Introduction
A new government enforcement body launched in April 2026. Yet most employers have heard very little about it. The Fair Work Agency has the power to inspect your workplace, demand your records, and issue financial penalties, all without a worker raising a complaint first.
If you are thinking this sounds like something that only affects larger businesses, it does not. The Fair Work Agency applies to every UK employer, regardless of size. Whether you have five employees or fifty, the same rules apply and the same inspectors can come knocking.
For SME owners and managers who are already stretched, that is an important change to understand.
The good news is that this agency is not targeting businesses that try to do the right thing. However, good intentions are not enough. If your records are incomplete, your holiday pay calculations are wrong, or your payroll processes have gaps, the Fair Work Agency will find them. This article explains what the agency is, what it can do right now, and what steps to take to make sure your business is ready.
What Is the Fair Work Agency?
The Fair Work Agency (FWA) is a new government enforcement body that launched on 7 April 2026. It sits within the Department for Business and Trade and was created under the Employment Rights Act 2025. Its purpose is to bring employment rights enforcement together in one place.
Before April 2026, enforcement was split across several separate bodies. HMRC handled minimum wage underpayment. The Employment Agency Standards Inspectorate regulated employment agencies. The Gangmasters and Labour Abuse Authority tackled exploitation in higher-risk sectors. A Director of Labour Market Enforcement sat above all of them. The system was fragmented, inconsistent, and difficult for both workers and employers to navigate.
The FWA absorbs all of those bodies and their functions. It is a single, well-resourced agency with a budget of over £60 million: more than 25% above the combined budgets of its predecessors. It has over 550 inspectors and a unified enforcement strategy.
What This Means in Practice
The main point for employers is this: the FWA does not create new legal rights for workers. It changes, fundamentally, how those rights get enforced.
Previously, most enforcement depended on an individual worker making a complaint or bringing a tribunal claim. Many workers did not do so, either because they did not know their rights, or because they feared the consequences. As a result, many employers had compliance gaps that simply went unchallenged.
That changes now. The FWA can investigate employers on its own initiative, without waiting for anyone to come forward. This shift, from worker-led complaints to state-led enforcement, is what makes April 2026 different from every previous round of employment law reform.
What Can the Fair Work Agency Do?
The FWA's powers are broader than most employers might expect.
Inspections and Investigations
FWA inspectors can enter your workplace unannounced. Inspectors do not need a worker complaint to justify a visit. They can require you to produce employment contracts, payslips, timesheets, rotas, and other relevant records, and interview workers directly. Furthermore, they can investigate records going back six years.
This changes the risk profile for every employer. Previously, a business that had quietly miscalculated holiday pay for several years faced little practical risk unless a worker chose to pursue it. The FWA removes that assumption of safety entirely.
Notices of Underpayment and Penalties
Where inspectors find underpayment, the FWA issues a Notice of Underpayment. This requires the employer to repay what is owed within 28 days. In addition, the employer faces a civil penalty equivalent to 200% of the underpaid amount, capped at £20,000 per worker.
Pay the penalty within 14 days and it reduces to 100% of the underpayment. However, even at the reduced rate, a business with ten workers each underpaid by £500 could face a £5,000 penalty on top of the repayment itself.
For serious or repeated non-compliance, the FWA can pursue Labour Market Enforcement Orders through the courts. Breach of such an order is a criminal offence that can result in fines or imprisonment.
What Does the FWA Enforce Right Now?
Not everything falls within the FWA's active remit from day one. It helps to understand what it enforces today and what is coming next.
Current Enforcement Areas
From 7 April 2026, the FWA actively enforces the following:
- The National Minimum Wage and National Living Wage (currently still administered day-to-day by HMRC under contract with the FWA, with full transfer to the FWA planned for April 2027)
- The rights of agency workers and employment agency regulations
- Gangmaster licensing standards
- Modern slavery and labour exploitation offences
What Is Coming in 2027
The FWA will take on enforcement of holiday pay, statutory sick pay, and the regulation of umbrella companies from 2027. Full National Minimum Wage enforcement will also transfer from HMRC to the FWA at that point.
The government has described 2026 and into 2027 as a transitional period. The FWA's stated priority for its first year is building infrastructure, raising public awareness, and preparing for expanded enforcement. The government's employer guidance on the Fair Work Agency sets out the actions it recommends businesses take now.
However, employers should not treat this as a grace period. The FWA can already inspect and issue penalties today. Getting your processes right now is far better than waiting until enforcement widens further.
What This Means for Your Business
For most SMEs, the immediate practical impact falls into two areas: record-keeping and holiday pay.
The Record-Keeping Requirement Already in Force
From 6 April 2026, all employers must keep records of annual leave and holiday pay. Specifically, those records must cover leave taken, leave carried over, holiday pay calculated and paid, and any payments made in lieu. You must retain them for a minimum of six years.
Many SMEs manage annual leave through spreadsheets, informal email threads, or paper records. That approach carries real risk now. If the FWA requests your records and they are incomplete or inconsistent, that itself becomes a compliance issue, separate from whether your payments were correct.
Holiday Pay: The Area to Watch
Holiday pay is the area where the gap between what employers pay and what workers are owed tends to be largest. The Resolution Foundation estimates that 900,000 UK workers per year have their holiday pay withheld, worth around £2.1 billion in total.
