The Fair Work Agency vs HMRC: What’s Different For Employers

The Fair Work Agency (FWA) is the UK’s new single employment enforcement body, launched on 7 April 2026 under the Employment Rights Act 2025. It is now the primary authority responsible for enforcing workers’ employment rights, separate from HMRC, which retains its tax and payroll compliance mandate.

HMRC hasn’t gone anywhere. So who does what now and what does that mean for your business? Here’s the breakdown.

Disclaimer: The information in this article is current as of May 2026 and has been prepared by Employment Hero UK Ltd and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.

What is the Fair Work Agency?

The Fair Work Agency (FWA) is a new executive agency of the Department for Business and Trade, established under the Employment Rights Act 2025 and formally launched on 7 April 2026.

Before the FWA, employment rights enforcement in the UK was split across four separate bodies with overlapping and sometimes inconsistent remits. The FWA brought all of them under one roof:

• HMRC’s National Minimum Wage enforcement team.
• The Gangmasters and Labour Abuse Authority (GLAA) — previously responsible for labour exploitation and modern slavery enforcement.
• The Employment Agency Standards Inspectorate (EASI) — responsible for agency worker protections.
• The Office of the Director of Labour Market Enforcement.

The problem the FWA was created to solve is straightforward: the previous system was fragmented, underfunded and left significant gaps. Holiday pay, for example, had no state enforcement body at all before April 2026. 

The FWA has launched with a combined inherited workforce of around 550 inspectors. While this unifies existing efforts, independent analysis highlights that the UK still falls far short of the International Labour Organisation’s recommended baseline of 1 inspector per 10,000 workers—which would require roughly 6,000 enforcement officers nationwide. This stark gap signals exactly where state funding and proactive enforcement capacity are heading over the next few years.

What powers does the FWA have?

• Conduct inspections and investigations without waiting for a worker complaint.
• Issue civil penalties for underpayment of wages.
• Pursue criminal enforcement in serious exploitation cases.
• Name employers publicly for non-compliance.
• Fund and support workers bringing employment tribunal claims — a power HMRC never had.

What does HMRC still do?

HMRC is not being replaced. It retains its full tax mandate and continues to operate completely independently of the FWA.

HMRC remains responsible for:

• PAYE and income tax.
• National Insurance Contributions (NICs).
• IR35 and off-payroll working rules.
• Benefits in Kind (P11D reporting).
• The Construction Industry Scheme (CIS).
• Auto-enrolment pension reporting (alongside The Pensions Regulator).

The cleanest way to think about the split: 

• HMRC = tax compliance authority. 
• FWA = worker rights enforcement body.

Your payroll software, PAYE reporting cadence and HMRC relationships stay exactly as they are for tax purposes. Nothing about the FWA changes your obligations to HMRC.

The NMW enforcement timeline 

While the FWA assumed responsibility for National Minimum Wage (NMW) on 7 April 2026, the transition is administrative. Throughout the 2026/27 transitional year, NMW enforcement continues to be delivered by HMRC under a contracting arrangement with the FWA.

A full operational transfer of NMW staff and functions is slated for April 2027. For employers, this means that any audit notices or correspondence regarding NMW throughout 2026 will still likely carry the HMRC logo and should be treated with the same legal priority as a tax investigation.

FWA vs HMRC: The key differences

The simplest framing: if it’s about paying the right tax, it’s HMRC. If it’s about treating workers correctly, it’s the FWA.

Holiday pay: The enforcement gap that’s now closing

This area deserves particular attention because it marks the beginning of state oversight of holiday pay compliance under the FWA. While direct enforcement of holiday pay underpayment is not expected until 2027, employers are already subject to record-keeping requirements from April 2026.

Businesses that have been rolling up holiday pay incorrectly, failing to account for irregular hours or using the wrong calculation method for part-year workers may now face greater scrutiny through those record-keeping obligations. If your holiday pay calculations and documentation processes haven’t been reviewed recently, this is a sensible place to start.

Statutory Sick Pay: Broader scope, real penalties

Under HMRC, Statutory Sick Pay (SSP) enforcement was minimal, with no meaningful financial penalty for non-compliance. The FWA has changed the stakes entirely, with the power to levy penalties of 200% on underpayments.

This risk is compounded by the Employment Rights Act 2025, which overhauled how SSP is calculated. As of 6 April 2026, the three-day “waiting period” has been abolished. Previously, employees were not paid for the first three days of illness; now, SSP is a “Day One” entitlement.

