Fair Work Agency: What UK Employers Need to Prepare for in 2027

The Fair Work Agency (FWA) launched on 7 April 2026. It is the biggest change to employment enforcement in the UK for decades, and most employers have barely heard of it.

For the first time, the government has combined minimum wage enforcement, employment agency standards, gangmasters licensing, and labour exploitation into a single body with serious teeth. And by 2027, it will also enforce holiday pay, statutory sick pay, and umbrella company regulations.

If you employ people in the UK, this affects you. Here is what you need to know, what powers the FWA has, and exactly how to prepare before the full enforcement ramp-up hits in 2027.

What Is the Fair Work Agency?

The Fair Work Agency is an executive agency sponsored by the Department for Business and Trade. It was established under the Employment Rights Act 2025 as part of the government's Plan to Make Work Pay.

Its chair is Matthew Taylor CBE, author of the 2017 Taylor Review of Modern Working Practices. The FWA brings together enforcement functions that were previously scattered across multiple bodies, creating what the government calls a "single front door" for employment rights enforcement.

Who Does It Replace?

The FWA consolidates the work of three separate organisations:

HMRC National Minimum Wage team, which handled minimum wage complaints and investigations (transferring fully to the FWA in April 2027)
The Gangmasters and Labour Abuse Authority (GLAA), which licensed gangmasters and tackled labour exploitation
The Employment Agency Standards Inspectorate (EASI), which regulated recruitment agencies

Previously, if a worker had a minimum wage complaint, an agency standards issue, and a labour exploitation concern, three different bodies were involved. Now one agency handles all of it.

What Does the Fair Work Agency Enforce?

The FWA's remit is broad and expanding. In its transitional year (April 2026 to March 2027), it covers:

Already Enforced (April 2026)

National Minimum Wage and National Living Wage compliance (via HMRC contract until April 2027, then directly)
Employment agency regulations across England, Wales, and Scotland
Gangmasters licensing (UK-wide)
Serious labour exploitation and modern slavery offences (England and Wales)
Employment tribunal penalty scheme administration

Coming in 2027

Holiday pay enforcement, including a new requirement for employers to keep holiday pay records for six years
Statutory sick pay enforcement (currently there is no proactive enforcement of SSP, so this is entirely new)
Umbrella company regulation
Social care workers' pay compliance
Full transfer of NMW enforcement from HMRC

This phased approach matters. Many employers are treating April 2026 as the end point, when it is really the beginning. The FWA's most impactful enforcement powers will not land until 2027.

What Powers Does the FWA Have?

This is where it gets serious. The FWA is not an advisory body. It has real enforcement powers backed by statute.

Proactive Inspections

The FWA does not need a worker to complain before it investigates. It can conduct unannounced, proactive inspections of any employer. It starts with over 550 inspectors and the authority to:

Enter workplaces without prior notice
Demand production of payroll records, contracts, and timesheets
Interview workers and managers
Access records going back up to six years

This is a significant shift. Previously, HMRC's minimum wage enforcement was largely complaint-driven. The FWA's model is intelligence-led. It can and will target sectors with known compliance issues.

Penalties and Enforcement Actions

If the FWA finds you are underpaying workers, the consequences are steep:

Notices of Underpayment: requiring you to pay back every penny owed, often going back years
Financial penalties of up to 200% of the underpayment, capped at £20,000 per worker. If you pay within 14 days, the penalty drops to 100%.
Public naming: non-compliant employers are listed on a government register. This is reputational damage you cannot undo.
Cost recovery: the FWA can recover the costs of its own investigation from you
Tribunal claims on behalf of workers: the FWA can bring employment tribunal proceedings on workers' behalf, removing the burden from individual employees
Labour market enforcement orders: for serious or repeat offenders, court-ordered requirements to change practices

To put that in perspective: if you have underpaid 50 workers by £500 each, you could face a penalty of up to £1,000,000 (50 workers x £20,000 cap), plus the £25,000 in back pay, plus the FWA's investigation costs. And your business name published on a government list.

