The Fair Work Agency: What SMEs Need to Know and How to Prepare

The employment law enforcement landscape has changed.

Since 7 April 2026, the new Fair Work Agency (FWA), which operates across the UK including Scotland, has been operational, bringing several existing employment enforcement functions together within one agency. Its purpose is not only to take action where employment rights are breached, but also to support employers in understanding and meeting their responsibilities.

For SMEs, the message is straightforward:

Good HR compliance is becoming increasingly important and businesses should be able to demonstrate that their people practices, records and processes meet their legal obligations.

So, what does the Fair Work Agency mean for employers, what can it do now and what should SMEs be doing to prepare?

Who Is the Fair Work Agency?

The Fair Work Agency brings together several existing state enforcement functions under one organisation.

Its current responsibilities include:

• Regulating employment agencies and employment businesses

• Administering the gangmaster licensing scheme for labour providers in relevant sectors

• Tackling serious labour exploitation in conjunction with other enforcement bodies

The Agency also works alongside Acas to help employers understand and meet their legal responsibilities.

This is important for SMEs because the FWA has both a compliance-support role and enforcement powers.

The government's stated approach is to support employers that want to comply while retaining powers to investigate and take action against businesses that do not.

What Powers Does the Fair Work Agency Have?

The Fair Work Agency is more than an advice service.

Its enforcement framework includes powers to investigate potential breaches, inspect workplaces and require relevant documents and evidence to demonstrate compliance with employment law within its remit.

Depending on the area being investigated and circumstances, enforcement mechanisms can include civil penalties and measures requiring employers to correct non-compliance.

For employers, this places increased importance on being able to demonstrate not only that appropriate processes exist, but that they are actually being followed.

A policy on paper is only part of the picture.

The records behind it matter too.

What Is the FWA Looking at Now?

One of the most important things for SMEs to understand is the distinction between what the FWA currently enforces and what will come under its remit later.

National Minimum Wage

The FWA currently has responsibility for upholding compliance with key workplace rights including the National Minimum Wage.

Employers should therefore be confident that their pay arrangements and supporting records demonstrate compliance.

And minimum wage compliance isn't necessarily as simple as checking the hourly rate printed on a contract.

Businesses need good payroll and working-time information so they can understand and demonstrate the actual position.

Employment Agencies and Labour Providers

The Fair Work Agency also regulates employment agencies and employment businesses and administers the gangmaster licensing scheme for labour providers in relevant sectors.

For SMEs that use agency workers or external labour providers, this makes it sensible to understand who supplies your workforce and whether appropriate compliance arrangements are in place.

This is particularly relevant where businesses use different types of workers or have more complex labour arrangements.

What About Holiday Pay and Statutory Sick Pay?

This is where I think businesses need to be particularly careful about some of the information currently circulating.

The FWA is expected to take on enforcement of additional employment rights, including statutory holiday pay and Statutory Sick Pay, but it does not currently enforce all of these areas

Holiday pay enforcement is expected to begin in 2027 and will not start before April 2027, with the implementation arrangements subject to the relevant consultation and process.

That doesn't mean employers should wait.

In fact, the opposite is true.

Since 6 April 2026, employers have been required to keep adequate records demonstrating compliance with statutory annual leave and holiday pay obligations. This includes records of holiday taken, holiday carried forward, holiday pay and payments in lieu of holiday. Records must be retained for at least six years from the date they are made. Failure to comply with the record keeping requirement can constitute a criminal offence.

For SMEs with employees working irregular hours, variable pay or different working patterns, reviewing processes before enforcement expands is a sensible preventative step.

 

Why Record Keeping Matters

A recurring theme across the government's employer guidance is record keeping.

Employers are specifically being encouraged to review their record-keeping policies and make sure they hold appropriate records capable of demonstrating that legal obligations are being met.

Depending on your business, this could involve reviewing areas such as:

• Pay and payroll records

• Hours worked

• Holiday records

• Sickness absence records

• Contracts and employment documentation

• Worker status and engagement arrangements

• Recruitment documentation

• HR policies and procedures

• Records demonstrating how workplace issues have been handled

For SMEs, having these records organised and accessible is good HR practice regardless of regulatory scrutiny.

What Should SMEs Do Now?

You don't need to wait for contact from the Fair Work Agency before reviewing your compliance.

I recommend starting with five practical areas.

1. Review Your Employment Documentation

Are contracts, policies and employment records current and consistent with how your business actually operates?

2. Review Pay and Working-Time Records

Make sure you have reliable records and can demonstrate how pay and working hours are being managed.

3. Review Holiday and Sickness Processes

Even where the FWA's enforcement responsibilities are still developing, make sure your processes and records (including the six-year holiday records now required) are ready for increased scrutiny in future.

4. Understand Your Workforce

Know whether individuals working within your business are employees, workers, agency workers or engaged through other arrangements, and understand the responsibilities attached to those arrangements.

5. Make Sure Managers Understand Their Responsibilities

Good compliance isn't solely an HR or payroll responsibility.

Managers are often responsible for recording working time, managing absence, approving holidays, dealing with employee concerns and putting HR policies into practice.

They need to understand their responsibilities.

Audit Your Business Before Someone Else Does

The introduction of the Fair Work Agency gives SMEs another reason to move from reactive HR to proactive compliance.

You shouldn't need an inspection, complaint or employment dispute to discover that your records or processes aren't where they need to be.

A proactive review allows you to understand:

• What's working well.

• Where the gaps are.

• What presents the greatest risk.

• What needs to be prioritised.

  
  

At ABZN Consultancy, I help SMEs review their HR frameworks, identify potential compliance gaps and put practical, commercially focused processes in place.

Is Your Business Ready?

Book a Fair Work Agency Compliance Review to assess your current HR arrangements and identify areas that may require attention.

Protecting Businesses. Supporting People. Enabling Growth.

This article provides general HR information and is not legal advice. Fair Work Agency responsibilities and implementation arrangements continue to develop. Businesses should refer to the latest official guidance relevant to their individual circumstances. Information is correct as at 29 September 2026.