COMPLIANCE
A s the Employment Rights Bill turn to what steps they’ll need to take to ensure they’re ready for the raft of changes being introduced. One of the more immediate reforms will be the establishment of the Fair Work Agency (FWA), which represents a significant change in how basic heads towards becoming an Act of Parliament, employers’ attention will employment rights will be enforced in the UK. The Government’s recently published roadmap indicates that the FWA is set to formerly launch in April 2026. Matthew Taylor, architect of The Taylor Review (published in 2017), has been appointed by the Government to chair the FWA. It was following this review that the first proposals were formed by the Government to introduce a single enforcement body. That has since evolved under the Labour government to be the FWA. So, what is the FWA and what can employers expect from it? “The current enforcement of national minimum wage provides an indication of what the Fair Work Agency’s approach will be” Employment rights: the current enforcement landscape Currently, most employment rights are enforced by individuals via the Employment Tribunal (ET). Regulatory enforcement is relatively limited and fragmented: l HM Revenue and Customs (HMRC) monitors the national minimum wage (NMW) l the Employment Agency Standards Inspectorate addresses agency worker issues and the conduct of employment agencies l the Gangmasters and Labour Abuse Authority tackles labour exploitation. The FWA will consolidate these roles and assume responsibility for enforcing: l NMW l holiday pay l statutory sick pay (SSP) l measures against modern slavery l agency worker rights. Under the Employment Rights Bill, there are also powers for the Department
“The Government’s recently published roadmap indicates that the Fair Work Agency is set to formerly launch in April 2026”
Will the FWA have the same powers as HMRC? The FWA will have the same powers of entry and access to employees and records as HMRC NMW inspectors currently have. However, in a surprise move, the FWA will also be granted powers to bring ET claims on behalf of workers under the Employment Rights Bill. At the time of writing, there’s no guidance on when this power could be used, or what claims it could relate to, but the indications are that it could relate to any employment right, from unfair dismissal to discrimination. What steps should payroll and human resources (HR) teams be taking now in preparation? RSM UK recommends HR and payroll teams take the following steps: 1. Appoint a responsible party for overseeing compliance across both the payroll and HR functions. 2. Undertake a compliance review of payroll and HR processes, ensuring holiday is being taken, NMW / holiday pay / SSP are being calculated and paid properly and that proper records are being kept. 3. Where risks of non-compliance are identified, implement remedial actions, which may include rectifying any underpayments which have arisen over the previous six years. 4. Update record-keeping procedures in compliance with regulations. 5. Plan for ongoing monitoring of compliance by integrating regular reviews within the internal audit programme and including risk and compliance within key performance indicators. 6. Monitor announcements from the Government and seek professional advice if needed. With statutory directors, shareholders and even managers personally liable where breaches of employment rights have arisen, increasing demands will be made on payroll and HR teams to ensure they’re compliant. While it will be essential to ensure policies are updated, this alone won’t be sufficient to mitigate the risks. n
for Business and Trade to expand the FWA’s remit to include additional employment rights. What enforcement approach will the FWA take? The current enforcement of NMW provides an indication of what the FWA’s approach will be. HMRC currently takes a two-pronged approach: l targeted enforcement based on at-risk sectors and geographical regions l following up all whistleblowing complaints raised with HMRC or the Advisory, Conciliation and Arbitration Service. When an inspection is launched, the employer is normally informed in writing and asked to attend a meeting with an NMW inspector at the employer’s premises. NMW inspectors have the power to enter an employer’s premises, speak to workers and request copies of documents. HMRC has the power to look back six years, covering both current and ex workers, and if it finds an underpayment over that period, it can issue a notice requiring repayment of the underpayment (together with an uplift) plus a 200% penalty of the total underpayment. There’s a minimum charge of £100 per notice and a maximum charge of £20,000 per worker. This can be reduced to 100% if the total underpayment and the penalty is repaid within 14 days. If the underpayment is £500 or over, the employer will be referred to the public naming scheme, resulting in reputational damage for the company. While the expectation is that this approach will continue under the FWA, will it be the same for holiday pay and SSP? In the case of holiday pay, the case law around what a worker is entitled to be paid has developed over the last decade and led to new regulations in January 2024. Those regulations also introduced a new concept of ‘irregular hour workers’, with increasingly complex calculations. Given the severe penalties the FWA can impose for non-compliance, they’ll hopefully take a supportive approach to enforcement, by focussing on educating employers on what they need to do to comply, rather than immediately issuing them with notices of underpayment.
33
| Professional in Payroll, Pensions and Reward |
Issue 115 | November 2025
Made with FlippingBook - Online magazine maker