S5 Ep12: The new Fair Work Agency and what it means for employers

Right, let's get going. I think most of you are in now. So welcome to our latest employment law 101 session. Thanks, joining us live today. For those of you that don't know me, my name is Peter. I'm a partner with specialist employment and business immigration firm, MPM Legal. We're based in the south of England and we work with companies that are all over the UK. And in fact, internationally, they have a common interest, which is helping people here in the UK. Delighted is over to be joined by my colleague Adrian, morning Adrian. Morning. Very excited that we're into two, four day weeks, not going to lie. Absolutely. Yeah. Roll on the, roll on the bank holidays and the shorter weeks. I'm here for that. Just couple of eating first that I'm going to be doing over the weekend. What, what was that? Chocolate eating first. Oh yeah. E-strikes. E-strikes. Just a couple of housekeeping matters. As you've probably gleaned from that conversation, we're recording this on the second of April. So if them we're talking about is accurate as that date, nothing we're talking about today constitutes legal advice. As a lawyer, I'm going to say always go and speak to a lawyer if you need specific advice on a situation. We are recording this session. You can get our recordings on the MPM Legal website and on Spotify, Amazon, Apple podcasts and wherever else you listen to your podcasts as well. So please do look out for those. So what are we talking about today? We wanted to do a session on something that we've had a few questions on only very recently though and that is the Fair Work Agency. Now this is something that's been set up to go live this month, April, 2026. And basically the Employment Rights Act 2025 reforms have brought in the Fair Work Agency to centralise and strengthen enforcement of employment rights in England and Wales. So you think about this overall theme that we've got with the Employment Rights Act 2025, which is really all about rebalancing the power in the employment relationships and essentially shifting it away from companies and trying to give individual employees and workers more powers. And this is the enforcement part or one of the enforcement parts of that move. So the Fair Work Agency is going to have proactive powers to investigate, recover, unpaid wages and penalise employers and those unscrupulous businesses who are not compliant with the law. So we wanted to do this session and talk about why these changes have been introduced, what the purpose of the Fair Work Agency is, what powers it's going to have and what it means for you as employers and people leaders as well. As always if you've got any questions just fire them out as we go along, I'm going to fiddle with a chat function in a second but there is a Q&A function that you can drop your questions into. But Adrian, what are you, what are you going to tell us about the FWA? Well I thought we'd start off just talk a little bit about about its purpose, you know, what's it, what's it there for. But I mean as you, as everybody knows in most cases when employees have got complaints, you know, they've got internal mechanisms but then in terms of external mechanisms and enforcement, the onus is on the employee to bring their claims to an employment tribunal and there are a limited number of circumstances in which the state, the government can actually enforce employees rights such as in respect to things like national minimum wage and there's protections for agency workers. Now I think in last time session, I wasn't here for it but I think we were talking about the state of tribunals generally and as everybody knows anybody who's involved in employment tribunal litigation or is read it in the news, they are currently overloaded. And just to give you an example of that, this week I received notification of a preliminary hearing so that's your first case management hearing for a discrimination claim because it seems that discrimination claims obviously are going to take longer because at the moment they need a full panel and the preliminary hearing on this case with the defence I think was put in probably December. The preliminary hearing has been listed for October. Now wait for it, October 2027. So that is the first time that the parties will end up before a judge talking about what the issues are and only then will there be a timetable set for litigation. So I would imagine that case could easily end up in hearing for 2029 even 2030. So we know the tribunals are as I said overloaded and the fair work agency should hopefully take some of the pressure off of the tribunals because I said that's currently the main option for employees to pursue any breaches. Tribunal processes are complicated, expensive, lengthy and it can often mean that breaches such as underpayments they go unchallenged. So the fair work agency will have some of this stuff brought under its remit but essentially it's bringing together some of the existing enforcement functions. Now those of you that get involved with businesses that have national minimum wage issues you already know that this is currently enforced by HMRC who looks at it at pay. I mean it makes sense from a tax perspective. Then we've got things like the employment agency standards inspectorate and their responsibilities are to regulate employment agencies and employment businesses to protect agency workers and then we've got the title that always interests me from a sort of historic point of view the Gangmaster and Labour Abuse Authority. Now that's there the enforcement agency that investigates vulnerable workers so they were looking at modern slavery worker exploitation, human trafficking. Now I would like to think that nobody on this call will ever have been caught in the crosshairs of this authority but it is out there and it does have enforcement powers. So the fair work agency is going to bring all of those together under one roof. Now aside from the