How will the Fair Work Agency change labour rights enforcement?
Introduced as part of the Employment Rights Bill (ERB), the Fair Work Agency (FWA) is a step change in how basic employment rights in the UK are enforced. The ERB is currently being scrutinised by the House of Lords, and although it is expected to be passed in the late summer/early autumn 2025, it is not clear when the FWA will be launched.
So what will the FWA do, how could it change employment law enforcement in the UK and what should employers be doing to prepare?
How are labour rights currently enforced?
Most employment rights in the UK are enforced by individuals by bringing claims through the employment tribunal system. Generally, regulatory enforcement is limited and fragmented. For example, HMRC is tasked with enforcing the National Minimum Wage while the Employment Agency Standards Inspectorate and the Gangmasters Licencing Agency Authority enforce the rights of agency workers.
Bringing together the existing enforcement bodies, the FWA will be set up by the Department for Business and Trade and will be responsible for enforcing:
- The National Minimum Wage (NMW)
- Holiday pay
- Statutory Sick Pay; and
- Tackling modern slavery.
In time, the FWA may take on the enforcement of other employment rights too.
How is the enforcement of holiday pay changing?
One of the key responsibilities of the FWA will be enforcing holiday pay regulations. This extends the focus of regulatory enforcement to vulnerable workers, at risk of being exploited by not receiving any holiday entitlement or being paid the correct holiday pay. According to estimates, around £2.1 billion in holiday pay was withheld from 900,000 workers in 2023 alone.
All employers will need to make sure they are complying with their legal obligations relating to holiday entitlement and pay in light of new regulations that were introduced on 1 January 2024. Many employers have been caught out by the complexity of the NMW regulations through the enforcement activities of HMRC. The new regulations around holiday pay calculations are just as complex, and we may see the same challenges emerging as the FWA begins to flex its regulatory powers.
What are the FWA’s powers of inspection and disclosure?
To better understand the FWAs powers we can look to how HMRC enforces NMW regulations today. Like HMRC, the FWA will have the power to inspect workplaces, interview workers and order disclosure of relevant documentation by employers.
Penalties for non-compliance
HMRC has the power to impose financial penalties of 200% of any underpayment of NMW it identifies over a six-year period. It can also refer an employer to the Department for Business and Trade to be named publicly if the total underpayment exceeds £500. The most recent list published included more than 500 employers, with over £7.4 million of underpayments to 60,000 workers.
The FWA will have the power to issue the same penalties for underpaying holiday pay, although there is currently no provision to publicly name employers for non-compliance. Although, that power could follow in further regulations once the ERB comes into effect.
Directors, responsible managers and even shareholders can also be held personally liable if they have knowingly or negligently allowed the employer to breach these basic employment rights.
Power to bring employment tribunal claims
In a significant development, the FWA will also be able to bring employment tribunal claims on behalf of workers, and this won’t be limited to the employment rights it will enforce. This means the FWA could bring an unfair dismissal or discrimination claim against an employer.
This may have significant consequences for employers that are subject to an inspection by an FWA officer, and will place a greater burden of responsibility on them to ensure that their HR systems and processes don’t expose them to the risk of such claims.
What can employers do to prepare for the labour rights enforcement?
While the FWA is unlikely to come into force until Autumn 2026 at the earliest, employers can begin to prepare now for the changes it will bring.
Key actions include:
- Establish a project team with representatives from HR, payroll and tax. Appoint a project lead with the skills and capabilities to drive the project forward.
- Undertake an assessment of risks across the organisation, including an employment law audit, to identify any compliance gaps.
- Where there are material risks of non-compliance, identify remedial action (in the case of NMW and holiday pay, this will include calculating back payments to affected workers and potentially ex-workers).
- Introduce processes and controls to mitigate future risks and include these on the internal audit plan for regular risk audits.
- Seek professional legal advice where needed.
One of the challenges facing the government is to ensure the FWA has the resources it needs to be effective across its wide remit. Recommendations to the government are that it should have one FWA inspector per 10,000 workers. That would mean approximately 6,000 enforcement officers across the UK, when there are currently just over 500. This would represent a significant increase in the enforcement of UK employment rights and employers will need to be prepared.
To discuss an audit of your compliance with employment laws or how the FWA could impact your organisation, get in touch with us today.