What is the Fair Work Agency?
The Fair Work Agency will be the single state body responsible for enforcing several core employment rights in the UK, including:
Holiday pay
Statutory sick pay (SSP)
National Minimum Wage (NMW)
Employment agencies and labour providers
Modern slavery and gangmasters licensing
Failure to pay tribunal awards
To do this, the FWA will bring together several existing enforcement teams, including:
The Employment Agency Standards Inspectorate
HMRC’s NMW enforcement team
The Gangmasters & Labour Abuse Authority
For employers this means a single, more visible regulator with broader powers, rather than multiple separate bodies.
Why is the Fair Work Agency being created?
The Employment Rights Bill is designed to close gaps in enforcement and make it easier for workers to seek help. Current government data shows that:
Around 1 in 7 UK workers are not receiving the correct holiday pay
HMRC recovered £27.8 million in unpaid NMW last year for more than 155,000 workers
Around 30% of tribunal awards are not paid in full by employers
The Fair Work Agency is intended to act as a clear point of contact, increase the chances of underpayments being detected and make it harder for persistent non-compliance to continue.
The Fair Work Agency’s new powers
Employers will notice the impact of the Employment Rights Bill most clearly through the FWA’s new and extended powers.
1. Notices of underpayment and significant penalties
For holiday pay, SSP and NMW errors, the Fair Work Agency will be able to:
Order employers to repay underpayments going back up to 6 years
Apply financial penalties of 200% of the unpaid amount, capped at £20,000 per worker
Reduce the penalty to 100% if payment is made within 14 days
These penalties are separate from the arrears owed to workers, so the total cost of non-compliance can escalate quickly.
2. Power to enter premises and inspect records
FWA officers will have strong investigatory powers. They will be able to:
Enter business premises
Inspect HR and payroll systems
Require access to digital records
Interview employees
Seize documents
Where work takes place in a private home, they will also be able to enter with a court warrant.
3. Power to demand information
The Employment Rights Bill will allow the Fair Work Agency to require employers and other relevant parties to:
Attend interviews
Provide specified records
Supply evidence of payroll, holiday pay and SSP calculations
Failure to comply without a reasonable excuse can trigger further penalties.
4. New criminal offences for non-cooperation
The Bill creates new criminal offences linked to Fair Work Agency investigations, including:
Providing false information
Obstructing an inspector
Failing to comply with statutory notices without a reasonable excuse
Penalties can include fines and up to 51 weeks’ imprisonment for responsible individuals.
5. Charging employers for enforcement costs
A new and significant change is the ability of the FWA to charge employers the cost of their investigations. These charges may be fixed fees or calculated based on time spent, and will sit on top of any penalties and back pay.
6. Taking cases to tribunal on behalf of workers
The Fair Work Agency will be able to:
Bring tribunal claims on behalf of workers
Provide legal representation
Support major test cases
This greatly increases the likelihood that systemic issues are challenged, even where individual workers are reluctant to bring claims themselves.
Holiday pay: the biggest risk area for employers
Holiday pay is expected to be a priority for the Fair Work Agency and is one of the most complex areas of the Employment Rights Bill for employers.
The greatest risk sits with:
Irregular hours workers
Part-year and seasonal workers
Commission-based roles
Roles with regular overtime
Casual or zero hours contracts
Under the new regime, employers must:
Keep detailed records of holiday pay and leave for 6 years
Ensure calculations reflect actual average pay, including relevant overtime and commission
Be able to show how holiday pay has been calculated, if requested
Failure to maintain adequate records will itself be a criminal offence, not just a compliance risk.
Statutory sick pay and the National Minimum Wage
The Employment Rights Bill also strengthens SSP and NMW enforcement.
Statutory sick pay (SSP)
Mistakes with SSP are common, particularly around eligibility, waiting days, and record-keeping. The Fair Work Agency will actively enforce compliance, so employers need to be confident their rules and systems are up to date.
National Minimum Wage (NMW)
NMW enforcement continues broadly as before, but now under the Fair Work Agency rather than HMRC alone. The shift to a single enforcement body may result in more joined-up and proactive enforcement, especially where NMW breaches overlap with holiday pay and working time issues.
Employment agencies, labour providers and modern slavery
Existing rules for employment agencies, labour providers and modern slavery compliance will move under the FWA umbrella.
This is particularly relevant for sectors that rely heavily on agency staff or outsourced labour, such as:
Agriculture and food production
Logistics and warehousing
Social care and hospitality
Construction and manufacturing
The expectation is that oversight will become more consistent and intelligence-led, making it harder for non-compliant providers to avoid scrutiny.
When will the Fair Work Agency launch?
The earliest likely start date for the Fair Work Agency is late 2026. However, the transition from existing regulators to the new body will take time while:
Agencies merge and staff are transferred
New IT systems and reporting tools are put in place
Inspectors are recruited and trained
The first 3-year enforcement strategy is agreed
Even so, employers should not wait for the formal launch. The Employment Rights Bill is already setting expectations, and early preparation will reduce both financial and reputational risk.
What employers should do now
To prepare for the Fair Work Agency and the wider changes in the Employment Rights Bill, employers should focus on practical, evidence-based steps.
Review holiday pay calculations
Prioritise irregular hours, part-year and overtime-heavy roles
Check that average pay calculations include relevant commissions and overtime
Ensure systems can handle different working patterns correctly
Audit payroll and HR records
Confirm that records are complete, accurate and stored securely for at least 6 years
Make sure you can quickly evidence how holiday pay, SSP and NMW are calculated
Close any gaps in documentation now, before the Fair Work Agency requests information
Update employment contracts and policies
Align holiday entitlement wording with current case law and planned changes under the Employment Rights Bill
Clarify SSP rules, eligibility and any enhanced company schemes
Ensure agency worker and contractor arrangements are consistent with the new enforcement framework
Train payroll, HR and line managers
Provide targeted training on holiday pay, SSP and NMW risks
Make sure managers understand the cost of non-compliance, including FWA penalties and investigation fees
Build compliance checks into everyday processes, not just annual reviews
Consider an external compliance review
Independent audits can highlight issues that internal teams miss
Higher risk sectors include hospitality, retail, social care, logistics, manufacturing and education
A pre-emptive review is usually far cheaper than dealing with enforcement action from the Fair Work Agency
Need support getting ready for the Fair Work Agency?
The Employment Rights Bill will raise the bar on compliance and introduce a more powerful enforcement landscape for employers. The earlier you review your holiday pay, SSP and NMW practices, the lower your risk when the Fair Work Agency goes live.
If you would like help preparing, we can:
Audit your holiday pay and SSP calculations
Review payroll and HR documentation
Update contracts and policies
Deliver training for HR, managers and payroll teams
Provide ongoing HR and employment law support
Get in touch to book a free consultation and make sure your organisation is ready for the Employment Rights Bill and the Fair Work Agency.
