HR Newsletter No: 178 - Fair Work Agency – Records Are Your Friend

For many SMEs, record keeping is probably not the most exciting part of running a business. However, with the new Fair Work Agency (FWA) now up and running, your payroll records, timesheets and holiday spreadsheets could become some of your best friends.

The Fair Work Agency launched on 7^th April 2026, bringing together a number of existing labour-market enforcement functions. It has powers to investigate employers, require breaches to be corrected, impose or pursue financial sanctions and refer serious cases for prosecution.

The good news is that most responsible SMEs should have little to fear.

The important question is not simply:  "Did we do the right thing?" It is increasingly: "Can we prove that we did the right thing?"  And, that is where records become your friend.

What does the FWA currently cover?

The FWA is already operating. Its current remit includes areas such as employment agency regulation, gangmaster licensing and labour exploitation. It also has statutory responsibility for National Minimum Wage enforcement, although HMRC continues to carry out NMW enforcement on its behalf until the full transfer in April 2027.

There is another important date for employers to remember.

The FWA's direct enforcement of statutory holiday pay is expected to begin in or around April 2027. However, employers should not interpret that as meaning they can wait until 2027 to get their holiday records in order.

Holiday records - the obligation has already started

Since 6^th April 2026, employers have been legally required to keep records that are sufficient to demonstrate compliance with statutory annual leave and holiday pay requirements.

Those records must generally be retained for six years from the date they are made. Employers can choose the format in which they keep them.

In practice, SMEs should be able to evidence matters such as:

• how much statutory holiday an employee was entitled to;

• how much holiday they took;

• any holiday carried forward;

• how holiday pay was calculated;

• what was actually paid; and

• payments for outstanding holiday when employment ended.

So, although the FWA may not directly enforce holiday pay until 2027, the evidence it may eventually want to examine is potentially being created today.

Think of it as preparing for an exam where you are allowed to take your notes in with you.

Minimum Wage - records matter here too

Employers must also be able to demonstrate that workers have received at least the applicable National Minimum Wage or National Living Wage. This can become more complicated than simply checking the hourly rate shown on a payslip.

Problems can arise where employees:

• start work before their paid shift;

• stay behind after closing;

• attend compulsory training outside normal hours;

• regularly work unpaid overtime;

• have deductions made for uniforms or equipment;

• are apprentices;

• receive variable pay; or

• are paid close to the minimum wage;

A payslip saying somebody worked 40 hours is useful, but a rota, timesheet and clocking record showing they actually worked 44 hours may tell a rather different story.

Does enforcement really happen?

Yes.

In September 2026, the Fair Work Agency was involved in the Government's announcement naming nearly 660 employers which had failed to pay workers the National Minimum Wage, with approximately 27,000 workers receiving around £4 million in arrears following enforcement action.

This does not mean all of those employers deliberately set out to underpay people.

Minimum-wage breaches can arise from relatively ordinary payroll practices, particularly where employers have not properly considered working time, deductions or the interaction between pay and hours worked.

For SMEs, the lesson is simple: Don't rely on memory, good intentions or "that's how we've always done payroll".

Records really are your friend - keep the evidence.

Imagine an inspector asks: "How do you know Sarah received the correct holiday pay in August 2026?"

There are two possible answers.

Answer A:  "I'm sure she did. Dave used to deal with that and I think there might be an old spreadsheet somewhere."

Answer B: "Here is her holiday record, the payroll calculation, the hours and earnings used, and the corresponding payslip."

We know which conversation is likely to be shorter.

Five simple steps for SMEs

1. Record the hours people actually work

For hourly-paid and lower-paid staff in particular, make sure rotas, timesheets or clocking records accurately reflect working time.

2. Keep proper holiday records

Record entitlement, leave taken, carry-over and holiday pay. Since 6^th April 2026, relevant statutory holiday records need to be retained for at least six years.

3. Keep the workings - not just the answer

A payslip tells you what somebody was paid. It does not always explain why. Where relevant, retain the supporting information, such as hours, overtime, commission, deductions and holiday calculations.

4. Make sure records can actually be found

There is little benefit in retaining six years of records if nobody knows where they are. Agree who is responsible for them, where they are stored and who can access them if the person normally responsible is absent or leaves.

5. Test your system

Periodically choose a couple of employees and work backwards:

Hours worked ? pay due ? deductions ? holiday ? payroll ? payslip.

Can you demonstrate that everything is correct? If you can, your records are doing their job.

If the answer is: "Possibly - provided Steve still has that laptop…", you may have found something worth fixing.

The message for SMEs

The arrival of the Fair Work Agency does not mean every employer needs an expensive new HR system. A straightforward spreadsheet, payroll system or HR platform can all work perfectly well if they are accurate, consistently maintained and retained for the appropriate period.

Do the right thing and keep enough evidence to prove that you did

Because when an inspector, employee or Tribunal asks what happened several years ago, records are your friend.

Clients are welcome to raise any concerns with our Consultant team, who would be pleased to advise you on any element of the issues arising from this newsletter.