Criminal Offences

The most serious enforcement actions can be criminal. Failing to comply with gangmasters licensing, obstructing an FWA inspector, or committing modern slavery offences carry criminal penalties including prosecution.

Holiday Pay: The Big New Enforcement Area

Before the FWA, there was no state-level enforcement of holiday pay in the UK. Workers who were underpaid their holiday entitlement had to bring individual employment tribunal claims. Most did not bother.

That changes in 2027. The FWA will enforce holiday pay in the same way it enforces minimum wage: proactively, with inspections, penalties, and public naming.

The Six-Year Record-Keeping Rule

From 6 April 2026, employers must keep records of annual leave and holiday pay for up to six years. This includes:

Leave taken by each worker (dates, duration)
Holiday pay calculations showing how pay was worked out
Any carry-over of unused leave
Payments in lieu of untaken holiday
Evidence that part-year and irregular hours workers received the correct entitlement

If the FWA inspects and you cannot produce these records, you are assumed non-compliant. Inability to prove compliance could itself become an offence.

Why This Matters

Holiday pay calculations are one of the most commonly misunderstood areas of employment law. The Supreme Court's ruling in Harpur Trust v Brazel (2022) changed the calculation for part-year workers, and many employers still have not updated their systems.

If you employ workers on irregular hours, zero-hours contracts, or part-time arrangements, your holiday pay calculations need to be correct and documented. The FWA will check.

Statutory Sick Pay Enforcement

SSP enforcement is arguably the most radical new power. Currently, there is no proactive state enforcement of SSP. If an employer does not pay SSP correctly, the worker's only option is HMRC's largely passive dispute resolution process.

Under the FWA, SSP enforcement becomes proactive. Combined with the SSP from day one changes that took effect in April 2026 (removing the three waiting days and the lower earnings limit), this creates a new compliance pressure point.

The FWA will be able to inspect your SSP records, verify you are paying from day one of sickness absence, and penalise non-compliance.

How to Prepare: A Practical Checklist

You do not need to panic, but you do need to prepare. The FWA creates no new legal obligations for employers who are already compliant. The difference is that existing obligations are now being actively enforced.

1. Audit Your Wage Compliance

Run a self-audit on minimum wage compliance. Check that:

All workers (including apprentices and under-21s) are paid at least the relevant NMW/NLW rate
Salary sacrifice arrangements have not pushed anyone below minimum wage
Deductions for uniforms, tools, or accommodation do not reduce pay below the minimum
Salaried hours workers' actual hours do not exceed the hours assumed in their pay calculation

The FWA will use the same calculation methodology HMRC uses. If you have not checked recently, check now.

2. Fix Your Holiday Pay Records

This is the most urgent action item. From April 2026, you must maintain six-year records. Start now:

Implement a system that tracks leave taken, leave accrued, and leave carried over per worker
Document your holiday pay calculation method for each worker category
Ensure part-year and irregular hours workers receive the correct entitlement under Harpur Trust
Keep records of any payments in lieu of untaken holiday

If you are using spreadsheets, consider whether a proper HR system would be more defensible.

3. Review Your SSP Process

With SSP enforcement coming, review your sickness absence process:

Are you paying SSP from day one (as required from April 2026)?
Do you have a clear system for recording sick days and SSP payments?
Are you correctly applying SSP to workers who previously fell below the lower earnings limit?

For more detail on managing sickness absence, see our sickness absence guide.

4. Check Your Agency Worker Arrangements

If you use recruitment agencies, employment agencies, or umbrella companies:

Verify the agencies you use are properly regulated
Check that agency workers receive the correct pay and entitlements
Review umbrella company arrangements (regulation is expected in 2027)
Document your due diligence

5. Assign Compliance Ownership

Someone in your organisation needs to own FWA compliance. In smaller businesses, this is often the business owner or office manager. In larger organisations, this sits with HR or a dedicated compliance function.