national minimum wage probably the most important thing that we wanted to highlight today is that additional areas of enforcement will be added at a later date as yet unknown to be covered within the remit of the fair work agency and those additional areas of enforcement we know will be holiday pay, payment of holiday pay and payment of statutory sick pay and the the secretary states can have powers to add in other enforcement functions into the fair work agency to allow coverage of other employment laws. So this is marking a real shift away from employment tribunals jurisdiction in these areas and I think it's quite significant. It will also cover unpaid employment tribunal awards. Now I know that a lot of tribunal awards compensation from fair dismissal etc. There's an awful lot out there that while the employee gets the award it very often is impaid and I haven't done an enforcement of award for many many years but I think the situation at the moment is that it's really complex to get the money out of the company but usually involves registering a judgment in the county court if I'm right Peter tell me if I'm wrong and then and then it's enforced that way through bailiffs whatever etc all the rest of it now it could be really tricky. So Peter tell us a bit about what powers this fair work agency is going to have. Yeah absolutely. Before I do we did indeed do a session two weeks ago on the current state of the employment tribunal process we touched on how AI is having an impact on that in terms of the issues we're seeing kind of pre-litigation phase and how that's feeding into how claims are actually run particularly by litigants in person. So if you want to catch up on that session it is live on Spotify just to search employment law 101 you'll be able to listen to that recording with myself and our colleague Charlie so it's a good one to listen to in terms of time scales of tribunal adeeling with at the moment but yeah in terms of the FWA the powers they've got you know what they can do obviously they're empowered to do something so they're empowered to investigate and they're empowered to actually take action if they identify breach of the law. Now for the first time employees who have complaints about things like underpaid holiday will not actually have to go through the tribunal process and you know question mark whether it's going to be a short cut in effect because of the delays that we see with the tribunal although something like an underpaid holiday claim might be something that's listed sooner but there's a different avenue open and I suspect the way that we'll see it used is in respect of large scale employers so where there's an issue of you know hundreds of supermarket workers or retail workers just to pick to you know random sector examples you might find the FWA looking on mass at a particular sector or industry or large employer if they think there's an issue. Now actually a lot of the fair work agencies powers are based on existing enforcement bodies powers so it's a bit like a consolidation of that power really but there are some new powers that are introduced so let's just run through what they can do so first of all they can inspect workplaces and they can require employees to produce relevant documents and evidence to demonstrate compliance with employment law. Now that isn't anything new as a concept so that's based on existing powers and there are businesses out there hopefully you know you that are joining to they have not been involved in any that have been on the receiving end of of an inspection and a sanction but there are bodies already that can go and look out whether you're compliant and you know we see it also in terms of immigration provisions don't we Adrian where UK V.I or or Border Force whoever's responsible will go in and do certain audits in investigations so similar to that. Secondly there's a civil penalty regime now that's been taken from the National Minimum Wage Act where if an employer's found to have underpaid workers notices of underpayment will be. issued and employers will need to pay the workers their due and a penalty to the government as well. So kind of double whammy, double incentive to get it right. Now we've probably all seen circulated, I mean I see them on LinkedIn periodically, that list of businesses where HMR, CEO of Issueda and non-compliance with National Minimum wage, employers are visibly named and shamed and you know when I see the link I will have a look and see if I recognize any of the businesses that are on that list because it is a really random bunch and we've seen high profile retailers get caught out in recent years. I mean certainly around National Minimum wage there was an issue around what constituted provision of a uniform and if a requirement to wear certain colour jeans and t-shirts amounted to a uniform who was paying for that and actually when deductions were taken into account was an employee still getting their National Minimum wage. So sometimes it can be easy to get unstuck if you're flying close to the wind in terms of how much you're you're paying. Anyway, slight aside there. Third point, the FWA will be able to bring proceedings in the employment tribunal on a workers' behalf and they'll also be able to offer legal advice and assistance where somebody is or maybe party to civil cases relating to employment or trade union law. Now I'm not entirely sure how that's going to work in practice yet and kind of to what extent they're going to be getting involved in individual proceedings so time will tell on that but they're going to have the power to be able to do that. They're surely going to be looking sorry just to interject there. They're surely going to be looking at sort of as you said class actions in reality because otherwise can you imagine the amount of personnel needed for the fair work agency to be able to bring claims on behalf of each individual worker. So it's surely going to be large timescars. I mean one of the queries I've