The Fair Work Agency Is Here: Are You as Compliant as You Think?

You pay your employees above the National Minimum Wage. Your payroll is up to date, your contracts are in place, and you’re confident that you’re doing everything correctly. So, if an enforcement officer arrived at your business tomorrow, you’d have nothing to worry about. Would you?

With the introduction of the Fair Work Agency earlier this year, employment law enforcement is entering a new era. And while much of the attention surrounding the Employment Rights Act 2025 has focused on new employee rights, I believe employers need to pay just as much attention to how those rights are going to be enforced.

This is particularly important for small businesses.

When you’re running a business, managing employees, looking after customers and dealing with the countless other responsibilities that come with being an employer, it’s easy to assume that provided you’re paying everyone correctly and treating your employees fairly, you’re meeting your legal obligations.

But employment law compliance isn’t always quite that straightforward.

Something as seemingly insignificant as an employee arriving early to prepare for their shift, attending training outside their normal working hours or purchasing their own uniform could create a National Minimum Wage compliance issue.

And with the Fair Work Agency now operational and its responsibilities set to expand, this is an appropriate time for employers to ask themselves an important question.

Are we genuinely compliant, and could we demonstrate that compliance if somebody asked us to?

What Is the Fair Work Agency, and Why Should Employers Be Paying Attention?

The Fair Work Agency was established in April 2026 as part of the Government’s programme of employment law reforms.

Its purpose is to bring together existing employment rights enforcement functions, creating a more coordinated approach to investigating and addressing non-compliance.

For employers, this means that employment law enforcement is becoming increasingly joined up, with the Agency ultimately responsible for overseeing a wider range of employment rights.

However, it’s important to understand that not all its responsibilities have transferred immediately.

For example, HMRC continues to carry out National Minimum Wage enforcement on behalf of the Fair Work Agency, with the full transfer of those functions scheduled for April 2027.

The Agency is also expected to take on additional responsibilities, including the enforcement of statutory holiday pay.

What interests me most about these developments isn’t simply the creation of another government agency. It’s what they mean in practice for employers.

For years, many small businesses have viewed employment law compliance primarily through the lens of avoiding Employment Tribunal claims.

However, enforcement activity doesn’t necessarily begin with an employee bringing a claim.

Employers can be selected for compliance checks, asked to provide information or required to explain their working practices.

And that brings me to an area where I believe businesses need to be particularly careful.

Paying Above the National Minimum Wage Doesn’t Automatically Mean You’re Compliant

I suspect that if I asked most small business owners whether they comply with National Minimum Wage legislation, their immediate response would be yes.

After all, they know what they pay their employees; they review their hourly rates when the statutory minimum increases, and they rely on their payroll arrangements to ensure everyone receives the correct wages.

But here’s the important question.

Are you calculating the National Minimum Wage based on what your employees are actually required to do, rather than simply what their contracts say?

There can be a significant difference.

National Minimum Wage compliance isn’t simply about checking an employee’s contractual hourly rate against the statutory minimum.

It’s about ensuring the employee receives sufficient qualifying pay for all hours that count as working time during the relevant pay reference period, taking into account any deductions or expenses that must be considered.

And this is where employers can inadvertently get things wrong.

Are You Paying Employees for All Their Working Time?

Let’s imagine a hypothetical situation.

You employ someone contracted to work from 9 am to 5 pm. However, they regularly arrive at 8.45 am because they’re expected to prepare the premises, organise equipment or get everything ready before the business opens.

Those additional 15 minutes might not seem particularly significant.

But if the employee is required to undertake those duties, that time may need to be included when calculating their National Minimum Wage entitlement.

Multiply those additional minutes across several working days, weeks, and months, and you can begin to appreciate how an apparently minor oversight could become a more substantial compliance problem.

The same principle can apply when employees are expected to remain after their scheduled finishing time, attend meetings or complete other work-related duties.

Of course, the precise calculation depends on the worker’s pay arrangements and the applicable National Minimum Wage rules.

However, the underlying message is straightforward.

Employers need to understand the hours their employees actually work, not simply the hours they’re contracted to work.

For small businesses, where employees frequently help one another and working arrangements can be relatively informal, this is something worth reviewing.

What About Training? Are You Accounting for That Time?

Training is another area that employers can easily overlook.

We quite rightly encourage businesses to invest in developing their employees. Whether that’s attending a training course, completing mandatory online modules or undertaking additional qualifications, training can be enormously beneficial.

