The UK Employment Rights Act: new state enforcement powers

Why should I read this?

The Employment Rights Act 2025 (“Act”) contains major changes to the enforcement of workplace employment rights. It provides for a new public body, the Fair Work Agency (the “FWA”), to exercise existing enforcement functions on behalf of the government and, significantly, extends its powers in a way not seen before. For example, the FWA will enforce holiday pay and statutory sick pay rights and the government will be able to bring tribunal proceedings in place of a worker, provide workers with legal assistance and recover enforcement costs from employers. The Act provides for the possibility of future regulations expanding further the remit of the FWA’s functions.

What does the Act say?

Previously, most employment rights were either enforced by claimants in the employment tribunal, with a small number of rights (e.g. national minimum wage) enforced by different state bodies, including HMRC, the Gangmasters and Labour Abuse Authority (“GLAA”) and the Employment Agency Standards Inspectorate.

The Act transforms the status quo by establishing the FWA, integrating the existing state enforcement functions into the one body and empowering it with new enforcement capabilities (see below). It abolishes the GLAA and the Director of Labour Market Enforcement, with their work transferring to the FWA.

A new FWA advisory board, comprising equal representation from workers, employers and independent experts, has been established and will assist with the production of an annual report and enforcement strategy which will monitor, and inform, the FWA’s work.

In relation to the individual enforcement of employment rights, the Act increases the time limit in which employees can bring a claim from three to six months (statutory redundancy and equal pay claims are already six months), subject always to ACAS pre-claim conciliation extensions.

The FWA was established as a body on 7 April 2026. Given that existing enforcement activities transfer to the FWA, a transitional period applies before it is fully operational. As a result, enforcement of the national minimum wage is continued by HMRC until 2027 and the new powers in relation to statutory holiday pay and SSP have not yet been implemented.

The FWA’s new enforcement capabilities

The Act extends state enforcement, including the following:

The scope of enforcement will be widened, for example, to include holiday entitlements, statutory sick pay (“SSP”) and the umbrella company market¹. The FWA will also take on enforcement of the Act’s new zero and low hour contract rights in due course. However, the scope of state enforcement, despite this widening, remains a narrow range of employment rights - with the notable exception of the scope of new powers to bring proceedings and provide legal assistance, described below.

New regulations, yet to be made, will provide for the recovery of enforcement costs, incurred by the state in carrying out the above enforcement activities, from a person who has failed to comply with the relevant employment legislation. At this stage, it appears to exclude the recovery of costs when bringing tribunal proceedings or providing legal assistance, below. Nonetheless, it adds a new risk for employers. According to the government, it is in “recognition of the “polluter pays” principle” and “is similar to how other regulators operate, such as the Health and Safety Executive.”

The power to issue underpayment notices to employers will be extended to include breaches of certain statutory pay provisions, including SSP and holiday pay. Similar to the existing approach with the minimum wage, a notice will require payment within 28 days, may go back six years and will take account of any uprating in the statutory payment during that period. However, with the exception of the minimum wage, a notice may not relate to any sum that became due before the Act was passed which initially limits the impact of the six year period. A penalty will also ordinarily apply (200% of the sum in the notice, subject to a maximum of £20,000 for each individual - halved if paid within 14 days). The notice and penalty may be appealed to an employment tribunal and an unpaid notice may be subject to enforcement in the courts.

A new power will permit the Secretary of State (presumably, the FWA) to bring tribunal proceedings in place of a worker, where it appears that they are not making a claim, but not if an underpayment notice has been given. If a claim is upheld, a tribunal may still make a financial award in the worker’s favour. The wording of the Act suggests that this power relates to the full range of rights falling under the jurisdiction of an employment tribunal and is an exception to the narrower scope of state enforcement outlined above.

Another new power permits the Secretary of State to provide legal assistance, including legal advice and representation, to an individual who is or may become party to employment-related civil litigation.

The FWA will adopt the Labour Marketing Enforcement system that currently exists. This system provides for voluntary agreements with non-compliant employers setting out improvement measures. They may be ordered by a court where the employer resists, or imposed upon conviction of a labour market offence. New offences will apply, including the risk of fines, if an employer fails to comply with an order, obstructs enforcement and more.

Recognising that enforcement powers differ currently across existing enforcement bodies, the Act provides a new common, consistent framework to be applied by the FWA. For example, filling any legal “gaps” in powers to investigate and enter premises to carry out inspections. In so doing, it extends the powers in some areas where the government believes they have become outdated or are inhibiting effective enforcement.

From 6 April 2026, the Act also amends working time legislation, requiring employers to keep certain records relating to annual holiday entitlements for six years to demonstrate compliance. This record-keeping duty will fall within the FWA’s enforcement scope, alongside its enforcement of holiday pay and rolled-up holiday pay (not yet in force).

Practical implications

The government’s aim is to empower the FWA to act as a “powerful deterrent” against employer non-compliance. It seeks to achieve that by replacing existing fragmented and limited state enforcement with a single body, and empowering it with stronger powers to investigate and take action against employers that do not comply with certain employment rights.

The extension of enforcement powers to include holiday pay, an area of law prone to complexity, means that employers should prioritise risk assessing their compliance with annual leave provisions in the working time legislation. This should include checking for technical or inadvertent errors, given the risk of future FWA investigations and possible underpayment notices, penalties and associated reputational damage. 

The new power of the Secretary of State to institute proceedings, provide legal assistance and to recover enforcement costs represents a major change in approach to enforcement. However, it remains unclear how these powers would be exercised, or funded, in practice.

1. Umbrella companies are employment intermediaries that employ temporary workers on behalf of recruitment agencies and end client businesses, and are typically responsible for paying workers, operating PAYE and providing employment rights. They are generally unregulated and, in response to evidence that some are evading employment and tax obligations, the government has decided to address that regulatory gap.

Further reading

The Act received Royal Assent on 18 December 2025 and is being implemented in stages over 2026 and 2027.

The Act includes 28 employment reforms and, cumulatively, the scale, breadth and complexity of the changes are significant for employers (read our tracker to keep abreast of developments across the Act and timescales for implementation).

See our briefings focusing on the Act’s changes to:

• trade union and collective rights, read our update
• dismissal and re-engagement (“fire and rehire”), read our update
• family-friendly rights and SSP, read our update
• collective redundancies, read our update
• zero and low hours contract workers, read our update
• unfair dismissal, read our update
• equality and harassment duties, read our update

How we can help

The rules on calculating national minimum wage and statutory holiday pay are complex and technical meaning that breaches tend to happen by accident rather than by design. Our team can help employers review and audit their current pay arrangements to ensure legal compliance, and advise on remedial steps in the event of a discovery of underpayments. We can also support employers prepare for the new enforcement landscape under the FWA and represent employers facing regulatory investigation.