got over that is how that's going to fit with the existing limitation periods because we all know that these type of compliance investigations audits they take some time and so you know I'll be very interested to see how those two melt together. So the fourth power is there'll be an enforcement regime in respect of labor market criminal offences which involves voluntary labor market enforcement undertakings and compulsory labor market enforcement orders where employers are required to correct their behavior. Now they're very serious breaching those types of order is an offence which can result in fines or imprisonment. So you know they're kind of the top end of the of the seriousness and I think that's going to be to do with things like worker exploitation maybe into the realm so if you know gangmaster activity you know the sort of stuff that's been reported in the media in recent years. Fifthly the Secretary of State can create regulations which stipulate charges the FWA can impose to recover enforcement costs from employers who have had enforcement action taken against them from non-compliance. So you've got the FWA going after employers for non-compliance and then can charge those employers for having to to go after them which you know makes sense. Now that's just an ability to create regulations so I haven't seen any regulations yet which stipulate those charges so that'll come out in due course. They can look back six years so quite a long period and this you know dovetails with that that announcement where a lot of people were making a flusher think about oh no we need to keep holiday pay records for six years I think most employers keep decent holiday pay or holiday records anyway yes maybe you need to adjust how long you're planning to keep those records for but it fits in with why and you know part of the answer to the question why will be the fair work agency having the ability to look back six years and saying hey we want to make sure that you've complied with the law in this area so with some logic there. And finally this is an important point as well which is there doesn't actually need to be a complaint for them to start an investigation so essentially they can use their own initiative and decide there's an area that will warrant investigation. I mean what we see with National minimum wage compliance is HMRC taking a geographic approach so they'll pick an area of the country and they will go and look at businesses in that particular geographical area. Now I expect the FWA might take an industry of settler approach and say you know we've we've heard some this quiet in this particular industry or in this particular you know part of the commercial environment we want to go and have a look more closely at that. I imagine there needs to be a certain threshold for a formal investigation to actually be triggered but the point is they're going to have the power to go and start nosing you know nosing around. So they're going to have a lot of scope scrutinise and take action against employers and you know we think the sectors that are going to be at most risk for unexpected visits from the FWA are going to be things like hospitality, retail, the gig economy you know so those sorts of areas where you know a lot of wages typically tend to be towards the lower end of the spectrum closer to National minimum wage or simply at National minimum wage but bear in mind even if you're not necessarily in a high risk sector you can still be subject to an investigation so you'll have that vulnerability there. So that's what sets the scene really in terms of what the FWA is doing, what powers they've got, what about preparatory steps like what sort of things can businesses be preparing if you've got any tips there? Yeah I mean a lot of this stuff hopefully people are going to be aware of already but it's always worth having a look at so that we're ready and you know when we're trying to give businesses tips on what to do very often it's always about an audit. I mean you'll probably have heard us say on many occasions audit your workforce see who you've got whether that's in relation to you know how long people have been with you whether you've got contractors who might not be contractors and this is really no difference so what we're saying is don't wait for enforcement, don't wait for an issue to arise if you can run a compliance audit make sure that you know what's going on in your business and in terms of the areas to focus on obviously we've got minimum wage compliance and for those of but you know there may be a lot of businesses out there for whom that is just not an issue but there will be a lot where where minimum wage compliance is is is right so you know remember that this goes up each year don't get caught out in terms of what you have to pay for your pay reference periods but also the thing to think about which is where a lot of employees may get caught out is any deductions that are being made you know he has already mentioned the you know there's some really big names where businesses fell foul of deductions when it came to those uniforms we've talked about I remember monsoon I think wagon mamas was another one but there are you know there are other areas where you might go well we don't make our people wear uniforms but think about things like salary sacrifice schemes that might be for pensions that might be your cycle to work schemes but and if you are making deductions by way of salary sacrifice this may well push your employees below the national minimum wage so you can see there that's an area where potentially it's very easily you know you're very easily able to be inadvertently caught out also think about things like unpaid activity that's going to be something that will be looked at so think about training now a lot of businesses will say of course if we train you we're going to pay you for the time spent on training what about when you say to people you know we need you to come in 15 minutes before your shift