A common mistake is calculating holiday pay based on basic salary alone. For workers who regularly receive overtime, commission, or other regular payments, holiday pay must reflect their normal remuneration. Getting this wrong is precisely the kind of systematic underpayment the FWA will look for when it takes on holiday pay enforcement.
Employers who use payroll software or HR systems should also check how those tools calculate holiday pay for variable-hours or shift workers. Where automated tools produce incorrect outputs, the employer remains legally responsible for the error. Technology does not transfer liability.
Practical Steps for Employers
Here are the immediate actions to consider.
Review your records. Check that you keep complete records of annual leave, carry-over, and holiday pay. Ensure those records go back six years, or cover the full period each worker has been employed.
Check your holiday pay calculations. Confirm that holiday pay reflects normal pay, including regular overtime and commission, for the first four weeks of statutory leave each year. If you are unsure whether your calculations are correct, take advice now rather than later.
Check your payroll for minimum wage compliance. Salaried workers who regularly work long hours can fall below the National Living Wage once their actual hours are factored in. Review any roles where that risk exists.
Update your SSP administration. From April 2026, statutory sick pay applies from day one of sickness absence, with no waiting days and no lower earnings limit. Your absence recording and payroll processes must reflect this.
Train the people who handle HR and payroll. Make sure they understand what has changed, what records they need to keep, and what the FWA can request.
Review the FWA's enforcement policy statement. The agency published its enforcement policy statement on launch day. It sets out how the FWA will operate, what it prioritises, and how it approaches investigations. It is worth reading.
Know your new contact point. The FWA is now the single place to go for guidance on pay and worker rights. You can contact the agency at contact@fairworkagency.gov.uk or on 0345 161 6000.
How We Can Help
At Bespoke HR, we support SMEs across Surrey and the South East with the practical side of employment law compliance. The areas where the Fair Work Agency focuses, pay, records, absence, and HR processes, are exactly the areas where we work with clients every day.
If you are unsure whether your holiday pay calculations are correct, we can review your approach and help you identify any gaps before an inspector does. Similarly, if your employment contracts, HR policies, or staff handbook need updating to reflect the current legal position, our team can work through that with you.
We also support clients with ongoing HR advice, absence management, and payroll compliance, so the right processes are in place and maintained.
Getting the basics right is not complicated. However, it does take time and attention that many business owners simply do not have. That is where we can help.
Final Thoughts
The Fair Work Agency is not designed to catch out employers who are trying to do things properly. Its stated aim is to support compliant businesses and focus its resources on those who exploit their workers. For most SMEs, this change is a prompt to check that the fundamentals are right: records, payroll, holiday pay, and absence management.
Enforcement has changed. The risk of a compliance gap being identified is now meaningfully higher than it was before. Taking time now to review your position is far more straightforward than managing an FWA inspection later.
Get in Touch
If you would like to review your compliance position, update your HR documentation, or simply talk through what the Fair Work Agency means for your business, contact the Bespoke HR team. We are happy to have an initial conversation about where you stand.
Frequently Asked Questions
What is the Fair Work Agency?
The Fair Work Agency is a new government enforcement body that launched on 7 April 2026. It brings together enforcement of employment rights, previously split across several separate bodies, into a single agency with a unified strategy and expanded powers.
Does the Fair Work Agency create new legal rights for workers?
No. The FWA does not change what workers are legally entitled to. It changes how those entitlements get enforced. Existing rights around minimum wage, holiday pay, and statutory sick pay remain the same. The agency has stronger and broader powers to pursue employers who do not meet them.
Can the Fair Work Agency inspect my business without warning?
Yes. FWA inspectors can visit your workplace unannounced and do not need a worker complaint to do so. They can request access to contracts, payslips, timesheets, and other records, and can investigate records going back six years.
What are the penalties if the Fair Work Agency finds underpayments?
The FWA can issue a Notice of Underpayment requiring you to repay workers within 28 days. On top of that repayment, you face a civil penalty of 200% of the underpaid amount, capped at £20,000 per worker. If you pay the penalty within 14 days, it reduces to 100%.
When will the Fair Work Agency start enforcing holiday pay?
The government expects the FWA to take on formal enforcement of holiday pay from 2027. However, the record-keeping requirements for annual leave and holiday pay are already in force from 6 April 2026, and inspectors can investigate pay compliance more broadly right now.
What records do I need to keep from April 2026?
From 6 April 2026, you must keep records of annual leave taken, leave carried over, holiday pay calculated and paid, and any payments made in lieu of leave. You must retain those records for at least six years and make them available if the FWA requests them.
Does the Fair Work Agency cover all UK employers?
The FWA covers England, Wales, and Scotland for most of its remit. Employment law in Northern Ireland is devolved, so some functions continue to be handled separately there. The National Minimum Wage remit covers the whole of the United Kingdom.
What if I use agency workers or an umbrella company?
Agency workers fall within the FWA's enforcement remit from day one. If you engage workers through employment agencies or umbrella companies, you should review those arrangements to ensure compliance with agency worker regulations. Umbrella company regulation is expected to come under the FWA's remit from 2027.