The Fair Work Agency (FWA) was launched last month to uphold new employment law reforms under the Employment Rights Act 2025, including investigating breaches regarding the National Minimum Wage (NMW), holiday pay, and statutory sick pay (SSP).
Its enforcement comes at a time of heightened scrutiny over workplace compliance, with a recent University College London (UCL) study revealing that at least one in seven UK workers has experienced a violation of their employment rights in the last two years.
But while some violations aren’t deliberate and can be easily overlooked, it serves as a clear reminder to smaller businesses that employment law compliance can no longer be treated as an informal process – and that even small violations can lead to big consequences.
Millions of UK workers report employment rights breaches
A new study suggests that breaches of employment law aren’t isolated incidents, but part of a broader pattern impacting millions of workers across different sectors and job types.
The study, conducted by researchers at University College London (UCL), found that at least 14% of UK employees have experienced a clear breach of basic employment rights in the past two years.
Specifically, it found that around 5.4 million workers were paid less than the National Minimum Wage, charged illicit work-finding fees by recruitment agencies, and not provided with payslips, employment contracts, or key information documents – all of which are legally required.
Moreover, it found that 70% of employees have experienced other bad practices at work, including working extra hours unpaid, physical workplace injuries, paying unfair deductions, facing leave-related difficulties, and experiencing workplace bullying and harassment.
Interviews with employees during the study indicated that a variety of underlying issues had contributed to these problems – most notably understaffing, business pressures, and employees either not knowing their rights or not feeling confident enough to exercise them.
How compliance gaps can catch SMEs out
For smaller businesses, these findings show how easy it is for employment law risks to happen, even in well-intentioned organisations.
Of course, most small businesses don’t deliberately break the law, but these kinds of compliance gaps can often happen through informality or lack of human resources (HR) systems.
For example, the biggest risk areas for SMEs would be informal agreements instead of written contracts, misunderstanding holiday pay rules, incorrect payroll setup (especially for part-time staff), and a lack of documentation.
The lack of awareness around the FWA – with 36% of SMEs saying they’ve never heard of it before – also means that small businesses are at risk of steep penalties or committing a criminal offence, even if they didn’t intend to violate employment rights.
What’s more, with hundreds of employers named and shamed by the Government for underpaying staff, even SMEs that unintentionally underpay staff could find themselves facing the same level of enforcement action, financial penalties, and reputational damage. Plus, with single claims in employment tribunals increasing by 33% year-on-year, there’s a clear risk of hefty legal penalties as well.
How businesses should prepare for increased enforcement
To avoid potentially breaching new employment laws, businesses should first familiarise themselves with the FWA so that they have a clear understanding of what it is, the powers it has, and what the penalties are.
Next, businesses should review their current HR and payroll processes to ensure they are fully compliant with employment law, particularly around pay accuracy, holiday entitlement, and statutory obligations (such as the sick pay and minimum wage requirements).
Additionally, contracts and onboarding documents should be audited so that they are up to date, and clearly reflect the current work arrangements – including pay terms, working hours, and statutory employee rights.
For those that don’t have an in-house HR team, speaking with an HR advisor or accountant can help ensure compliance, find any potential risks, and put the right systems and documentation in place to prevent costly mistakes.
In terms of employee protection, businesses should look into improving communications around workers’ rights (such as through workshops, employee handbooks or written statements), and providing easy and safe ways for employees to report concerns or potential breaches without fear of reprisal. Prevention is much cheaper than dealing with disputes or tribunals later, so businesses should act now to avoid potential issues later down the line.
