Fair Work Agency: What It Means for Your Business
Guidance from an HR consultant in St Albans, supporting businesses across London, on the new enforcement body that can inspect your pay records, issue penalties and look back six years.
If you run a small business, you may well have assumed that nobody is actively checking whether your staff are paid correctly.
Until recently, that assumption held up. Unless someone raised a complaint, there was no one knocking on your door.
Since April 2026, a new government body called the Fair Work Agency has changed that. It can go looking for problems without waiting for anyone to complain.
As an HR consultant based in St Albans and working with employers across London, here is what I think you need to know, and what to do about it.
One enforcement body with real authority
Before April 2026, enforcement of employment rights was split between several bodies. Minimum wage sat with one organisation, holiday pay with another, and statutory sick pay was handled somewhere else again.
The Fair Work Agency has brought all of that together. It now oversees enforcement across minimum wage, holiday pay, statutory sick pay and agency worker protections.
What sets it apart is the range of its powers. It can visit your premises, ask for your records, impose financial penalties and even bring employment tribunal claims on behalf of your workers.
Employees can also report concerns directly through an online portal, which bypasses the tribunal process altogether.
A transitional period, and the window that is closing
The government has described 2026/27 as a transitional period. Day-to-day minimum wage enforcement stays with HMRC for now, although under the agency's strategic oversight.
From April 2027, full responsibility passes to the Fair Work Agency, together with holiday pay enforcement powers. The time you have to get your house in order is getting shorter.
Why pay and leave come first
The agency is focusing first on how businesses handle pay and leave, and there is a clear reason. A report it published shortly after launch found that 14% of UK workers experienced at least one breach of their basic employment rights in the two years before summer 2025.
That is a substantial figure, and the agency was created specifically to tackle it.
The mistakes behind these breaches are rarely deliberate. Two of the most common I come across are:
Holiday pay calculated incorrectly for employees who work overtime or have irregular hours
Statutory sick pay still run under the old rules, despite the move to day-one entitlement in April 2026
Errors like these build up quietly over months and years. They do not feel serious until someone looks closely. For more on the sick pay changes, see our guide to the new UK statutory sick pay rules.
The record-keeping duty you cannot ignore
Since April 2026, every employer has had to keep detailed records of annual leave and holiday pay for at least six years. That means recording how much leave each employee took, how their holiday pay was worked out and what was actually paid.
For employees on variable pay or commission, you also need to show exactly how those elements were included in the calculation.
Failing to keep adequate records is a criminal offence, and the fines are potentially unlimited.
If your system relies on a spreadsheet that is only updated now and then, ask yourself whether it would stand up to a formal inspection. Proper HR software that tracks leave entitlements and calculations is a practical first step.
This is one of the areas I am asked to help with most often through my HR consultancy work in St Albans and London.
How the penalties work
When the agency finds an underpayment, it can issue a Notice of Underpayment that reaches back up to six years. The cost goes beyond simply repaying what was owed.
Penalties can reach 200% of the underpayment, capped at £20,000 per affected worker. If you settle within the required timeframe, the percentage falls to 100%. Even at the lower rate, the total climbs quickly once you multiply it across your workforce.
Picture a business with 15 or 20 employees where holiday pay has been slightly miscalculated for a couple of years. The combined liability could be considerable.
The agency can also publicly list your business on a government register of non-compliant employers. Prospective clients and customers can easily find that kind of information.
Five areas to review now
Rather than wait for an inspection, it makes sense to check the areas most likely to draw scrutiny. I would start with these:
Holiday pay calculations for anyone whose hours or earnings fluctuate. Are you confident the method you use is correct?
Leave records and whether they hold enough detail to withstand six years of retrospective review.
Employment contracts and whether they accurately reflect how your people really work day to day.
Statutory sick pay processes and whether they have been updated for the new day-one entitlement.
Payroll records and whether you can clearly show how each figure was arrived at.
If your paperwork is scattered across email threads and ad hoc spreadsheets, those are the gaps an inspector will find first.
"We've always done it this way" will not satisfy an enforcement review.
Questions to ask yourself
Could you produce six years of detailed holiday pay records if asked for them tomorrow?
Do your contracts reflect how your staff actually work, or have roles changed without the paperwork keeping up?
Have you updated your statutory sick pay process for the day-one entitlement?
If an inspector reviewed your payroll, could you explain how every figure was calculated?
If the answer to any of these is uncertain, it is worth tackling sooner rather than later.
Get support from a St Albans HR consultant covering London
The most cost-effective approach is to have someone review your contracts, pay records and leave documentation before the agency does.
Finding gaps now lets you put things right on your own terms, without the stress and expense of responding to an enforcement notice.
Based in St Albans and working with small businesses across London, I carry out exactly this kind of review. It is a straightforward process and it gives genuine peace of mind.
If you would like a confidential conversation about where your business stands, please get in touch. I am happy to talk you through what is involved and how we can help.
This article is general guidance based on the position at the time of writing and is not legal advice. Details may change as the agency's powers are phased in.
