The Fair Work Agency (FWA) launched on 7 April 2026 as the Government’s new single enforcement body for key labour market rights. Established as an Executive Agency of the Department for Business and Trade, with the Employment Rights Act 2025 providing much of the statutory framework and enforcement powers under which it operates, it is directly relevant to recruitment agencies because it brings together several enforcement functions that already affect the sector, including employment agency standards, National Minimum Wage compliance, gangmasters licensing and labour exploitation enforcement. The Fair Work Agency was created to provide a more joined-up enforcement system, improve compliance, protect workers from exploitation and abuse, and support fair competition so that compliant businesses are not undercut by those that break the law.
The Fair Work Agency does not create a wholly new set of compliance obligations, but it does change the enforcement environment. Existing obligations around worker information, pay, deductions, record keeping and labour supply chain oversight are likely to come under more joined-up scrutiny. Government guidance also indicates that, over time, the Fair Work Agency will take on enforcement of additional rights such as holiday pay.
In This Article...
Why recruitment agencies are directly affected
Recruitment agencies generally sit between the worker, the end client, payroll teams, umbrella companies and other labour supply partners. That position creates clear compliance risk. Where pay or holiday pay goes wrong, it may not be enough for an agency simply to say that the client approved the hours, or that an umbrella company processed the payroll. Agencies should be able to evidence what the worker was told, how the assignment was structured, how pay was calculated and who was responsible for each part of the supply chain.
The Fair Work Agency’s enforcement remit includes employment agency standards, National Minimum Wage and National Living Wage enforcement, gangmasters licensing and serious labour exploitation. It also has a stated purpose of protecting workers, securing compliance and supporting fair competition, so that compliant businesses are not undercut by those that ignore employment law.
A point worth clarifying is the Northern Ireland position. The Fair Work Agency’s labour market enforcement remit extends across England, Wales, Scotland and Northern Ireland, subject to the relevant jurisdictional arrangements. However, employment law is devolved in Northern Ireland and the regulation of employment agencies and employment businesses in Northern Ireland continues to sit with the Employment Agency Inspectorate within the Northern Ireland Department for the Economy. Therefore, the position is not that Northern Ireland is completely outside the Fair Work Agency scope. The more accurate position is that some parts of the Fair Work Agency remit apply UK-wide, but Northern Ireland agency regulation remains separately enforced under the devolved arrangements.
What enforcement may look like
The Fair Work Agency enforcement statement explains that enforcement activity is intended to secure compliance, protect workers’ rights, remedy harm where it has occurred and address serious or persistent breaches. It says enforcement should be proportionate, accountable, consistent, transparent and targeted. However, it also makes clear that the agency will not hesitate to take formal enforcement action where this is necessary.
For recruitment agencies, this means enforcement should not be viewed only as a risk of fines after a worker complaint. The agency may use a range of tools, from advice and guidance through to inspections, corrective action, civil penalties and, where legislation allows, formal enforcement action. The availability of some enforcement tools depends on the relevant statutory framework and territorial application. Where there is evidence of serious, repeated or deliberate non-compliance, the risk profile becomes much higher.
The Fair Work Agency has statutory powers to investigate suspected breaches, require information, inspect records and take action where workers have not received legal entitlements. Its wider enforcement framework also includes the ability to require corrective steps, issue penalties and take stronger action where labour market offences or exploitation are involved. In practical terms, the businesses most at risk are those that cannot produce a clear audit trail.
Holiday pay: the key risk area for agencies
Holiday pay is likely to be one of the most significant compliance risks for recruitment agencies, particularly those supplying temporary, casual, irregular hours or part-year workers. It is also one of the areas where errors are common, because entitlement, accrual, rolled-up holiday pay, assignment patterns and changes in pay can all affect the calculation.
The Employment Rights Act 2025 provides for the Fair Work Agency to take on a wider role in labour market enforcement, with official guidance confirming that, over time, this will include additional rights such as holiday pay. This represents a significant shift away from relying solely on workers bringing individual claims. Given the Fair Work Agency’s investigatory powers, agencies should assume that concerns about one worker could lead to broader requests for records or evidence where the facts suggest a wider pattern, although the precise scope of any enquiry will depend on the relevant statutory power in force.
For agencies, holiday pay problems can arise in several ways. Examples include failing to explain holiday entitlement clearly at the start of an assignment, using an incorrect holiday pay calculation, not including relevant pay elements in the calculation, failing to pay accrued but untaken holiday when an assignment ends, unclear treatment of rolled-up holiday pay, poor records of leave taken, or relying on an umbrella provider without checking how holiday pay is being handled.