Whoever it is, they need to:

Understand what the FWA enforces
Know where your records are kept
Be able to produce documentation if an inspector arrives unannounced
Monitor for regulatory updates as the FWA's remit expands

6. Review Your Employment Contracts

Ensure your employment contracts accurately reflect:

Working hours and pay rates
Holiday entitlement and calculation method
SSP entitlements (updated for day one rights)
Notice periods and probationary arrangements

Inconsistencies between contracts and actual practice are exactly what the FWA's inspectors will look for.

Which Sectors Are Most at Risk?

The FWA will use intelligence-led targeting, focusing on sectors with historically high non-compliance rates:

Hospitality: high use of variable hours, tip-related pay complexity, agency workers
Retail: minimum wage proximity, holiday pay for part-time and seasonal staff
Care: SSP complexity, long hours, agency usage, social care pay requirements
Construction: gangmasters licensing, umbrella companies, false self-employment
Agriculture: seasonal workers, gangmasters licensing, accommodation deductions
Cleaning and facilities management: minimum wage proximity, subcontracting chains

If your business operates in one of these sectors, expect to be inspected sooner rather than later.

What Happens If the FWA Inspects You?

If an FWA inspector arrives at your workplace, here is what to expect:

They may arrive unannounced. You cannot refuse entry if they have appropriate authority.
They will ask for records. Payroll data, contracts, timesheets, holiday records, and SSP records. You must produce these.
They will interview workers. Separately from management, to verify that records match reality.
They will issue findings. If they find non-compliance, you will receive a formal notice.
You will have a chance to respond. But the burden of proof is effectively on you. If your records are incomplete, the FWA will assume the worst.

The best defence is good records. If you can demonstrate compliance clearly and quickly, an inspection is an inconvenience, not a crisis.

Ready to Check Your Compliance?

The Fair Work Agency is not something to wait for. Its transitional year is already underway, and full enforcement is coming in 2027. The employers who prepare now will handle inspections smoothly. Those who do not could face significant financial penalties, reputational damage, and tribunal claims brought by the state on their workers' behalf.

Use our free EmployerKit Compliance Audit to check where your business stands on minimum wage, holiday pay, SSP, and other key compliance areas before the FWA comes knocking.

Frequently Asked Questions

Q: Does the Fair Work Agency create new legal obligations for employers?

A: No. The FWA enforces existing employment rights more effectively by combining them under one body with stronger powers. If you are already compliant with minimum wage, holiday pay, and SSP requirements, nothing changes for you. The difference is that non-compliance is now far more likely to be detected and penalised.

Q: When will the Fair Work Agency start enforcing holiday pay?

A: Holiday pay enforcement is expected to begin in 2027, though the exact date has not been confirmed. However, the six-year record-keeping requirement for holiday pay took effect on 6 April 2026. This means you need to start maintaining detailed records now, even before enforcement begins.

Q: Can the FWA inspect my business without a worker making a complaint?

A: Yes. The FWA operates an intelligence-led model, meaning it can conduct proactive inspections of any employer without needing a complaint. It has over 550 inspectors and will target sectors and businesses where non-compliance is likely. An inspection can happen at any time, without prior notice.

Q: What is the maximum penalty the FWA can impose?

A: For underpayment offences, the FWA can impose a penalty of up to 200% of the amount underpaid, capped at £20,000 per affected worker. If you pay within 14 days, the penalty is reduced to 100%. On top of this, you must repay all arrears, may be publicly named, and could have the FWA's investigation costs charged back to you.

Q: Is the FWA the same as HMRC for minimum wage purposes?

A: For now, HMRC continues to handle NMW enforcement under contract with the FWA until April 2027. After that, NMW enforcement transfers fully to the FWA. The enforcement methodology and penalty structures remain the same. If you have previously been investigated by HMRC for minimum wage, the FWA will have access to that history.

Q: Do I need to worry about the FWA if I only employ a few people?

A: Yes. The FWA's enforcement powers apply to employers of all sizes. Small employers are actually at greater risk of inadvertent non-compliance because they are less likely to have dedicated HR support. The FWA has indicated it will take a proportionate approach, but non-compliance is non-compliance regardless of business size.