The Fair Work Agency: the government’s new Magic Mirror

Once upon a time, employment law enforcement was a familiar, and somewhat predictable, story. Workers enforced their own rights, usually reluctantly and after something had gone wrong. Trade unions might step in. Regulators largely stayed in the background.

That story has now changed.

Hidden deep inside the Employment Rights Act 2025 is what may turn out to be its most consequential reform: the creation of the Fair Work Agency (FWA). If the rest of ERA 2025 is about empowering individuals, the FWA is something very different. It is the government’s Magic Mirror – watching, judging, and deciding which employers in the land are truly the fairest of them all.

The question that employers should be asking: is this a fairy tale, or a cautionary one?

One mirror, one voice

The Fair Work Agency, operational since 7 April 2026, is the Department for Business and Trade’s new executive agency and brings together functions previously exercised by multiple enforcement bodies, including HMRC’s National Minimum Wage unit and the Employment Agency Standards Inspectorate. 

The government’s stated that the aim was to replace a “fragmented and inefficient” system with a unified, proactive enforcer of core employment rights. One with increased funding – over 25% more than its predecessor bodies combined. This funding was put to use almost immediately, with a foray into social media and the FWA’s very own TikTok account. While quickly deleted, this was a small but telling indication that this is a regulator that intends to be more present and accessible.

Power across the land

Newly published government-commissioned research found that around one in seven workers in the UK has experienced at least one breach of employment law falling within the FWA’s enforcement remit.

Against that backdrop, the intention of the FWA is therefore clear. Rather than waiting for an employee to blow the whistle while they work, the FWA is designed to act proactively, targeting sectors and employers it considers high risk. 

Inspectors can enter business premises, require documents and information to be shared, inspect payroll and holiday records, and compel individuals to attend meetings and answer questions. 

Where underpayments are identified, the FWA can issue notices of underpayment, requiring repayment of arrears and imposing civil penalties of up to 200% of the sums due, capped at £20,000 per worker. 

Sectors with variable hours, lower average pay, complex working time patterns and/or high staff turnover (think retail, hospitality and social care) will likely be in the FWA’s sights. Those sectors are highly susceptible not only to proactive inspection, but also to reputational consequences, with the FWA expected to continue and expand the use of public naming schemes that identify non‑compliant employers irrespective of intent. 

While these powers already exist for minimum wage enforcement, the FWA’s remit will extend them to holiday pay and statutory sick pay over time. Combined with the increase in funding, it is clear that the FWA intends to use these powers to a greater degree than we have seen in the past.

Shovel, pick, and six years’ worth of holiday pay records

Recent evidence suggests that a significant proportion of worker harm arises not from deliberate underpayment, but from so‑called “administrative violations”. Record keeping therefore sits at the heart of this new regime.  Pay, hours and holiday records are considered as important to a business as the tools of their trade.

Inspectors have explicit powers to demand records in a visible and legible form, including electronic records, potentially going back six years.

What the legislation does not do is prescribe a particular system or format for records. Employers are only required to create, maintain and keep records in such manner and format as it reasonably thinks fit. 

The FWA’s focus will be on clarity, accuracy and retrievability. If an employer’s records are not considered “reasonable”, financial penalties may be enforced and there will be an increased likelihood of wider inspection and reputational exposure.

These inspection and enforcement powers are significant in themselves, but they are not where the story ends.

A poisoned apple?

Perhaps the most controversial power of the FWA currently sits quietly in the legislation, yet to be enforced – the ability for the Secretary of State to bring employment tribunal proceedings on a worker’s behalf, where it believes the individual has a claim but is unlikely to pursue it themselves.

No grievance is required. No ACAS early conciliation. No request from the employee.

The legislation does not require the worker to be consulted and, strikingly, there is no right for the worker to veto the claim, even if they actively object to their name being used.

Any proceedings will be brought in the worker’s name, and any award goes to them – yet the issue of proceedings, litigation strategy and conduct of the case rests with the FWA. Even more starkly, the legislation provides that the Secretary of State “is not liable to any worker for anything done (or not done)” when exercising this power.

That means no liability for reputational damage, no responsibility for the consequences to the employment relationship, and no exposure even to adverse costs consequences. 

For employers, this power will fundamentally shift litigation risk. The likelihood of claims will no longer be readily dismissed based on workforce happiness or the loyalty of senior staff.

Will there be a happy ending?

For employers, this amounts to a step change in enforcement risk: more proactive inspections, data‑driven targeting, tribunal claims without the usual warning signs, and real reputational exposure through published enforcement action.

To get their happily ever after, employers should consider taking the following practical steps:

• Reviewing pay compliance: Carrying out an internal review of minimum wage compliance, including deductions, salary sacrifice arrangements and working time calculations.
• Auditing holiday pay and records: Ensuring holiday entitlement and pay are calculated correctly and that records clearly show entitlement, leave taken and pay paid.
• Checking document retention practices: Confirming that pay, hours and leave records are retained securely for at least six years and can be produced quickly if requested.
• Training HR, payroll and managers: Ensuring relevant teams understand the FWA’s powers and how to respond appropriately to inspections or information requests.
• Preparing for inspections: Having a clear internal process for dealing with FWA engagement, including escalation routes and identifying who would have overall responsibility for any inspection or enquiry.
• Addressing issues early: No delaying – the FWA’s enforcement policy makes clear that self‑correction and early engagement can influence enforcement outcomes. 

If you would like assistance with improving your practices, or wish to discuss any of the Employment Rights Act 2025 changes in more detail, please reach out to a member of our employment team, or visit our Employment Rights Act 2025 Hub to keep up to date with changes.

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