Establishment of the Fair Work Agency (the FWA)

The FWA will bring all state enforcement of workers’ rights under one enforcement body, with a wider remit and new powers. The Agency will have an Advisory Board made up of equal numbers of trade union reps, employer reps and independent experts which will advise on enforcement strategy so it’s likely that the new agency will take a targeted approach focussing on specific sectors and particular types of breaches. 

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Which areas will the FWA cover?  

The FWA will assume enforcement responsibilities for all areas where the state currently enforces labour rights such as national minimum wage and agency workers regulations, but it will also assume responsibility for new areas of enforcement such as SSP and holiday pay rights. While the FWA will be established from 7 April, it will take some time to integrate operations. The government have said they will publish an implementation plan for the FWA, including when it will start enforcing holiday pay and SSP rights. We’ll update you as soon as this is available. 

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What powers will the FWA have?  

1. They can require any person to attend to answer questions and/ or provide information and documents. 
2. Enforcement officers will be able to enter business premises to inspect documents, access IT systems used for workforce records and seize documents.  
3. If the worker has a right to bring an employment tribunal claim but is not pursuing it, the FWA can bring a claim on their behalf. 
4. They can pay for or arrange for legal advice and representation in employment related legal proceedings.  

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Underpayment notices, penalties and enforcement costs 

If your business is found to have made an NMW, holiday pay or SSP underpayment to a worker, the FWA can issue a Notice of Underpayment which will require payment to be made to the worker within 28 days. 

The Notice of Underpayment can only cover sums which should have been paid within the previous six years. 

Alongside the Notice of Underpayment, the FWA will usually issue a penalty, payable to the Secretary of State. The penalty is: 

• calculated at 200% of the underpaid amount, 

• capped at £20,000 per worker, 

• has a minimum total penalty of £100 per notice (even for very small underpayments). 

The penalty is payable within 28 days, but it’s discounted from 200% to 100% if it’s paid within 14 days.  

For example, if 10 employees have been underpaid £100 each, £1000 would be payable to cover the underpayment but a penalty of £2000 would be imposed on top of this. If the employer was able to pay the £1000 underpayment and a £1000 penalty within 14 days, the remaining £1000 from the penalty would be waived.  

On top of these penalties, the Act allows the government to make regulations giving the FWA the right to impose charges on noncompliant employers to recover their enforcement costs. We are expecting a consultation to be issued on how these enforcement charges should be calculated. 

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Can I appeal against the FWA findings? 

Yes. There will be limited grounds to appeal, such as: 

• no money was in fact due 

• the calculation is wrong 

•  the money was paid on time; or 

•  the claim relates to a period outside the six-year limit. 

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Labour market enforcement undertakings (LME undertakings)  

The Act gives the FWA power to enter into an LME undertaking with employers if they have been found to have committed a labour market offence but voluntarily agree to take measures aimed at avoiding any future breaches. If you don’t agree to enter into an LME undertaking or agree to it but breach it, the FWA can get an LME order. Breaching this type of order without a reasonable excuse is a criminal offence which carries a sentence of up to two years’ imprisonment.  

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What enforcement action can be taken if you fail to co-operate with the FWA? 

It will be a criminal offence to:  

• provide false information or documents in response to enforcement demands, knowingly or recklessly; or 

• intentionally obstruct an enforcement officer, or without reasonable excuse fail to comply with their lawful requirements. 
• Senior company officers/partners/committee members can be personally prosecuted where offences are due to their consent, connivance or neglect. 

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How can I prepare for the FWA? 

Train managers – It is important that managers are aware of this new body, its enforcement powers and who they should notify in the event of receiving contact from the FWA. Obstructing an enforcement officer or providing false information will be a criminal offence. Equally, managers should be aware that they can require an enforcement officer to produce ID and that documents covered by legal privilege do not have to be disclosed. 

Review pay practices – It is also important that you review your practices on payment of wages, holiday pay and statutory payments such as SSP as the costs of getting this wrong will be considerably higher.  

Record-keeping – It is important to have robust payroll controls in place. Ensure you can quickly produce records if required. Correct any errors quickly and keep evidence of corrections. The new rules will require holiday records to be kept for six years so make sure your systems meet the new requirements.  

If you receive a Notice of Underpayment, it is very important to diarise the 14 and 28 days payment deadlines and take advice if you think they’ve got it wrong.