The Fair Work Agency has been operating since 7th April 2026. It can turn up at a workplace unannounced, demand payroll records, interview staff and issue penalties of up to £20,000 per underpaid worker. Most of its attention so far has gone on agency work, exploitation and minimum wage, but holiday pay comes into its remit from 2027 – and the records it will ask for are ones employers have had to keep since April.
For most small businesses, the Fair Work Agency does not create new obligations. Minimum wage, holiday pay and sick pay rules were already law. What changes is the likelihood of being checked, the range of rights one body can check, and the speed at which a mistake can turn into a penalty. A business that pays correctly and can prove it has little to fear. A business that pays correctly but cannot prove it is in a much weaker position than it was a year ago.
What is the Fair Work Agency?
The Fair Work Agency (FWA) is an executive agency of the Department for Business and Trade, set up under the Employment Rights Act 2025, which began life as the Employment Rights Bill. It is a single enforcement body for a range of employment rights, bringing together state enforcement work that used to be split between several bodies:
Employment Agency Standards Inspectorate, which regulated recruitment agencies and employment businesses
Gangmasters and Labour Abuse Authority, which licensed labour providers in agriculture and food and investigated labour exploitation
HMRC’s national minimum wage enforcement team
Director of Labour Market Enforcement
The team that issues penalties to employers who fail to pay employment tribunal awards
Its chair is Matthew Taylor, who led the 2017 Taylor Review of modern working practices, and its chief executive is Lisa Pinney. A statutory advisory board with employer, trade union and independent members advises on its work.
The government describes the agency’s purpose in three parts: helping workers understand and use their rights, supporting employers who want to comply, and taking firm action against those who do not. Its enforcement policy statement sets out the aims as securing compliance, protecting workers’ rights and – the part that matters most to small businesses – making sure compliant employers are not undercut by those that break labour market legislation. 2026/27 is a transitional year, with powers and staff moving across in stages.
Employers and workers can contact the FWA for guidance at contact@fairworkagency.gov.uk.
Which employment law it enforces now, and what is coming
The FWA’s remit is being built up over 12 months and beyond. The position as of October 2026 is as follows:
Area
Current position
What changes
National minimum wage and national living wage
Legal responsibility sits with the FWA. HMRC officers still carry out the work under contract
Full transfer in April 2027, when around 500 HMRC staff move to the FWA
Employment agencies and employment businesses
Enforced by the FWA (England, Wales and Scotland)
No change announced
Gangmaster licensing
Enforced by the FWA across the UK
No change announced
Serious labour exploitation and modern slavery offences
FWA investigates in England and Wales, alongside the police and the National Crime Agency
No change announced
Unpaid employment tribunal awards
FWA can issue financial penalties to employers who do not pay
No change announced
Statutory holiday pay and holiday pay records
Six-year record-keeping duty in force since 6th April 2026. Holiday pay itself is not yet enforced by the FWA
FWA enforcement due from 2027, not before April 2027. A consultation on how it will work closed on 22nd September 2026
FWA will take on enforcement. No date has been confirmed
Health and safety
Stays with the Health and Safety Executive
Not part of the FWA
Until the FWA takes over holiday pay and statutory sick pay, workers with complaints about either are to direct their to Acas.
Some of the remit varies across the UK. In Northern Ireland, employment agencies are regulated by the Employment Agency Inspectorate within the Department for the Economy rather than the FWA. Modern slavery offences are devolved in Scotland and Northern Ireland, where the FWA works with the police, local authorities and other enforcement bodies.
The Secretary of State can add further rights to the agency’s remit by regulation, so the list is likely to grow over time.
