The Employment Rights Act 2025: A Focus on the Fair Work Agency

The introduction of the Fair Work Agency represents one of the most significant changes to employment law enforcement in recent years. Whilst many employers are familiar with enforcement by HMRC and other regulators, the new agency will bring together enforcement powers under a single framework and gradually take responsibility for an expanding range of employment rights.

The Employment Rights Act 2025 creates a new system of labour market enforcement and makes provision to transfer the functions of existing enforcement bodies to the Secretary of State for Business and Trade. The Secretary of State’s operational powers will in practice be exercised by the Fair Work Agency (“FWA”), a new executive agency.

Established on 7 April 2026, the FWA aims to bring together the work of existing agencies and enforce rights such as holiday pay, statutory sick pay, national minimum wage, unpaid tribunal awards and other duties. Historically the enforcement of labour market rules and employment law rights was carried out by a number of different bodies in the UK. The FWA aims to simplify this system and be a single place where workers and employers can turn to by providing one leadership team to improve efficiency and oversee work in line with unified strategy.

The FWA will undergo a “transitional year” from 2026 to 2027 and will gradually take on enforcement of a wider range of employment rights from existing state enforcement bodies including a clear plan to commence holiday pay enforcement in 2027.

Whilst some powers remain subject to commencement, employers already face a significantly enhanced enforcement environment and should begin preparing now for the wider powers expected to follow.

What are the FWA’s enforcement powers and when do they come into force?

The FWA has wide ranging powers including to require information, enter premises, enforce holiday and statutory sick pay, issue penalties, bring claims on behalf of workers and recover enforcement costs. We explore some of the key enforcement powers below:

Powers to obtain documents or information and to enter premises (in force)

The FWA has the power to require any individual to attend a meeting and answer questions where it reasonably believes the individual is able to provide relevant information necessary for any enforcement purpose. Further, FWA enforcement officers have the power to enter any premises to inspect any documents, to require any person on the premises to produce documents, or to access any computer or other equipment used to process or store information.

In such a scenario, a warrant would still be required to enter a dwelling and the power to enter any premises may only be exercised at a reasonable time unless there are grounds to suspect delaying such entry may frustrate the purpose of entering the premises.

Labour market enforcement undertakings and orders (in force)

From 7 April 2026 the regime for labour market enforcement (“LME”) undertakings and orders moved to the Employment Rights Act 2025 with oversight by the FWA. The regime is intended to address labour market offences in cases where prosecution may be disproportionate, providing a compliance-focussed alternative through remedial measures designed to prevent further offending and protect workers.

For example, in the context of national minimum wage enforcement, an LME undertaking may be appropriate alongside a notice of underpayment where there is a risk of further offending. For example, an undertaking may include requirements to improve record-keeping or to produce specified documents within defined timescales where obstruction or poor compliance has been identified.

An LME undertaking is a voluntary agreement between the FWA and a person or business suspected of committing a labour market offence, requiring specified corrective actions for up to two years. If an undertaking is refused or breached, the FWA may seek an LME order from a court, or a court may impose an order following conviction.

Both undertakings and orders can impose proportionate prohibitions, restrictions or requirements aimed at securing future compliance, may operate alongside other enforcement tools and are generally used in more serious or persistent cases where civil sanctions alone are insufficient, but prosecution is not yet considered necessary.

Notices of underpayment (in force)

The Employment Rights Act 2025 introduces a new, unified enforcement regime enabling the Secretary of State to issue notices of underpayment to employers and other liable parties who have failed to pay sums due under specified labour market legislation, including the national minimum wage and, in due course, statutory sick pay and holiday pay.

A notice can require payment of arrears within 28 days and may cover underpayments dating back up to six years, subject to certain limitations and transitional provisions. The regime is backed by significant financial penalties with the government proposing penalties generally set at 200% of the underpaid amount (subject to a minimum of £100 and a maximum of £20,000 per worker), although a 50% reduction is available for prompt payment.

Recipients of such a notice have a right to appeal to the employment tribunal on limited grounds, while the Secretary of State may withdraw and replace defective notices where necessary. Unpaid sums can ultimately be enforced through the courts, and penalties are recoverable as civil debts. From 6 April 2026, these provisions replace the previous national minimum wage underpayment enforcement framework, creating a single enforcement mechanism across a wider range of statutory employment rights.

The government has recently consulted on holiday pay enforcement, covering (1) the proposed approach to holiday pay compliance and enforcement by the FWA; (2) key design features of the enforcement regime, including the claim period, penalty settings and targeting; and (3) support and guidance the FWA should provide to help employers comply. The consultation closed on 22 September 2026 and we await the government’s response.

