The Employment Rights Bill has become the Employment Rights Act 2025 (it received Royal Assent on 18 December 2025) (“ERA 2025”). A key change is the creation of the Fair Work Agency (FWA), which will bring together the enforcement of a number of employment rights.
With significant changes to employment law on the horizon, it is more important than ever for employers to understand what’s coming and how it may impact their business. This article is designed to help employers stay ahead of these changes. You will learn how the FWA will be responsible for enforcing a wide range of employment rights, and how it is set to change the way businesses handle things like holiday pay, sick pay, and working conditions. By preparing now, you can reduce the risk of enforcement action and claims and stay ahead of the changes.
If you are looking for help with reviewing your record keeping and processes our employment law solicitors are on hand to ensure you remain legally compliant.
Contents:
What will the Fair Work Agency cover?
The newly created Fair Work Agency will take over the existing enforcement functions of HM Revenue and Customs, the Employment Standards Agency Inspectorate and the Gangmasters and Labour Abuse Authority.
It will enforce labour market legislation, which includes:
- National minimum wage rights (NMW)
- Statutory Sick Pay (SSP)
- Entitlement to annual leave and payment of statutory holiday pay
- The new legal duty created by ERA 2025 to keep ‘adequate’ annual leave records and retain them for six years. Failure to comply is treated as an offence under the Working Time Regulations 1998 (as amended by ERA 2025).
- Financial penalties for failure to pay sums ordered by an Employment Tribunal or in an ACAS COT3 agreement.
- Rules relating to employment agencies and employment businesses
- Labour Market Enforcement Undertakings and Labour Market Enforcement Orders.
- Modern slavery offences
- Gangmasters licencing
- Payments under ratified agreements with Social Care Negotiating Bodies (these will also be established under ERA 2025, likely in October 2026)
It is worth noting that the Fair Work Agency is intended to bring key enforcement functions into one place from April 2026, and some areas (including holiday pay and SSP enforcement) are expected to be phased in over time.
For more information, read our article on the new statutory sick pay rates and what they mean for your business.
What powers will the Fair Work Agency have?
The Fair Work Agency will be able to:
- Enforce failure to pay certain statutory payments to workers, including holiday pay and SSP, based on existing powers to enforce the NMW.
- Enforce failure to pay certain statutory payments to workers, including holiday pay and SSP, modelled on existing powers to enforce the NMW.
- Enforce an employer’s failure to comply with the new obligation to keep holiday records.
- Bring Employment Tribunal proceedings on behalf of a worker, if the worker has the right to bring a claim but decides not to go ahead themselves.
- Provide legal help for employment related claims, such as helping employees to bring holiday pay claims.
- Issue a notice of underpayment to employers, which specifies the amount that must be paid within 28 days. This will be combined with a penalty of 200% of the sum due (expected to be subject to a minimum of £100 and a maximum of £20,000, per individual), payable to the Secretary of State. Underpayment notices will be capable of being appealed via a process in the Employment Tribunal.
- Claim their enforcement costs back from employers who don’t comply. This is new, and it means if you are investigated and found at fault, you could end up covering the Fair Work Agency costs too.
- Enter premises for inspection and require production of documents and evidence to demonstrate compliance (with the detail of how inspections work expected to be supported by further guidance as the Fair Work Agency becomes operational).
Will the Fair Work Agency carry out audits or inspections?
The Fair Work Agency is expected to have broad investigatory powers, including the ability to enter workplaces (or a dwelling, with a warrant), ask for records and evidence, and investigate suspected non-compliance. This will include being able to access computers, both hardware and software, and any other equipment. Exactly how these powers operate in practice will depend on the enforcement approach and supporting guidance as the Fair Work Agency becomes operational.
What kind of business practices could trigger an investigation?
Your business could be subject to investigation if it isn’t paying NMW, holiday pay, or statutory sick pay correctly; if it misclassifies employees or workers as self-employed contractors to avoid statutory payments; or if it fails to keep adequate employment records.
Record keeping is likely to be a big practical flashpoint, particularly for annual leave. If you can’t show your workings, it’s harder to demonstrate compliance.
What should employers be doing to prepare?
Holiday entitlement and pay will likely be one area where enforcement action will be focussed, so make sure your contracts and calculations are up to date and correct, with particular focus on those who work irregular hours and any rolled up holiday pay calculations. If you don’t already keep records of holiday, SSP, and NMW pay, then you should put systems in place to retain these for six years.
Summary
The new Fair Work Agency will change how employment rights are enforced across the UK. As an employer, you will need to demonstrate that you are complying with your legal obligations from the outset. Our specialist employment law solicitors can help you review your current contracts and statutory payments to ensure they are up to date with the latest rules and assist with any questions you may have.