starts for setting up or closing down at the end of the day there are a lot of businesses out there who will not be paying that bit you know shift might be eight till six or ten till two all of that stuff but generally they want them in quarter to ten in order to do a handover perhaps from a previous shift if you're talking national minimum wage levels you need to make sure that the pay is sufficient to cover that because it still counts as working time if you've got mobile workforce depending on what you're doing looking at travel between sites during the working day obviously commuting to a place of work doesn't count as working time most of the time but if you've got travel between sites to meetings etc that will all count in terms of the hours so you're looking at a pay therefore that compliance. Holiday pay as we said the enforcement process will come come over to the Fair Work Agency in due course but have a look at your holiday pay calculations and you know this has been in a massive state of flux for many many years but you need to remember that paying for holiday needs to take things into consideration like regular overtime and regular commission all of that needs to be factored in. Now from the 6th of April so next week a new obligation comes into force to keep records demonstrating compliance with statutory holiday entitlement including the amount of leave and pain now this is something that's not actually been advertised you should be keeping the records anyway but this is something that is actually coming in and a failure to comply with that is going to be a criminal offense punishable by a fine so checker HR systems to make sure you are compliant and I did read some words absolutely crazy but the government apparently has data to show that holiday pay shortfalls amounts to just over 9 billion pounds so it's a massive area. Now as I said you're probably keeping records already you're going to have holiday entitlements you're going to have holiday booking systems where people need to get approval and it's all recorded but I just wanted to give you a little bit more detail about what you need to keep the records off so it's going to be the holiday taken what pays been made for those holidays and how that pays made up is it base pay commission overtime etc. Keep a note of any holidays you've allowed employees to carry over and you're going to have to keep records of where you've made payment in lieu of holiday including any carried over holiday as well. Now as I said most HR systems will be Thank you. to do that, but it is always worth having a look at the check. I'm hoping that most of you will be going, "Oh, we're fine with that. We don't need to worry about it." So, you know, fantastic. Another area is working hours and rest breaks. So nothing's changing the rules on rest breaks, you know, daily, weekly rest, etc. None of that's changing, but it's going to be the complaint process that's changing. So employees wishing to complain about not being able to take their rest breaks, they go through that normal grievance process, and then they take their complaint to the tribunal. They can report it also to the Health and Safety Executive. Now, it's quite interesting here because it's always been the case that the ability to take those rest breaks is something that the employee has to enforce, and that's going to be this big shift. The change now will be that the fair work agency will take over enforcement of those working time rights in terms of those rest periods and breaks. So your best bet for showing compliance is obviously going to be having evidence. I know, as lawyers we're saying that all the time, have evidence to back up what you're saying. You know, make sure you've got a way of showing that you record the hours accurately. There are clear breakdowns, breakdowns of the payments you're making, and that you've got signed contractual terms, which clearly state what an employee is owed. Thirdly, have a think about reviewing a pay practices. As I've said, higher risk areas for underpayments are going to be employees who have irregular hours. It will be those who work overtime and looking at where deductions are being made from payments, such as if a previous overpayment of a bonus would be made, for example. So having a look around your pay is going to be critical. I would think that's a big thing. Yeah, absolutely. I think they're good tips for people to be thinking about. In terms of other areas that you can do to try and head off an issue, we're always going to say prevention is better than cure. If you've got an internal reporting system that encourages employees to raise issues early, then that's a good way of flushing out whether you have an issue that needs addressing now. I know a lot of larger organisations will operate with sublowing hotlines, for example. Of course, you're going to have a grievance policy in place. But outside of those things, there are still mechanisms to try and flush out. There's a much wider broader topic of discussion around employee engagement, around the use of employee forums and committees and engagement, if you're not a unionized environment. If you are a unionized environment, you're going to know about an issue because the unions are probably going to be all over it and bring it to your table. But I know a lot of you won't be. So I think effectively, if you've got good employee engagement, you've got a good means of having your ear to the ground. And importantly, employees feel that they're able to raise things. You've got that environment where people are not fearful of bringing something to your attention. You're going to be in a lower-risk category for sure because you're going to have the opportunity to know and then deal with and address something if you hear murmurings of an issue. Of course, you might encounter a situation where you hear an issue, you try and resolve it and you don't agree. You're in disagreement. Well, at least you know what's coming and what your