Advice from an HR consultant in Stratford on Avon on what the new Fair Work Agency means for your business and why your pay and leave records need attention now.
Since April 2026, there's a new government body with the power to come looking for those gaps. It doesn't need a complaint to get started.
The financial consequences of getting it wrong can stack up fast.
Here's what you need to know.
A single enforcement body with real teeth
Before this year, enforcement of employment rights was spread across several different bodies. Minimum wage sat with HMRC. Holiday pay and sick pay rules were enforced separately. It was fragmented, and frankly, most small businesses never heard from any of them.
The Fair Work Agency has changed that. It brings all of those areas under one roof, with broader powers than any of the individual bodies had before.
It covers minimum wage, holiday pay, statutory sick pay and agency worker protections. And it can do more than just respond to complaints. It can proactively inspect your premises, request your records and issue financial penalties.
Workers can now report concerns through an online portal without going through a tribunal. The agency can also bring tribunal claims on behalf of employees directly.
We're currently in a transitional year. HMRC is still managing day-to-day minimum wage enforcement, but under the agency's direction. From April 2027, everything transfers fully to the Fair Work Agency, including holiday pay enforcement.
Why pay and leave are the first target
The agency's initial focus is on pay and leave. That's deliberate. These are the areas where mistakes happen most often.
And the mistakes are rarely intentional. Holiday pay gets calculated on basic pay alone, when it should include overtime or variable hours. Statutory sick pay still runs on the old waiting-day rules, even though it's been payable from day one since April 2026.
A report published by the agency shortly after it launched found that 14% of UK workers had experienced at least one breach of their basic employment rights in the two years before summer 2025. That's a big number. And it tells you exactly why the agency has been given the powers it has.
Your records need to stand up to six years of scrutiny
Since April 2026, every employer must keep detailed records of annual leave and holiday pay going back six years. That means:
● How much leave each employee took
● How holiday pay was calculated for each period
● What was actually paid out
● For anyone on variable pay or commission, exactly how those elements were factored into the calculation
Failing to keep adequate records isn't just a risk. It's a criminal offence, with potentially unlimited fines.
If you're relying on a spreadsheet that gets updated sporadically, it's worth asking yourself whether that would hold up if an inspector asked to see it. Good HR software that tracks leave entitlements and calculations automatically is a solid starting point. As part of our HR consultancy services in Stratford on Avon, it's one of the first things I help clients put in place.
The financial penalties are steeper than you might expect
When the agency identifies an underpayment, it can issue a Notice of Underpayment covering up to six years. The penalty on top of the amount owed can reach 200% of the underpayment, capped at £20,000 per employee. If you settle within the required timeframe, that drops to 100%.
Let's put that in context. If you employ 15 or 20 people and your holiday pay calculation has been slightly off for a couple of years, the total bill can become very significant very quickly.
There's also a reputational element. The agency can publicly name your business on a government list of non-compliant employers. That's something a prospective client or customer could find with a quick online search.
What to look at right now
If you want to get ahead of this, start with the areas the agency is most likely to examine first.
● Holiday pay calculations. Are you including overtime and variable pay where you should be? For employees whose hours change week to week, this is where errors creep in most easily.
● Your leave records. Could you produce six years' worth of detailed records if asked? Do they show how pay was calculated, not just what was paid?
● Statutory sick pay. Are you applying the new day-one rules correctly, or are you still using the old three-day waiting period?
● Contracts. Do they accurately reflect how your employees actually work? If someone's contracted for 30 hours but regularly does 40, that mismatch creates risk.
● Payroll accuracy. Can you demonstrate how each figure on a payslip was reached?
If your records are scattered across email inboxes, filing cabinets and half-maintained spreadsheets, that's where the exposure sits. An inspector won't accept "we've always done it this way" as evidence of compliance.
Getting support before there's a problem
Sorting this out now is far less stressful and far less expensive than dealing with an enforcement notice after the fact.
I can review your contracts, pay records and leave tracking to identify where the gaps are. Often it's a handful of straightforward fixes that make a real difference.
As an outsourced HR consultant in Warwickshire, I work with small businesses to make sure their people practices are solid, fair and properly documented.
If any of this has raised questions for you, get in touch for a confidential chat.
We can talk through your situation and I'll help you work out the right next steps.