However, employers need to remember that training time may count as working time for National Minimum Wage purposes.

For example, if an employee is required to complete an online training course at home outside their normal working hours, that time will generally need to be included in the relevant minimum wage calculation.

Similarly, where employees attend training away from their normal workplace, certain associated travelling time may also need to be taken into account.

This doesn’t mean employers should stop providing training or that every minute spent learning automatically attracts additional pay.

It means businesses need to understand the rules, record relevant training time and ensure their overall pay arrangements remain compliant.

And remember, just because an employee receives a salary rather than an hourly wage doesn’t mean you can ignore these considerations.

Salaried employees can also present National Minimum Wage compliance risks, particularly where their actual working hours regularly exceed their contractual hours.

Could Your Uniform Policy Be Creating a Problem?

Here’s another issue that might surprise some employers.

You can pay an employee above the National Minimum Wage and still find yourself in breach of the legislation because of the cost of their uniform.

Let’s say you operate a business where employees are required to wear particular clothing.

Perhaps you provide branded clothing but require employees to purchase their own trousers and suitable footwear.

Alternatively, you might require employees to contribute towards the cost of their uniform or deduct an amount from their wages.

Depending on the circumstances, these costs can reduce the amount of pay that counts towards National Minimum Wage compliance.

And importantly, this can apply even where employees purchase the clothing themselves rather than paying their employer directly.

This is particularly relevant to businesses in hospitality, retail, construction and other industries where employees are required to wear specific clothing or protective equipment.

Employers should therefore review their uniform requirements, consider who is responsible for purchasing the necessary items and understand how those arrangements affect their minimum wage calculations.

It’s another example of why simply checking an employee’s hourly rate isn’t necessarily enough.

Holiday Pay: Another Area Employers Shouldn’t Overlook

Although National Minimum Wage compliance is an immediate consideration, I also want to highlight holiday pay.

This is an area of employment law that has become increasingly complicated, particularly for businesses employing part-time workers, employees with variable hours or individuals who regularly work overtime.

Many employers understandably assume that calculating holiday pay is relatively straightforward.

However, the correct calculation depends on the employee’s working arrangements and the nature of their remuneration.

For example, where an employee regularly receives overtime payments, those payments may need to be reflected in their normal holiday pay.

For workers with regular hours, the legislation generally requires at least four weeks of statutory annual leave to be paid at their normal rate, including qualifying regular overtime payments. Different rules apply to irregular-hours and part-year workers.

Where the 52-week reference period applies, employers must calculate the appropriate average using the relevant paid weeks, subject to the statutory rules.

Importantly, employers shouldn’t assume that simply including a holiday pay clause in an employment contract guarantees compliance.

What matters is whether the actual holiday pay calculations reflect the employee’s working arrangements and satisfy the relevant legal requirements.

And there’s another development employers should be aware of.

Since April 2026, businesses have been required to maintain detailed records of annual leave and holiday pay for a minimum of six years.

With the Fair Work Agency expected to take on responsibility for enforcing statutory holiday pay, this is an appropriate opportunity to review your existing arrangements.

I would particularly encourage businesses employing staff who regularly work overtime or whose hours fluctuate to check that their holiday pay calculations are correct.

When Did You Last Check That Your Payroll and HR Records Actually Agree?

This is something I feel particularly strongly about.

In many small businesses, HR and payroll are treated as two entirely separate functions.

HR deals with contracts, working arrangements, absence and employee relations. Payroll handles wages, deductions, overtime, and statutory payments.

And in some businesses, those responsibilities might be managed by completely different people or outsourced to different providers.

There’s nothing inherently wrong with that.

However, problems can arise when the information held by HR doesn’t accurately reflect what’s happening in practice or when changes to employees’ working arrangements aren’t communicated effectively to payroll.

Consider an employee whose contract states that they work 30 hours per week.

Over time, their manager begins regularly asking them to work additional hours. Those additional hours may be recorded informally, or the employee occasionally works through their breaks because the business is particularly busy.

Individually, everyone involved might believe they’re doing everything correctly.

The manager is ensuring the work gets done. Payroll is processing the information it receives. HR has the employee’s original contract on file.

But has anyone checked whether the overall arrangements remain compliant?

This is why HR and payroll need to work together.

It’s not enough for each function to operate effectively in isolation. Businesses need to ensure that contractual arrangements, actual working practices, payroll calculations and employment records accurately reflect one another.

