A New Era Of Enforcement For UK Employers: Are You Ready For The Fair Work Agency?

Overview

The FWA will bring together the work of existing state enforcement bodies to oversee compliance with the national minimum wage, the regulation of employment agencies, licensing standards for gangmasters and enforcing unpaid employment tribunal awards. But that's not all. There will be new powers to enforce failure to pay statutory holiday and statutory sick pay. From 2027, the FWA will oversee the regulation of umbrella companies. Over time, the FWA will take on enforcement of a wider range of employment rights.

The FWA will be able to issue notices of underpayment of non-payment of any statutory payment (e.g. statutory sick pay, holiday pay or national minimum wage), requiring payment within 28 days, plus a 200% penalty. Underpayments may go back 6 years from the date of the notice.

Background

• The idea of introducing a single employment enforcement body to replace the current fragmented system has been around for several years. In 2018, the Good Work Plan (in response to the Taylor Review 2016) led to a consultation exploring the idea, which the previous Government committed to establishing “when parliamentary time allows” in their 2021 response.
• Labour's 2024 Plan to Make Work Pay stated that Labour would “…finally establish a single enforcement body to enforce workers' rights, including strong powers to inspect workplaces and take action against exploitation”, leading to it being included in the ERB. The latest ERB roadmap confirmed that the FWA will be established in April 2026.
• Appointing Matthew Taylor as chair of the FWA (author of the Taylor Review of Modern Working Practices, the foundation for many of the reforms proposed by the ERB) indicates the strength of the Government's resolve to improve labour market enforcement, although much will depend on the funds and resources made available to the FWA.

How will the FWA work?

• The FWA will bring together the work of the Employment Agency Standards Inspectorate, HMRC's National Minimum Wage Enforcement Team and the Gangmasters and Labour Abuse Authority to become a ‘one-stop-shop' for enforcing workforce rights. As an executive agency of the Department for Business and Trade (DBT), the FWA's work will be carried out by enforcement officers and staff appointed by and working within the DBT, supported by an expert advisory board of representatives from business and trade unions and independent experts. The FWA will produce an annual report and will set an enforcement strategy every three years.
• As well as overseeing compliance with the national minimum wage (NMW), the regulation of employment agencies, the licensing standards for gangmasters and enforcing unpaid employment tribunal awards, the FWA will have new powers to enforce failure to pay statutory holiday and statutory sick pay (SSP). From 2027, it will oversee the regulation of umbrella companies, and, over time, it will take on enforcement of a wider range of employment rights.

What powers will the FWA have?

• The FWA will have the power to inspect workplaces and to require employers to produce relevant documents and evidence demonstrating compliance with employment law. It will be a criminal offence for employers to knowingly or recklessly produce false documents and information, or to intentionally obstruct enforcement action or fail to comply with an enforcement requirement without reasonable excuse.
• A civil penalty regime will allow enforcement officers to issue notices of underpayment (going back up to six years) to employers of any non-payment or incorrect payment of any statutory payment (e.g. SSP, holiday pay or NMW), requiring that they pay the amount due within 28 days. Notices of underpayment must include a penalty of 200% (up to a maximum of £20,000 per inpidual and a minimum of £100) which may be discounted by 50% if sums due are paid within 14 days of the notice.
• Where a worker has a right to bring a claim in the Employment Tribunal, the FWA will be able to bring those proceedings in place of the worker, as well as give legal advice or provide representation in employment, trade union or labour relations cases.
• The FWA will be able to recover state enforcement costs from employers not complying with the law. 

Holiday pay

Bringing holiday pay within the FWA's remit is significant for employers, as there will be major cost implications of getting this wrong across a workforce. Should an employer miscalculate holiday pay or misclassify workers/employees as self-employed, the FWA could issue notices of underpayment of holiday pay for large numbers of workers, plus the mandatory 200% penalty (up to a maximum of £20,000 per inpidual), which would be a very costly mistake for an employer with a large workforce. 

Umbrella companies

Responding to reports of non-transparent pay practices, tax non-compliance and fraud in the umbrella company market, and to ensure workers get comparable rights and protections when working through an umbrella company as when taken on directly by an employment business, the ERB will expand the legal definition of “employment business” to include umbrella companies from 2027. This will allow the FWA to take enforcement action against any umbrella companies that do not comply. 

The Government will consult on amending The Conduct of Employment Agencies and Employment Businesses Regulations 2003 to ensure they adequately apply to umbrella companies and to address the main harms (e.g. lack of pay transparency and difficulty in enforcing employment rights).

Outside of the ERB, separate legislation taking effect in April 2026 will move the responsibility to account for PAYE from the umbrella company that employs the worker to the recruitment agency that supplies the worker to the end client. Where there's no agency in the supply chain, this responsibility will sit with the end client. This change is expected to protect around £2.8 billion from being lost to umbrella company non-compliance.

What should you do now?

Employers should conduct a thorough compliance check ahead of the FWA becoming operational in April 2026. The government has said that the FWA will be “using new powers to ensure the estimated 900,000 people who have holiday pay withheld each year finally receive it” and “cracking down on those employers failing to pay the minimum wage”, so it seems likely that these two areas may be a particular focus in the FWA's initial enforcement strategy.

Given the complexity of calculating holiday pay, employers will need to mitigate the increased financial exposure by checking the accuracy of their calculations and keeping these under review, whilst retaining adequate records to demonstrate compliance with holiday pay and leave for six years. This is especially relevant given that the FWA will have the power to investigate and enforce rights to holiday pay without the need for an inpidual worker to bring a claim.

Employers using umbrella companies will want to conduct a thorough review of their arrangements to ensure the umbrella company is compliant with tax and employment laws and/or introduce safeguards to mitigate potential liability for PAYE ahead of the April 2026 changes. With HMRC data showing that £500 million was lost to disguised remuneration tax avoidance schemes in 2022-2023 (almost all of which facilitated by umbrella companies), this is expected to be another area of focus for the FWA.

With Business Secretary Peter Kyle quoted as saying: “Our Fair Work Agency will be a game-changer in ensuring rights are properly enforced, whilst backing those businesses that already do the right thing”, for employers, now is the time to get your house in order before April 2026.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.