What the Fair Work Agency means for your business

Insights from your HR consultant in Thanet on why the new Fair Work Agency matters to every small employer and what you can do right now to stay on the right side of the rules.

 

As a small business owner, you've probably assumed that nobody's actively checking whether your pay and leave records are spot on.

Until recently, you'd have been right.

Since April 2026, there's a new government enforcement body that can turn up, inspect your records and issue penalties without waiting for a complaint.

It's called the Fair Work Agency, and it changes the landscape for every employer.

Here's what you need to know and what's worth acting on now.

What should you actually be checking first?

I'm going to start with the practical stuff because that's what matters most if you're short on time.

The Fair Work Agency's initial focus is squarely on pay and leave. So those are the areas where you're most likely to face scrutiny. If you only have an hour to spend on this, spend it here.

Holiday pay calculations are the single biggest area of risk I see with small businesses. If any of your staff work irregular hours, do overtime, or earn commission, the way you calculate their holiday pay needs to reflect that. A flat rate based on basic salary alone won't cut it.

Your leave records need to be detailed enough to show exactly how much holiday was taken, how pay was worked out and what was paid. Since April 2026, you're legally required to keep these records for six years. If you can't produce them on request, that's a criminal offence with potentially unlimited fines.

Statutory sick pay has also changed. Since April 2026, SSP is payable from day one of sickness. If you're still applying the old waiting days, you're underpaying your staff and that's exactly the kind of gap the agency is looking for.

Payroll accuracy matters too. Can you demonstrate how each figure on a payslip was reached? If the answer involves digging through emails and half-updated spreadsheets, that's a vulnerability.

Is the Fair Work Agency really that different from what came before?

Yes. And here's why.

Previously, enforcement of things like minimum wage, holiday pay and sick pay sat with separate bodies. They operated independently and, frankly, the chances of a small business being proactively investigated were slim.

The Fair Work Agency has pulled all of that together under one roof with significantly broader powers. It can inspect your premises. It can demand your records going back six years. It can issue financial penalties. It can even bring employment tribunal claims on behalf of your workers.

Workers themselves can now report concerns directly through an online portal, without needing to raise a formal tribunal claim first.

A report published by the agency found that 14% of UK workers had experienced at least one breach of their basic employment rights in the two years before summer 2025. The agency was built to go and find those breaches proactively.

Myth: "It's only a problem if someone complains"

That used to be broadly true. Not any more.

The Fair Work Agency doesn't need a complaint to launch an inspection. It has been set up with the specific power to investigate employers off its own back. So the old approach of "no one's said anything, so we must be fine" doesn't hold.

Myth: "We're too small to be on anyone's radar"

The agency's enforcement remit covers every employer, regardless of size. The kinds of errors it's targeting, miscalculated holiday pay and outdated sick pay processes, are actually more common in smaller businesses where there's no dedicated HR team keeping track of changes.

Myth: "A small mistake won't cost much"

It can cost far more than you'd expect.

When the agency identifies an underpayment, it can issue a Notice of Underpayment covering up to six years. The financial penalty on top of what you owe can be as much as 200% of the underpayment, capped at £20,000 per worker. Pay up within the required timeframe and it drops to 100%, but that's still a substantial hit.

Picture a business with 15 employees where holiday pay has been slightly miscalculated for a couple of years. The combined total of back-pay plus penalties can quickly run into tens of thousands of pounds.

On top of the money, the agency can publicly list your business on a government register of non-compliant employers. That's the kind of thing a prospective client or customer finds with a quick online search.

What's happening with the transition?

The government has described 2026/27 as a transitional year. Right now, HMRC is still managing the day-to-day enforcement of minimum wage rules, but it's doing so under the strategic direction of the Fair Work Agency.

From April 2027, full enforcement of minimum wage and holiday pay transfers entirely to the Fair Work Agency. So the window to get your house in order before the agency is fully operational is closing.

Your records need to be solid

I want to come back to the record-keeping point because it's the one that catches people out most.

Since April 2026, every employer must maintain detailed records of annual leave and holiday pay for six years. That means documenting how much leave each person took, how their holiday pay was calculated and what was actually paid. For anyone on variable pay or commission, you need to show how those elements were factored in.

If your current system is a spreadsheet that gets updated sporadically, it's worth asking yourself honestly whether that would stand up to a formal inspection. Good HR software designed to track leave and entitlement is a sensible starting point and can take a lot of the manual effort out of it.

As part of my HR consultancy services, I regularly help businesses get their record-keeping into shape before it becomes a problem.

Questions worth asking yourself

Have a think about where you stand on these:

1. If an inspector asked to see your holiday pay calculations for the last two years, could you produce them clearly and quickly?
2. Do your employment contracts accurately reflect how your people actually work, including variable hours and overtime?
3. Are you applying the day-one SSP rules that came into effect in April 2026?
4. Could you explain how every figure on your payroll was reached if challenged?
5. Is your leave tracking system robust enough to survive six years of scrutiny?

If any of those gave you pause, it's worth getting them looked at sooner rather than later.

Getting ahead of this is always cheaper than reacting to it

Dealing with an enforcement notice is stressful, time-consuming and expensive. Having someone review your contracts, pay records and processes before the agency comes knocking is a much better use of your time and money.

As an outsourced HR consultant in Thanet, I can go through your current set-up, flag any gaps and help you put things right.

If you'd like to have a confidential chat about where your business stands, get in touch.

We can talk through what needs attention and how I can help you get it sorted.