And that brings me to another important point.

Having an HR adviser or an outsourced payroll provider doesn’t automatically transfer your legal responsibilities as an employer.

Professional support can help businesses meet their obligations, identify potential problems and establish appropriate procedures.

However, employers still need to ensure that accurate information is provided and that their working arrangements are properly managed.

What Happens If an Enforcement Officer Contacts Your Business?

I appreciate that the prospect of receiving an enforcement letter or having an officer visit your premises might sound intimidating, particularly if you’ve never experienced anything similar.

However, it’s important not to assume that an investigation automatically means you’ve done something wrong.

National Minimum Wage compliance checks can arise from employee complaints or enforcement authorities’ own research and intelligence.

Depending on the circumstances, employers may be asked to provide payroll records, explain their working arrangements, supply supporting documentation or make employees available for interviews.

An officer may also need to visit the workplace.

My advice is to approach any legitimate enforcement enquiry calmly, professionally, and cooperatively.

Make sure you understand which authority is contacting you and verify the identity of anyone requesting information.

Identify who within your business will coordinate the response, gather the relevant records and ensure that any information provided is accurate and complete.

If you receive questions that you’re unsure how to answer, seek professional advice rather than making assumptions.

And importantly, don’t attempt to retrospectively alter records to make your arrangements appear compliant.

If your review identifies a genuine problem, establish what has happened, obtain appropriate advice and take the necessary steps to correct it.

Depending on the circumstances, this may involve recalculating pay, reimbursing employees and reviewing your procedures to prevent the issue from recurring.

The important thing is to deal with any concerns properly.

Don’t Wait for an Inspection to Discover There’s a Problem

This brings me to what I consider the most important message of this article.

You don’t need to wait for an enforcement officer to contact you before reviewing your employment arrangements.

In fact, I strongly encourage employers to be proactive.

Start by looking at your National Minimum Wage calculations. Are you confident that all relevant working time is being recorded and that employees are receiving sufficient qualifying pay during each pay reference period?

Review your arrangements for training, uniforms, payroll deductions and any other employment-related expenses that could affect minimum wage compliance.

Consider whether your employees’ contractual hours accurately reflect their actual working patterns.

If you employ part-time staff, employees with variable hours or workers who regularly undertake overtime, take the opportunity to review their holiday entitlement and holiday pay calculations.

And most importantly, make sure your HR and payroll records agree.

This doesn’t necessarily require an expensive or complicated compliance exercise.

For many small businesses, a sensible starting point is to review existing procedures, identify any obvious gaps and introduce regular checks.

However, where working arrangements are particularly complex, or you identify potential underpayments, professional advice may be appropriate.

Employers must retain sufficient National Minimum Wage records for at least six years, and the new holiday pay record-keeping requirements also need to be considered.

The ability to demonstrate compliance is becoming increasingly important.

Final Thoughts: Good Intentions Aren’t Always Enough

One thing I’ve learned from working with small businesses is that employers generally want to do the right thing.

They want to pay their employees fairly, provide a good working environment and concentrate on growing successful businesses.

However, employment legislation is becoming increasingly complex, and even relatively straightforward working arrangements can have consequences that aren’t immediately obvious.

An employee regularly arriving early, completing training at home or purchasing their own uniform might seem like an ordinary part of running a business.

But these are precisely the sorts of everyday arrangements that employers need to understand when considering National Minimum Wage compliance.

The introduction of the Fair Work Agency represents a significant development in employment law enforcement, and its responsibilities will continue to expand.

However, I don’t believe employers should view this simply as another reason to worry about employment legislation.

Instead, I would encourage businesses to see it as an opportunity to review their existing arrangements and address any potential problems before they become more serious.

And please remember, compliance isn’t simply about having the right documents or paying the correct contractual hourly rate.

It’s about ensuring that your policies, procedures, payroll calculations and everyday working practices all work together.

Because believing you’re compliant and being able to demonstrate that you’re compliant are two very different things.

At HR:4UK, we understand the practical challenges small businesses face. We work with employers to help them understand their obligations, review their employment arrangements and ensure that their HR and payroll practices support one another.

If you’re unsure whether your business is meeting its obligations, or you would welcome some guidance on preparing for the Fair Work Agency’s expanding enforcement responsibilities, please get in touch with our team.

We’re here to help you get things right so that you can concentrate on running your business.