stance is going to be. But you don't want to be in that scenario where you're getting surprised by anything. You shouldn't be in a situation where you're being surprised by something because you should have these various escalation mechanisms. So having those things in place is hopefully going to mean that you can catch and resolve issues before the FWA, you know, anywhere near you, you know, and need to get involved. It gives you a chance to get your documents as well, doesn't it? Yeah, you're alerted to it. Yeah, you're going to get the chance to have a look at it all. And it's a structural thing, isn't it? Have you got the means in place for people being able to bring issues to your attention? Whatever that is, grievances, employee forums that I've mentioned. But culturally as well, like what kind of work in environment and cultural environment have you fostered? Like, do people feel empowered to be able to raise things? Or are they worried about doing so for fear of retaliation of some kind? But you know, where we've seen issued in the past, to be, you mentioned some of those retailers as well, I can't imagine that they intended any wrong doing. I mean, they wouldn't want to be named and shamed and they I'm sure they would say they wouldn't want to be underpaying their workers. They would say we really value our workers. So, you know, what's going on there? Yeah. Well, I think this is the point. A lot of employers get caught out inadvertently. Like I've said, it's normally technical areas. And, you know, I'd like to think that anybody on the call today is going to be absolutely in that bracket if they get caught at all and if this applies to them. And, you know, there really is only a small number of this doing this absolutely deliberately. And it could well be that the farewell agency has got them very firmly in their sites. You know, if, when I had a quick look at the naming and shaming, there's a lot of things like fast food restaurants, et cetera, where, you know, typically there's, there could well be issues around vulnerable workers. And what I would say though is it will make no difference whether you meant to or not if there's non-compliance, there's non-compliance. And significant penalties can be applied. And, you know, not wishing to scare anybody, but they've said that the penalties that can be applied can be up to 200% of any shortfall. So, it is, you know, there's a significant stick there, I think, that needs that means that we do need to look at this stuff. And I think also just to keep an eye out on what additional areas of enforcement are going to be added to the power of the farewell agency. So, as I said, there's a lot of people here where national minimum wage isn't going to be relevant. But that's not the sole focus. There's other bits like this holiday pay, sick pay, et cetera, which is very easy to make mistakes on. Yeah, absolutely, absolutely. We had a question that was in the chat just before we wrap up. Let's deal with that. So, thank you, Karen, for your question. Karen asks, how does this, or does it include salaried employees who assume to work additional hours with no extra pay? Well, yeah, I mean, when you're looking at national minimum wage compliance, you need to be paid the national minimum wage for all hours worked. So, this is an issue sometimes with what you perceive to be higher earners who end up working a really high amount of hours. And actually, when you average out an hourly rate of pay for the hours that they worked, it brings them below. So, that is a risk area. Now, what's the answer to that? You need to have an eye on a couple of things. You need to have an eye on the amount that they're working. I mean, there's a health and safety perspective, all of that, which obviously drives the working time regulations. Is the words I was searching for. So, you've got to think about working time regulations compliance. But yeah, it details with national minimum wage compliance because what you don't want to do is think, well, this person earns high enough that they're never going to be an issue in terms of national minimum wage, but it turns out they're working twice. They're out of the hours they should be. And actually, when you divide and do the calculation over the reference period, it turns out you're underpaying them. It implies have been caught out on that. I don't know if you've seen anything around that, Adrian at all. Yeah, I think it's something that I raised generally when I look at, you know, contracts might say, you're working hours at 9 to 5.30, but you're required to do at such additional hours without additional remuneration. And most of the time that's going to be fine when you're looking at higher salaries, where I flagged it is where I've looked at the salary level and thought, I'm not sure there's enough headroom in that lower salary to be able to make sure that that's compliant. And I think that's where it's going to be an issue. So, it's a combination. If you've got people on the lower end of salaries and you've got that type of approach, then that's probably going to be something that you need to look at. Absolutely. Absolutely. Well, that neatly brings us on time, or yeah, as the clock ticks around to 11.30. So, thank you. Everybody for joining us today. I hope that was useful session for you. We're going to be back in two weeks time with another topic. I've had a couple of emails from you suggesting topics as well. So, thanks so much for those. We will incorporate those topics in future 101 sessions. Just a reminder, you can get the video recording of all of our past sessions from the last three years, I think, on our website and we're up to about 80 or so episodes on Spotify as well. So, please do have a listen to those. If you get chance, do rate us on Spotify and we very much look forward to welcoming you back in a couple of weeks time. In the meantime, have an absolutely fantastic Easter, everybody. Thanks very much for joining today. Thank you. Bye.