The New Fair Work Agency (FWA)

Let’s start with holiday pay. This change is very big news because enforcement of holiday pay has historically only taken place in one of two limited ways. Either following the issue being raised by a recognised trade union. Or by individual claims being brought to the Employment Tribunal by employees who feel they have been underpaid. Such claims have been relatively rare outside of unionised workforces (where unions have, in general, sponsored them) because holiday pay calculations are notoriously complex. As a result, employees do not always spot underpayments even when they exist. For individuals in non-unionised businesses, the many and complex holiday pay rules have to date had limited teeth. That is about to change and it's clear that this has the potential to impact a significant range of employers very significantly.

Not only will the new FWA enforce holiday pay compliance regardless of whether employees have spotted a problem, it will also have the power to require repayment going back six years (as opposed to the current two years) and impose 200% penalties for underpayments outstanding at the point an investigation is opened. Although, like a parking fine, this will be discounted for early payment the penalty will still be 100% of the underpaid holiday pay. Employers must use the window between now and April 2026 to audit compliance with the many and complex holiday pay requirements, and, where required to make rectification payments and take steps to make changes for future compliance or changes to working practices. If they do not, then risk and costs are significant.

It is important to focus on holiday pay, but employers who discount NMW compliance as a result do so at their peril. The FWA’s focus on NMW compliance is likely to have a greater impact on employers in the short term. The introduction of the FWA won’t alter the process for NMW materially, but the staff who make up most of the FWA workforce will likely be ex-HMRC officers with extensive experience of enforcing NMW. The FWA’s leadership will be looking to show tangible results in its first 12 months. As holiday pay complexity could take years to work through, we expect the FWA to double down on NMW enforcement activity to deliver these results. In other words, we think the FWA will play to the strengths of its staff as it looks to bed in and make a real difference.

More and more employers will be affected by this and need to act now to avoid being the next door upon which the FWA knocks. As NMW rates continue to increase, so the number of employees paid at or close to minimum wage will increase, making this important to an increasing number of employers. In March 2025 the Low Pay Commission estimated that the number of jobs at or around the NMW would increase by 15% as a result of the increases to rates in April 2025. This trend is set to continue.