Naming employers (in force)

The regime for naming employers, who fail to pay the national minimum wage and are issued with a notice of underpayment, will continue under the FWA and this power will be transferred from HMRC. The government is also consulting about naming employers who fail to pay the correct holiday pay. More on that below regarding the “consultation on holiday pay.”

Recently, high profile names including Tesco, B&Q, Five Guys and Leeds United Football Club were amongst 660 employers on the “name and shame” list for breaches of their legal obligations to pay workers at least the National Minimum Wage. This was the first naming round since the FWA was established. Although HMRC continues to enforce the minimum wage on the FWA’s behalf during the transition period, it is an indication of how the FWA’s power to “name and shame” will work going forward.

Power to bring employment tribunal proceedings (not yet in force)

In a case where a worker has the right to bring an employment tribunal claim, and it appears to the Secretary of State that the worker is not going to bring such proceedings, the Secretary of State will have the power to bring those proceedings in place of the worker. This provision has not yet been brought into force.

It is important to note that any decision or award made by the employment tribunal would continue to be made in favour of the worker and not the Secretary of State. Any appeal against employment tribunal decisions may be brought by the worker as well as the Secretary of State.

This is a significant change to existing practices, and it is not yet clear how often these powers will be utilised. The government has so far indicated that usual practice would be for the Secretary of State to bring proceedings with a worker’s consent and involvement, but the Secretary of State may choose to bring proceedings without consent where a worker fears reprisals from their employer if they do consent, there is a lack of awareness or a language barrier.

What we know so far is that, at the House of Lords Committee Stage, Baroness Jones confirmed that this enforcement power is not intended to create new employment rights and will only apply where an individual already has the right to bring employment tribunal proceedings. We are expecting detailed guidance in due course on how the FWA will exercise this power in practice.

Power to provide legal assistance (not yet in force)

The Secretary of State will be able to assist a person who is or may become party to civil proceedings “relating to employment or trade union law or the law of labour relations.” This will include providing legal advice and representation; however, this power does not extend to the provision of facilities to settle a dispute. This provision is not yet in force.

This is once again a new power which has not been seen before within employment litigation. Currently we have no detail as to which cases may be chosen for assistance or what kind of assistance may be provided. The government has indicated that it may include “help in understanding procedural requirements, preparing documents or accessing expert input.”

Power to recover costs of enforcement (not yet in force)

The Employment Rights Act 2025 enables regulations to be made to require a charge to be paid in the event of a failure to comply with any relevant labour market legislation. The idea is that any amounts received will be paid into the Consolidated Fund. The exact amount of such charge is currently unknown, and we expect details to be set out in regulations. This is not yet in force, and we expect to have further details in due course.

What are the key things employers should be doing to prepare?

Audit pay practices and compliance

An immediate priority for employers is to review and ensure compliance with existing statutory pay obligations. The FWA’s notices of underpayment regime is already in force and can carry significant penalties with the ability to recover arrears going back six years. Employers should conduct thorough reviews of their national minimum wage, holiday pay, and statutory sick pay calculations to identify and rectify any underpayments. The recent “naming and shaming” round in September 2026 illustrates that even unintentional breaches will not prevent public identification and risks negative impact on employers’ reputations.

Review record-keeping and document management

The FWA already has in force powers to require individuals to attend meetings and answer questions, and its enforcement officers can enter premises to inspect documents and access computer systems. Employers should ensure their employment records (including pay, holiday entitlement, working time and contractual documents) are accurate and up to date as well as being readily accessible. Poor record keeping is likely to be a significant vulnerability under this new enforcement framework.

Prepare for holiday pay enforcement

The government’s consultation on holiday pay enforcement signals that proactive holiday pay enforcement by the FWA is expected to commence in 2027. Employers should review how they calculate and pay statutory holiday pay, including whether they are correctly accounting for overtime, commission and other variable pay elements, Although the consultation does not propose changes to how holiday pay is calculated, the enforcement mechanism will allow the FWA to recover arrears where holiday pay has been underpaid, not paid or calculated incorrectly.

Looking ahead

The Fair Work Agency signals a shift towards more proactive enforcement of employment rights. Whilst some powers are already in force and others will follow over the coming months, employers should use this transition period to review compliance procedures, payroll practices, record-keeping processes and holiday pay calculations. Taking action now may help reduce the risk of investigations, penalties and reputational damage as the agency’s powers continue to expand.

If you would like advice on preparing for the Fair Work Agency’s enforcement powers or reviewing your compliance arrangements, our employment team would be happy to help.

This content is provided for general informational purposes only and does not constitute legal advice. It is not intended to address the circumstances of any individual or entity, nor should it be relied upon as a substitute for specific advice from a qualified solicitor. The information reflects the legal position as at the date specified and may be subject to change. If you require advice on a specific matter, please contact us directly.