The Fair Work Agency is coming: here’s what you need to know

There’s a lot of noise around the Employment Rights Act at the moment (and for good reason), but one major change that seems to be getting lost in all that noise is the introduction of the Fair Work Agency.

It’s not always the big headline item, but it’s one that’s going to have a real impact on what you do day-to-day, especially around pay, holiday and the records you keep.

The Fair Work Agency (FWA) is a new enforcement body being introduced as part of the Employment Rights Act 2025 (ERA), designed to strengthen how workplace rights are enforced.

You might think your current setup is fine, but the organisations most exposed won’t necessarily be the ones doing anything dramatic. It’ll be the ones where processes have become a bit informal over time, where records are scattered across inboxes, or holiday and pay decisions rely on the classic “how we’ve always done it” mantra.

And the penalties can be steep (in some cases, fines can reach 200% per employee, capped at £20,000), which means small errors can become expensive quickly.

So what does the FWA actually mean in practice, what powers do they hold and what should you be preparing for now?

What is the Fair Work Agency?

The Fair Work Agency (FWA) is a new enforcement body being introduced as part of the ERA changes and it’s being brought in to strengthen how employment rights are enforced, particularly where pay and working practices don’t meet the standard.

It will be a consolidation of several existing enforcement functions into one catch-all agency. In other words, it brings together responsibility for things like NMW enforcement (HMRC), labour exploitation and licensing (GLAA), and employment agency standards (EAS), alongside functions linked to unpaid tribunal awards and statutory payment enforcement.

To be crystal clear, this is not a light-touch regulator. Its model is intentionally proactive, investigative and interventionist, and that matters because it brings enforcement closer to the day-to-day running of your business.

It also won’t be a slow burn. The Agency begins operating from April, and enforcement activity is expected to ramp up quickly in the months that follow.

For HR teams and business owners, the biggest shift will be in what you’ll be expected to provide evidence of. You will need clear, accurate records that demonstrate decision making to ensure compliance. That means the everyday stuff becomes higher risk if it isn’t tight: payroll set-up, holiday calculations (especially where hours vary), pay changes, shift changes and the trail of approvals behind decisions.

The Agency begins operating from April, and enforcement activity is expected to ramp up quickly in the months that follow.

Why this matters for HR and businesses

Employment enforcement can sometimes feel reactive. An incident occurs, a complaint lands and then you respond. What we’re moving towards here is more scrutiny on whether your everyday practice stacks up, even when no one has raised a complaint.

And that’s why it’s more important than ever to have evidence. Doing the right thing matters of course, but being able to show you did the right thing matters just as much. For most businesses, that comes down to basics: how pay is processed, how holiday is calculated, how changes get approved and whether you can pull the records quickly when needed. And where records are missing or unclear, the risk increases because poor documentation can become a problem in its own right.

What can the FWA actually do?

Essentially, they’ll be able to go straight to the source. That means access to your payroll, HR and wider employment records, without notice.

They can also carry out inspections and speak to employees. That can happen either in-person or remotely. For many, the first sign of contact might be a meeting request landing in your inbox, followed by requests for data, documents, and a clear explanation of how your processes work in practice.

Crucially, action won’t always start with an employee complaint. The FWA can investigate suspected breaches even when no one has raised an issue. They can also initiate litigation on behalf of employees or in the public interest. So even if an employee has moved on and doesn’t want to pursue, say an underpayment, the FWA may still decide it matters and take it forward.

Plus, they can recover costs against the business as part of that process. In more serious cases, that can also mean being required to carry out remedial action, including payroll audits and fixing historical underpayments.

The financial consequences can add up quickly

And that’s where it can start to get expensive. Because once enforcement kicks in, you’re dealing with more than just putting the underpayment right. Underpayments can happen for all sorts of reasons, from pay errors and incorrect hours calculations through to misclassification and unlawful deductions. But holiday pay is a good example of how quickly the numbers can add up.

If you’ve miscalculated holiday for employees with variable or irregular hours, the financial consequences could be up to 200% per employee. Even with a cap of £20,000, that’s still serious money for what can start as a small payroll issue.

To put numbers on it: a £3,000 underpayment across ten employees in a call centre or shift-based team can quickly become far more than a correction. It could mean a penalty that doubles the cost of putting things right. For larger organisations, it scales fast when the same issue sits across multiple teams or sites.

There’s also going to be no excuses here – don’t build a comfort blanket around intent because there is no requirement to prove intent. The focus is simply whether the error happened, and whether you can evidence how you’ve addressed it.

Out-of-date policies, administrative errors, outdated pay systems, inconsistent practices. All of that creates financial liability, and there can be additional penalties on top of that as well.

Fines for non-compliance can reach 200% per employee, capped at £20,000.

What should you do now, practically?

Shortcuts, undocumented decisions and grey areas are the things that create exposure. So, the priority now is tightening the basics and making sure you can evidence what’s happened, when and why.

1). Tighten the basics with HR and payroll together

Start where the risk tends to sit: payroll accuracy, holiday calculations and record-keeping. Get HR and payroll looking at this together, because most problems don’t live neatly in one team. They sit in the handover between a manager decision, the documentation trail and what payroll actually processes.

2). Get holiday and other statutory leave entitlements watertight

Holiday is a good place to focus, especially where hours vary. You should be able to look back and say, confidently, that each person has received the right entitlement and the right pay. If you can’t then you need to ensure you have the right reports or tools to ensure compliance. That may mean auditing contracts, working hours, building reports and how those hours are set up in your systems.

3). Train managers to document decisions properly

Train. Your. Managers. If managers make decisions that affect pay, hours, or working patterns, and it’s on them to record those decisions, get them trained up. If it lives in someone’s head or disappears into an inbox, it will likely come back and bite later.

By April, the window closes and it’s going to be a very tricky situation for anyone who finds themselves in front of an audit.

Need a hand getting over the line?

If you’re looking at all this and wondering where to even begin, don’t fret – that’s exactly what our ERA Consultancy service is here for. We’ll work with you to get the essentials in place, including:

• Sense-checking where your biggest risks lie so you can focus effort in the right places
• Compliant documents and processes so decisions don’t get lost in inboxes or instant messages
• Expert support and training for managers to help teams follow a consistent approach day-to-day

You can find out more about our ERA Consultancy service and the different ways we can support you here.