Employment Rights Act 2025

The Employment Rights Act 2025 creates a new state enforcement agency - the Fair Work Agency (FWA) - which came into being on 7 April 2026.

The FWA combines the pre-existing enforcement roles of three separate bodies: HMRC (in relation to the national minimum wage), the Gangmasters and Labour Abuse Authority (in relation to labour exploitation) and the Employment Agency Standards Inspectorate (in relation to agency workers). It will also take on the powers of the Director of Labour Market Enforcement. 

The FWA will have some additional jurisdictions, including in relation to SSP, holiday pay and parts of the Modern Slavery Act 2015. Further jurisdictions may be added to its remit by future regulations.

The government has published a consultation (closing on 22 September) on how the FWA will approach statutory holiday pay compliance and enforcement from 2027. The key proposals are that:

• The claim period for FWA enforcement of holiday pay will be set at a maximum of 6 years (which aligns with the six-year period for which employers must keep holiday pay records). However, holiday pay claims will not be enforceable by the FWA if they occurred before the date on which the ERA 2025 received Royal Assent, 18 December 2025.
• The rules setting the amount of civil penalty for holiday pay enforcement will mirror the ones for enforcement of the minimum wage, i.e. a penalty amount of 200% of arrears owed for each worker, a maximum penalty of £20,000 per worker and a minimum penalty of £100.

The consultation also asks for views on three options for how the FWA can focus holiday pay enforcement on lower-paid workers or those in more vulnerable or precarious employment: either setting a ‘cap’ on the maximum arrears a worker can receive from FWA enforcement, prioritising holiday pay complaints from lower-paid workers, or proactively targeting compliance and enforcement by geographical area. Views are also being sought on how, and to what extent, rolled-up holiday pay for workers with irregular hours or part-year working patterns is currently being used in practice.

FWA powers

The FWA will have the power to:

• obtain documents or information
• enter business premises in order to obtain documents or information
• remove and retain documents or information
• request that ‘labour market enforcement undertakings’ are provided, which are undertakings to comply with prohibitions, restrictions or requirements stipulated by the FWA (and which may last for up to two years), and
• apply to court for a ‘labour market enforcement order’ which prohibits or restricts certain actions or requires certain actions to be taken (and which may last for up to two years)

The FWA will also:

• Enforce failure to keeping adequate records of annual leave. Employers are required, from 6 April 2026, to keep records of compliance with the Working Time Regulations 1998 on annual leave and pay for six years, with failure to comply punishable as a criminal offence with a fine. The form that such records take is up to the employer, with the legislation simply saying that such records must be ‘adequate to show’ whether the employer has complied with its obligations.
• Enforce failure to pay statutory payments. The FWA will have powers to issue a notice of underpayment to the employer of non-payment or incorrect payment of any statutory payment (e.g. SSP, holiday pay or the national minimum wage) requiring that they pay the amount due within 28 days. Underpayments may go back 6 years from the date of giving notice and can relate to sums due before the Act came into force. The notice can impose a penalty up to a maximum of £20,000 which may be discounted by 50% if sums due are paid within 14 days of the notice, with courts able to enforce a failure to comply with a notice.
• Be able to levy financial penalties on employers who fail to pay tribunal awards or a COT3 settlement. Claimants who have not received their awards can ask for their employer to be named on a government list of those who fail to pay. This does not apply if the award or settlement was made before 6 April 2016. The penalty is 50% of the outstanding award or at least £100 but not more than £5,000, payable to the government not the claimant.
• Bring tribunal proceedings on a worker's behalf. Where a worker has a right to bring a tribunal claim, a new power allows the FWA to bring those proceedings in place of the worker, as well as give legal advice or representation in employment, trade union or labour relations cases. There is a provision requiring the employer to pay a charge so that the FWA can recover the enforcement costs.