The enforcement risk is not limited to whether holiday pay has eventually been paid. Agencies should also consider whether the worker was given clear information, whether payslips and assignment documents are transparent, whether holiday pay is separated clearly where appropriate, and whether the agency can demonstrate how the calculation was reached. A correct calculation that cannot be evidenced may still create difficulty during an investigation.
What action could be taken on holiday pay?
Government guidance indicates that, over time, the Fair Work Agency will take on enforcement of additional rights such as holiday pay. Agencies should therefore treat holiday pay as an important area for future enforcement readiness, and keep sufficiently robust records to respond if and when those enforcement arrangements are brought fully into operation.
The Employment Rights Act 2025 creates a more unified labour market enforcement framework, giving Fair Work Agency enforcement officers significant powers to obtain information, inspect records, investigate suspected non-compliance and take enforcement action where statutory conditions are met.
In practical terms, the agency may require access to records and documents relevant to pay, terms of engagement, assignment arrangements and compliance. For recruitment agencies, that is likely to include payroll records, contracts, payslips, worker information documents and other material needed to explain how the engagement was structured and how pay was calculated.
If concerns are identified, agencies should be prepared for the possibility that the Fair Work Agency may look beyond the individual case where the available evidence suggests a broader compliance issue.
More serious outcomes may arise where non-compliance is deliberate, repeated, concealed or linked to wider labour exploitation. The enforcement statement makes clear that the Fair Work Agency’s role is not only to remedy individual breaches, but also to prevent future non-compliance and disrupt serious or persistent breaches. This is particularly relevant in sectors and situations the Fair Work Agency regards as higher risk, especially where temporary labour, vulnerable workers or complex labour supply chains are involved.
Agency conduct, worker information and Key Information Documents
The functions previously exercised by the Employment Agency Standards Inspectorate now sit within the Fair Work Agency, so the recruitment sector remains firmly within scope. Agencies should continue to focus on the basics: terms of engagement, assignment details, Key Information Documents, clear pay information, disclosure of deductions and accurate communication about holiday entitlement.
The Key Information Document should not be treated as a formality. Given the legal requirement to provide it and its role in explaining the engagement and pay arrangements, it is likely to be an important part of an agency’s compliance evidence. If there is a later complaint, the agency documentation will be central to explaining and defending the position.
Umbrella companies and supply chain risk
Many agencies use umbrella companies or other payroll intermediaries. This can be efficient, but it does not remove reputational and commercial risk. As a matter of good compliance practice, agencies should be able to explain why a provider was selected, what due diligence was carried out, how pay and holiday pay are presented to workers, and how any worker concerns are escalated.
Holiday pay is particularly important in umbrella arrangements. Agencies should review whether umbrella workers are receiving clear explanations of accrued holiday, paid holiday, rolled-up holiday pay if used, deductions, margins and take-home pay. Agencies should also consider whether their contracts give them enough rights to audit payroll treatment and obtain information quickly if the Fair Work Agency raises questions.
Practical steps recruitment agencies should take now
Recruitment agencies should use the Fair Work Agency launch as a prompt to review their compliance framework. Priority areas include:
- Key Information Documents, terms of engagement and assignment documentation.
- National Minimum Wage and National Living Wage checks, including deductions and unpaid working time.
- Holiday pay calculations, accrual records and end-of-assignment holiday payments.
- Payslip transparency and worker communications.
- Umbrella company and payroll provider due diligence.
- Client contracts, especially where timesheets, supervision and pay data are split between parties.
- Complaint handling procedures and escalation routes.
- Internal training for consultants, payroll teams and compliance staff.
A useful test is whether the agency could quickly evidence what a worker was told, what they were paid, why deductions were made, how holiday pay was calculated, what holiday was taken, what holiday remained unpaid at the end of the assignment, and who was responsible for each part of the engagement. If the answer is no, the records are probably not strong enough.
A commercial as well as compliance issue
Fair Work Agency readiness is not just about avoiding penalties. It is also a commercial issue. Clients are increasingly sensitive to labour supply chain risk, and workers are more likely to challenge unclear or unfair arrangements. Agencies that can demonstrate robust compliance, transparent pay practices and strong supplier due diligence will be better placed to win and retain business.
The key point for recruitment agencies is that enforcement is becoming more joined up. Agencies should not wait for a complaint or inspection before checking their systems. Holiday pay, worker documentation and supply chain due diligence should be reviewed now, so that the business can evidence compliance if questions are asked later.
Next Steps
Don’t wait for an FWA inspection to find out your records aren’t strong enough.
At Recruitment Accountants, we help recruitment agencies keep their payroll, holiday pay calculations and back-office compliance audit-ready — so you can demonstrate compliance with confidence, whenever you’re asked. Get in touch with our team today.
