By Jo Seery, Professional Support Lawyer
Introduction
In this week’s article, in our series on the Employment Rights Act 2025, we focus on the provisions on holiday pay which came into force on 6 April 2026 and look ahead to the government proposals for enforcing workers’ rights to holiday pay.
Analysis carried out by the TUC in September 2024 found that 1.1 million workers missed out on their entitlement to receive statutory paid holiday and missed out on £2 billion worth of holiday pay.
We are now well into the holiday season, but for many workers, employers still fail to pay their holiday pay. Reforms under the Employment Rights Act 2025 are set to provide a wake-up call to those employers who continue to deny workers their right to paid holidays.
The Employers duty to keep records
Since 6 April this year, new regulations came into force introducing a statutory obligation on employers to keep records showing how it has complied with its duty to:
- give workers 5.6 weeks annual leave
- give leave to irregular hours and part year workers their entitlement to annual leave
- pay workers the correct amount of holiday pay
- make a payment in lieu of holidays which a worker is entitled to but which they have not taken, this includes any annual leave carried over
The regulations require employers to keep “adequate” records for a period of six years from the date they were made.
While the regulations do not define what “adequate” means in terms of the records an employer must keep, how holiday entitlement and pay is calculated varies depending on the type of worker, which inevitably means that employers records will need to be fairly detailed.
For example, holiday entitlement for workers who work fixed hours is 5.6 weeks made up of four weeks basic holiday entitlement plus an additional entitlement of 1.6 weeks. Holiday pay for these workers is usually their normal salary. However, if the worker works regular overtime or receives commission or is paid a shift allowance, for example, holiday pay for the basic four weeks holiday must also include these payments.
The way holiday entitlement is calculated and paid is more complicated for irregular hours and part year workers (including zero hours workers). Holiday entitlement for these workers accrues at 12.07% of the hours they work in each pay period, subject to a cap of 28 days. This means that for these workers holiday entitlement builds up as they work over the course of the year. This can lead to disputes as to their entitlement if they leave part way through the year. As regards holiday pay this must not be less than average pay (including all elements of pay e.g. overtime, shift premia etc) calculated over a 52 week period (ignoring any weeks the worker wasn’t paid) prior to when their holiday starts. Employers can pay rolled up holiday pay which is effectively paid as a supplement calculated on the basis of 12.07% of the pay they receive in the pay period.
Employers will therefore need to keep records of how holiday entitlement and holiday pay has been calculated. This includes setting out the holiday that has been carried over from previous years and the details of holiday pay in lieu where employment is terminated for each category of worker from workers who have normal fixed working hours, to those whose pay varies as well as irregular, zero hours and part year workers.
An employer who fails to comply with the duty will be guilty of a criminal offence which can be enforced by the FWA.
Holiday pay Compliance and Enforcement
The employers duty to keep records is likely to become more important when the FWA takes on responsibility for enforcing the statutory right to holiday pay in 2027.
The Government launched a consultation on 30 June 2026 setting how it intends to ensure employers comply their duty to provide statutory holiday pay. The FWA will be able to take enforcement action to recover holiday pay which has not been paid, underpaid, or incorrectly calculated, including where an employer has refused leave or refused to allow leave to be carried over.
The FWA is limited to enforcing workers' rights to statutory holiday pay, as opposed to contractual holiday pay, from 2027. The Government takes the view that enforcement by the state will be more efficient than a worker taking an individual claim before an employment tribunal since it can check compliance across the whole of the business in respect of all workers. However, the FWA’s enforcement powers are not intended to replace a worker’s right to take a claim in the employment tribunal.
The Government is seeking views on the following:
- The claim period for enforcement of holiday pay to be set at a maximum of six years (to align with the period employers are required to keep records);
- The civil penalties on employers for non-compliance set at 200% of arrears owed per worker with a minimum of £100 per case and capped at £20,000 per worker, (mirroring those that apply to the enforcement of the National Minimum Wage (NMW);
- Options to enforce holiday pay for lower paid workers including prioritising their complaints, setting a cap on the maximum arrears a worker can receive and targeting geographical areas; and
- The extent to which rolled up holiday pay is being used.
Conclusion
It is likely that complex claims relating to both contractual and statutory holiday entitlement will continue to be brought in the employment tribunal. How effective the FWA will be in enforcing compliance by businesses to secure the holidays and the holiday pay workers, and low paid workers in particular are entitled to, will ultimately depend on how well resourced the FWA is.
The deadline for responding to the consultation is 22 September 2026.