Alongside this, the Lower Earnings Limit (LEL) has been removed, bringing an estimated 1.3 million low-paid and part-time workers into the system. For these workers, the payment is now the lower of 80% of average weekly earnings or the flat weekly rate (currently £123.25 for 2026/27). If your payroll logic hasn’t been updated to remove the 3-day buffer and apply the earnings toggle, your exposure is likely larger than you realise.

Enforcement approach: Reactive vs proactive

HMRC’s enforcement model is largely reactive and triggered by discrepancies in returns, complaints or risk flags from payroll data. The FWA’s model is different. It can and will initiate investigations based on sector risk-profiling, without any worker complaint at all. The early priority sectors are hospitality, retail, social care, cleaning and construction. If your business operates in any of these, the probability of contact is higher than it was under the previous system.

Where HMRC and the FWA overlap

The two bodies are separate, but they’re not entirely siloed. There are three areas where employers may find themselves dealing with both:

The key message: the FWA replaces HMRC for employment rights. It does not replace HMRC for tax. Depending on the nature of an issue, you may still interact with both.

What’s actually changing for employers in practice

For most UK employers, the FWA means a higher likelihood of inspection, broader enforcement scope and a new obligation to have audit-ready records on pay, leave and sick pay.

What inspectors will ask for

The FWA can request pay and leave records going back six years, so employers should ensure payroll and holiday documentation is accurate, complete and easily accessible. However, the requirement is no longer just a “best practice” recommendation. Under the Employment Rights Act 2025, as of 6 April 2026, keeping “adequate records” of holiday pay and leave is a statutory requirement.

Failure to maintain these records is now a criminal offence, punishable by potentially unlimited fines. You can view the official Acas requirements for statutory record-keeping on the ACAS website to ensure your business is compliant. “Adequate” means you must be able to produce, on request:

• Holiday Pay Calculations: A clear audit trail showing how “normal remuneration” was calculated (including commission and overtime).
• Leave records: Accurate logs of annual leave entitlement, leave actually taken and any leave carried forward.
• Payroll granularity: Hourly rates mapped against hours worked for every pay period.

Paper records and spreadsheets are difficult to interrogate at scale. If an inspector requests bulk data and it takes weeks to compile, the FWA may deem your record-keeping “inadequate,” triggering immediate liability.

Director and personal liability

This one is rarely covered in employer guidance, but it matters. Personal criminal liability can attach to directors and senior officers for specific offences within the FWA’s remit, including failure to keep adequate holiday pay records, certain NMW offences and labour exploitation offences.

Increased tribunal exposure

The FWA can fund and support workers bringing employment tribunal claims. This is a new power that didn’t exist under the fragmented enforcement model. Individual claim risk rises alongside the risk of an FWA investigation. The two are now connected in a way they weren’t before.

Common misconceptions about the FWA

What employers should do now

The FWA is already operational. If you haven’t reviewed your compliance position since April 2026, here’s where to start.

Audit your holiday pay calculations

If you employ workers on irregular hours, zero-hours contracts, or part-year arrangements, check your calculations against the 52-week holiday pay reference period. This is the FWA’s highest-priority enforcement area and the most common source of underpayment.

Review SSP coverage

The day-one SSP entitlement under the Employment Rights Act 2025 means your existing policy may now cover more workers than before. Confirm eligibility criteria and payment processes reflect the current rules.

Verify NMW rates are applied correctly

Common underpayment triggers that employers often miss: tip deductions, charges for uniforms, salary sacrifice arrangements and accommodation deductions. Check these specifically.

Get six years of records in order

Payroll, leave and SSP records need to be accessible, accurate and complete — not just archived. If you can’t produce them quickly in response to a request, close that gap now.

Brief your HR and payroll teams on the dual-regulator environment

They need to understand which body handles which issue: HMRC for tax, FWA for worker rights. Knowing who to engage — and how — matters when contact happens.

Review agency worker arrangements

 If you use agency labour, confirm both the tax treatment (HMRC) and rights compliance (FWA) are correct. These are two separate checks on the same workforce.

What this means going forward

The mental model that will serve UK employers best from here: HMRC owns tax compliance. The FWA owns worker rights compliance. Two separate bodies, two separate obligations, both fully operational.

The shift from four fragmented enforcement bodies to one joined-up agency means less falls through the cracks — for workers and for employers who are non-compliant. The FWA has more tools, broader reach and a proactive mandate. That’s a meaningful change from the environment UK employers operated in before April 2026.

Businesses with accurate, automated payroll and HR records are materially less exposed than those relying on manual processes. When an inspector can ask for six years of leave and pay data, the difference between a well-maintained system and a folder of spreadsheets is significant.

Employment Hero’s AI-powered platform manages payroll, holiday pay, SSP, record-keeping and more in one place. 

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