are able to appeal to an Employment Tribunal within the 28 day period. However, the grounds for appeal are limited. The FWA is also able to issue Labour Market Enforcement Undertakings, which are agreements requiring businesses to take corrective measures to prevent future breaches. If an employer refuses or fails to comply, the FWA can apply for a Labour Market Enforcement Order through the courts, which can impose legally binding restrictions or requirements for up to two years.
• Investigate and Inspect: The FWA has the power to enter premises to inspect documents (including electronically stored documents), it is able to require any person on the premises to produce documents that it reasonably believes to be on the premises. Any document produced or inspected may be seized. The FWA is also able to interview staff.
• Tribunal and Civil Actions: The FWA is able to pursue enforcement through Employment Tribunals and Courts on behalf of workers. The Government has stated that it will publish guidance on how the FWA will exercise this power in practice.
• Provide Legal Assistance: This assistance may include providing legal advice (as well as  representation), but does not extend to offering facilities to settle a dispute (e.g. mediation). Where proceedings involve both employment related and other matters, support may cover any aspect of the case. During parliamentary debates, the Government confirmed this power to be broad enough to allow assistance not only for employees, but also for employers and trade unions.
• Penalties: The amount of the penalty for each underpaid individual is 200% of the sum specified in the notice, subject to a maximum of £20,000 and a minimum of £100. If the employer pays within 14 days, the penalty is reduced to 50%.  Failure to comply, especially with record-keeping obligations (e.g., holiday and SSP compliance), may also lead to criminal offences.

Reporting breaches to the FWA constitutes a protected disclosure. This means workers who raise concerns about underpayment or other rights violations to the FWA are legally protected from retaliation.

The ERA 25 expands the legal definition of “employment businesses” to include umbrella companies. This change also allows the FWA to take enforcement action against umbrella companies.

What can employers do to prepare?

To ensure compliance and prepare effectively, employers should take the following steps:

1. Payroll & Statutory Entitlements

• Audit payroll regularly: To verify rates across worker types, variable hours, and agency workers.
• Holiday Pay Accuracy: Recalculate holiday entitlements, particularly for irregular shifts or part-year staff; ensure rolled-up payments meet legal standards.
• SSP Compliance: Update payroll systems to align with the removal of lower earnings thresholds and SSP waiting days. Ensure payments reflect day-one eligibility at either the fixed rate or 80% of earnings (whichever is lower).
• Minimum Wage Enforcement: Verify all workers receive at least the correct minimum or living wage, and maintain records for hourly pay, overtime, and shift-based roles.

2. Documentation & Controls

• Maintain Detailed Records: Retain timesheets, holiday and SSP calculations, contracts, shift changes, cancellation notices and payroll approvals for at least six years.
• Automated Workflows: Use systems that prompt checks, flag discrepancies, and maintain an audit trail.

3. Policy, Contracts & Training

• Update Contracts: Incorporate guaranteed hours, cancellation compensation, agency worker protections, and clarity on holiday and sick pay entitlements.
• Train Staff: Educate line managers, HR, and payroll teams on FWA powers, audit indicators, and compliance requirements. Run training sessions on recalculation processes, record-keeping best practices, and audit awareness.
• Whistleblowing Channels: Strengthen confidential reporting mechanisms to identify issues before external audits intervene. Whistleblowing policies should be updated to explicitly reference the FWA as a valid reporting channel.
• Non-Disclosure Agreements (NDAs): Review the use NDAs to confirm they do not restrict lawful disclosures to enforcement bodies.

4. Proactive Compliance and Testing

• Internal Audits: Simulate FWA checks to detect vulnerabilities in payroll systems, record storage, and procedures.
• Exception Reporting: Develop reports that highlight irregularities, like inconsistent holiday calculations or unpaid SSP.
• Remediation Budgets: Allocate resources to resolve historical underpayments voluntarily, potentially reducing FWA penalties.

FWA Timeline and Future Developments

7 April 2026: the FWA is established.

As yet, there is no indication about when the FWA’s enforcement powers will be brought into force.

Why Employers Should Act Now?

Underpayment penalties have the potential of reaching double the arrears amount, plus interest and potential criminal fines – the FWA is able to investigate arrears dating back six years, and therefore it is crucial to carry out proactive audits. Training and system upgrades are also advisable to reduce the risk of disruptive external investigations.