The Fair Work Agency and What It Means for Organisations with Contractors
A new enforcement body, the Fair Work Agency, will change how worker rights are enforced in the United Kingdom. For organisations that engage significant numbers of contingent workers or contractors, the implications extend beyond what most people have realised so far.
What the Fair Work Agency Is
The Fair Work Agency is established under the Employment Rights Act 2025 and is due to begin operations from 7 April 2026. Matthew Taylor CBE has been appointed as its first chair.
The purpose of the Fair Work Agency is to bring together enforcement functions that are currently spread across multiple bodies. These include the Employment Agency Standards Inspectorate, the Gangmasters and Labour Abuse Authority, and HM Revenue & Customs’ National Minimum Wage enforcement team. The new agency will have broader powers and a stronger focus on proactive investigations and compliance checks.
Its remit includes enforcement of:
- Holiday pay, including a statutory requirement for employers to retain records sufficient to demonstrate compliance for at least six years.
- Statutory Sick Pay. From 6 April 2026 this becomes a Day 1 right, with the removal of the lower earnings threshold and day one waiting period.
- National Minimum Wage enforcement. The National Minimum Wage will rise to £12.71 per hour for workers aged 21 and over from 1 April 2026.
- Employment agency standards for organisations that supply temporary and contract workers.
- Paternity and parental leave, which also become Day 1 rights from 6 April 2026 without a qualifying period.
The government has described the Fair Work Agency as bringing proactive enforcement into the UK labour regime, moving away from reliance on complaints to prompt action initiated by the regulator.
Proactive Investigation and Why This Matters
At present, many worker rights are effectively enforced only when individuals raise claims. A worker who does not receive holiday pay must initiate action to challenge the employer. Many do not, especially those in insecure or non standard arrangements.
The Fair Work Agency’s powers include the ability to inspect workplaces and ask employers to produce records that demonstrate compliance. This can occur without any complaint from a worker.
For organisations that have assumed a lack of complaints means there are no issues, this represents a significant shift. Absence of complaints can no longer be treated as evidence of compliance.
The agency will also have the power to bring claims on behalf of workers in tribunals and pursue unpaid wages or entitlements directly. This centralises enforcement initiative with the state rather than leaving it entirely with individuals.
The Contractor Dimension in Practice
Most discussion of the Fair Work Agency has focused on employee rights. An important area for organisations with a mix of employees and contractors is how statutory entitlements apply where a worker is treated as an employee for tax purposes.
When a worker is determined to be inside IR35 for tax, that worker is considered an employee for income tax and National Insurance purposes. In such cases statutory employment rights also become relevant. These include holiday pay, statutory sick pay, and parental leave.
In practice, some organisations manage the income tax treatment correctly but do not fully align other entitlements. A contractor who is inside IR35 may have PAYE and National Insurance deducted at source but may not be accruing holiday pay in line with the Working Time Regulations, may not be set up for statutory sick pay from the first day of engagement, and may not have clarity on parental leave rights.
Many organisations are unsure how these entitlements are implemented in practice. That gap between classification for tax and application of other rights is exactly the type of inconsistency a proactive enforcement body is designed to detect.
Changes to Statutory Entitlements from April 2026
From 6 April 2026 statutory sick pay will be payable from the first day of work. The lower earnings limit that previously prevented eligibility and the three-day waiting period will end. Similarly, paternity and parental leave rights will no longer be subject to a 26-week qualifying period. These changes apply to workers who meet the statutory definition of employee.
For standard employees these adjustments are straightforward to implement through payroll and HR systems. For workers engaged as contractors, especially those treated as inside IR35, it is less clear whether systems and policies have been updated to reflect these rights.
Organisations should ask themselves whether their payroll and HR processes can calculate and pay statutory sick pay from the first day for inside IR35 workers and whether their policies reflect parental leave eligibility without a qualifying period.
The Visibility Challenge for Compliance
Before assessing exposure to inspection by the Fair Work Agency, organisations need clarity on who works for them. This means:
- Workers recorded in HR systems.
- Contractors engaged through procurement arrangements.
- Specialists embedded through services agreements or on project terms.
- Agency or temporary workers who may have filled ongoing roles.
The Fair Work Agency can request to see records. If an organisation cannot demonstrate a clear understanding of its workforce, an inspection may raise questions regardless of whether any individual worker has made a complaint.
Compliance is not about perfection. It is about being able to show that you understand who is in your workforce, how each worker is classified, what entitlements they receive, and how those decisions are documented.
Practical Steps Before April 2026
Organisations have a window before the Fair Work Agency’s powers are fully used. Recommended actions include:
- Review arrangements for workers determined to be inside IR35. Assess whether statutory entitlements beyond tax treatment are being applied appropriately.
- Update policies and systems to reflect the implementation of Day 1 statutory sick pay and parental leave from April 2026.
- Conduct a workforce audit that captures everyone engaged in delivery of work, including contractors, agency workers and supply chain labour.
- Ensure record-keeping meets the new requirement for annual leave records to be retained for at least six years and can be produced promptly.
- Brief senior leaders. The Fair Work Agency’s approach has implications for HR, finance and procurement functions. Finance teams should understand the cost implications of expanded statutory sick pay application. Procurement should consider how contingent labour is classified and managed.
Key Points for Organisations
- The Fair Work Agency begins operations on 7 April 2026 with consolidated enforcement powers and the ability to investigate without a complaint.
- Statutory sick pay, paternity leave and parental leave become payable from the first day of work in April 2026.
- Workers inside IR35 for tax purposes should receive the statutory rights that accompany employee status.
- Workforce visibility and documented processes are fundamental to demonstrating compliance.
- Organisations that can clearly show who works for them and what entitlements are in place will be better positioned for inspection.
What This Means in Practice
The introduction of the Fair Work Agency represents a lasting change in how worker rights are overseen in the UK. It places greater emphasis on proactive oversight rather than reactive claims. For businesses with complex workforces, especially those with contractor and contingent populations, the focus should be on clarity, documentation and alignment between classification and statutory entitlements.