How an investigation starts
The FWA does not wait for a worker to complain. Investigations can start from:
Worker complaints – made directly or passed on by Acas, a union or another body
Intelligence – the agency’s first delivery plan describes an intelligence-led approach, including open-source data gathering and wider data-sharing with other government bodies
Targeted sector work – social care and construction are named as high-risk sectors where the FWA plans to build deeper understanding, and minimum wage enforcement has historically focused heavily on hospitality, retail and hairdressing
Links to another case – an investigation into a labour provider or agency can extend to the businesses that use its workers
Not every contact is an actual investigation. The FWA can send “nudge” letters and guidance encouraging employers to check their own pay practices. These do not count as the start of an investigation, and an employer who finds and fixes a problem at that stage is treated very differently from one that is found out later.
Fair Work Agency enforcement powers: what happens if it turns up
Most compliance checks start with a letter or phone call, and most site visits are arranged in advance. Officers can also work remotely through digital records and written questions. Unannounced visits are permitted and are more likely where there is a risk that records will be altered or workers coached beforehand to prepare for a visit.
During an investigation, FWA enforcement officers can:
inspect workplaces and enter business premises – with consent, or with a court warrant if consent is refused
inspect records and take copies, including payroll records, timesheets, rotas and contracts
examine computers and payroll systems, and remove documents or data
require a named person to attend an interview and answer questions
issue notices that require employers to produce specified information or documents by a set date
speak to workers, including agency workers and those supplied by labour providers
Officers must show identification and proof of their authority if asked. Entering a private home without consent always needs a warrant, which matters for businesses run from home where records are kept there.
Obstructing an officer or providing false information or documents is a criminal offence. The agency’s enforcement statement says that inconvenience, or the absence of a senior member of staff, is not a reasonable excuse for withholding information. A business can ask for a reasonable time to gather documents and can take advice, but it cannot refuse to engage.
A practical plan for a visit or information request
Small businesses rarely have an HR team, so it helps to decide in advance:
Who deals with it. Name one person (usually the owner or office manager) and a back-up. Make sure anyone on reception or a front counter knows to ask for identification, be polite and contact that person straight away.
Where the records are. Know where payroll, timesheets, contracts, holiday records and any agency or labour-provider agreements are kept, and who can access the payroll software.
What to write down. Keep a note of the officers’ names, what they asked for, what was handed over and any deadlines given.
When to take advice. If the request covers several years or suggests a specific problem, an employment adviser or accountant should be involved early.
Civil penalties and other enforcement action after an investigation
The FWA’s enforcement regime has a civil side, built around repayment and penalties, and a criminal side for the most serious cases. The outcome depends on what is found, how the business behaves, and whether it can demonstrate compliance from its own records. The FWA says it follows principles of proportionality and targeting, with advice and guidance first where appropriate.
Self-correction
Where a business identifies and repays an underpayment itself, cooperates and puts things right going forward, the FWA can close the matter without penalties. This is not available where the business has had a similar warning letter in the previous two years or, for minimum wage, a failed notice of underpayment in the previous six years.
Notices of underpayment and penalties
Where minimum wage arrears are still outstanding when an investigation starts, officers will generally issue a notice of underpayment. This requires the employer to pay the arrears to workers and a penalty to the government.
Element
How it works
Arrears
Paid to the workers at current minimum wage rates, not the rates in force when the underpayment happened
Penalty
200% of the total underpayment, with a minimum of £100 and a maximum penalty of £20,000 per worker
Early payment discount
Penalty halved if all arrears and the reduced penalty are paid within 14 days
Lookback
Underpayments can be pursued for up to six years
No notice issued
Arrears are still legally owed even where officers decide not to issue a notice
The proposals for holiday pay, set out in the 2026 consultation, follow the same model: repayment plus a penalty of up to 200% of the underpayment, capped at £20,000 per worker and halved for payment within 14 days. Employers who repay before an investigation begins could avoid penalties entirely. The final rules have not yet been published.
Public naming
The Department for Business and Trade names employers that have breached national minimum wage legislation. Cases with total arrears of £500 or more are considered, falling to more than £100 for repeat offenders. Employers have 14 days to make representations, and exemptions are granted only in narrow circumstances such as a risk of personal harm. Being a small business valued by its local community is not accepted as a reason. The holiday pay consultation asked whether the same naming approach should apply to holiday pay.
Undertakings, orders and criminal investigations
For more serious or repeated non-compliance, the FWA can ask a business to sign a labour market enforcement undertaking – a voluntary commitment lasting up to two years. If the business refuses or breaks it, the FWA can apply to court for a labour market enforcement order, and breaching an order is a criminal offence.
Criminal investigations are reserved for serious, deliberate or persistent non-compliance. The FWA prepares the case and prosecutors decide whether to charge. Directors and managers who consented to or ignored offences can be prosecuted personally.
Employment tribunal claims and enforcement costs
The Employment Rights Act 2025 also allows the FWA to bring employment tribunal proceedings on behalf of workers who are unable or unwilling to bring their own, to provide legal assistance to workers in civil proceedings about their rights, and to recover enforcement costs from employers that break the rules. For a small business, that removes one of the main reasons underpayments went unchallenged in the past: a low-paid worker no longer has to fund or run a claim alone.
Unpaid tribunal awards
Employers that do not pay an employment tribunal award within 42 days, or a settlement agreed through Acas by the agreed date, can be issued with a penalty of 50% of the outstanding amount, between £100 and £5,000. The award itself is still owed on top.
Where small employers most often get minimum wage wrong
The National Minimum Wage Act 1998 makes paying below the legal rate a breach whatever the reason. Most minimum wage underpayments are not deliberate. They come from pay practices that look reasonable but take a worker’s effective hourly rate below the legal minimum. From 1st April 2026, the rates are £12.71 an hour for workers aged 21 and over, £10.85 for 18 to 20-year-olds, and £8.00 for 16 and 17-year-olds and apprentices.
The common causes:
Deductions and costs for uniforms or equipment. Requiring staff to buy a uniform, tools or safety kit, or deducting the cost from pay, can take pay below the minimum for that pay period.
Unpaid working time. Pre-shift briefings, opening and closing up, security checks, mandatory training and travel between jobs during the working day all count as working time.
Salaried staff working extra hours. A salary that covers the minimum wage for contracted hours may not cover it once regular overtime is included.
Apprentice rate errors. The apprentice rate only applies to apprentices under 19 or in the first year of their apprenticeship. After that, the rate for their age applies.
Missed rate changes. Pay must rise on 1st April each year and when a worker moves into a new age band, from the start of the next pay period.
Accommodation charges. Where an employer provides accommodation, only up to £11.10 a day can count towards minimum wage pay.
Unpaid trial shifts. A trial shift that involves doing real work is likely to be paid work.
Tips and service charges. These cannot be used to top up pay to the minimum wage.
Holiday pay records: the duty that is already in force
Holiday pay is where small businesses have the most preparation to do. Since 6th April 2026, employers have had to keep adequate records showing that they have complied with workers’ statutory holiday entitlements, and keep them for six years. Failing to do so is a criminal offence, with a potentially unlimited fine.
The records must show:
each worker’s statutory leave entitlement and the leave they have taken
holiday pay paid for that leave
any leave carried over from one holiday year to the next
payments for untaken statutory leave when employment ends
There is no prescribed format. Holiday software, a payroll system or a well-kept spreadsheet can all work, provided it covers each of these points and can be produced if asked. The duty covers records from 6th April 2026 onwards; it does not require businesses to recreate older records.
The records are what the FWA will look at first once holiday pay enforcement starts, because they are how an employer will demonstrate compliance. The usual problem areas are holiday pay that leaves out regular overtime, commission or allowances, and holiday entitlement for irregular-hours and part-year workers. Both are worth checking well before 2027.
How to prepare: a checklist for small employers
Run a minimum wage check. For each worker, divide pay for the pay period by all hours worked, after deducting any costs the worker bears. Check apprentices and anyone who recently had a birthday.
Review holiday pay calculations. Confirm what is included in a week’s pay for the first four weeks of leave, and how irregular-hours workers accrue holiday.
Put holiday records in order. Make sure entitlement, leave taken, pay, carry-over and payments on leaving are recorded for every worker, and that the records will survive for six years, including if payroll software changes.
Fix underpayments before anyone asks. Repaying arrears before an investigation starts is the most effective way to avoid penalties and naming.
Check labour providers and agencies. The FWA’s investigations can extend to businesses that use agency or supplied workers, so agreements should confirm that workers are paid correctly.
Check statutory sick pay. Since 6th April 2026, statutory sick pay has been payable from the first day of sickness with no lower earnings limit. Payroll settings and sickness policies written before then may still apply the old waiting days and earnings test, and enforcement will move to the FWA.
Agree who handles contact. Name a person and a back-up, and brief front-line staff.
The broader direction is clear. With employment tribunal time limits extended to six months from October 2026 and a single agency able to check minimum wage, holiday pay and other statutory pay together, the cost of informal pay practices has risen. Businesses that tidy up records and pay calculations now will find an FWA visit routine rather than expensive.
Frequently asked questions
What is the Fair Work Agency?
The Fair Work Agency is a government enforcement body that launched on 7th April 2026 under the Employment Rights Act 2025. It brings together minimum wage enforcement, employment agency regulation, gangmaster licensing and action on labour exploitation, and will take on enforcement of holiday pay and statutory sick pay.
Does the Fair Work Agency enforce the minimum wage?
Yes. The FWA has legal responsibility for national minimum wage and national living wage enforcement. HMRC staff continue to carry out the work on its behalf until the function fully transfers in April 2027.
When will the Fair Work Agency start enforcing holiday pay?
Holiday pay enforcement is due to start in 2027 and not before April 2027. A consultation on how it will work closed on 22nd September 2026. The duty to keep six years of holiday records has applied since 6th April 2026.
Can the Fair Work Agency visit without warning?
Yes. Most visits are arranged in advance, but officers can carry out unannounced visits. They can enter business premises with consent or a warrant, and need a warrant to enter a private home without consent.
What penalties can the Fair Work Agency issue?
For minimum wage underpayments, employers must repay arrears and pay a penalty of 200% of the underpayment, with a minimum of £100 and a maximum of £20,000 per worker, halved if paid within 14 days. Employers can also be publicly named, and serious or deliberate breaches can lead to prosecution.
How can employers contact the Fair Work Agency?
The FWA’s guidance contact is contact@fairworkagency.gov.uk. Until it takes over holiday pay and statutory sick pay enforcement, workers’ concerns about either should go to Acas.
Can the Fair Work Agency bring tribunal claims against employers?
Yes. Under the Employment Rights Act 2025, the FWA can bring tribunal claims on behalf of workers who are unable or unwilling to bring them themselves, give workers legal assistance and recover its enforcement costs from the employer.
Does the Fair Work Agency apply to small businesses?
Yes. There is no exemption based on business size. The same pay, holiday and record-keeping rules apply to an employer with one worker as to one with thousands.
The Fair Work Agency has been operating since 7th April 2026. It can turn up at a workplace unannounced, demand payroll records, interview staff and issue penalties of up to £20,000 per underpaid worker. Most of its attention so far has gone on agency work, exploitation and minimum wage, but holiday pay comes into its remit from 2027 – and the records it will ask for are ones employers have had to keep since April.
For most small businesses, the Fair Work Agency does not create new obligations. Minimum wage, holiday pay and sick pay rules were already law. What changes is the likelihood of being checked, the range of rights one body can check, and the speed at which a mistake can turn into a penalty. A business that pays correctly and can prove it has little to fear. A business that pays correctly but cannot prove it is in a much weaker position than it was a year ago.
