As of 6 April 2026, UK employers have been under a new statutory duty to keep adequate records demonstrating compliance with workers’ holiday and holiday pay rights. This obligation, introduced at the last minute by the Employment Rights Act 2025, represents a significant shift from previous practice.
In practical terms, employers should ensure their records clearly show compliance with the rules in relation to:
- Holiday entitlement - including holiday used and holiday carried over between leave years;
- Holiday pay – including details of which elements of pay, such as overtime or commission have been included and how holiday pay has been calculated; and
- Payments made in lieu of untaken holiday on termination.
The legislation does not prescribe a particular format for the records. The Employment Rights Act 2025 simply says records must be “adequate” and “may be created, maintained and kept in such manner and format as the employer reasonably thinks fit”. ACAS suggests an online management system, payroll system or a spreadsheet would all fit the bill.
Records must be retained for at least six years, aligning this obligation with other areas such as national minimum wage compliance. We recommend updating any references to retention periods in policies to reflect this.
A failure to keep adequate holiday records is a criminal offence and could be subject to an unlimited fine. Further, in due course, the newly established Fair Work Agency will have the right to take enforcement action if there is a breach of this obligation. The Fair Work Agency does not yet have the authority to take such action, but we understand that, when it does, it will be able to act retrospectively, looking back to 6 April 2026, when the rules came into force. Employers who are unable to show adequate records may face a demand for any underpayment of holiday pay in addition to a penalty or fine.
Compliance with this new obligation is not going to be straightforward. Holiday entitlement and holiday pay is notoriously complicated, especially for workers with irregular hours or pay.
Employers should carry out an audit of their current HR and payroll systems to see what information in relation to holiday and holiday pay they record already. They should also audit their compliance in relation the more complicated aspects of holiday entitlement and pay. For example, a starting point would be to think about the following:
- What is included in holiday pay calculations? On 1 April 2024, the case law rules on ‘normal pay’ for holiday pay purposes was codified into statute. Certain payments above and beyond basic pay must be included when determining holiday pay. These include payments which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract (such as commission payments), payments for professional or personal status relating to length of service, seniority or professional qualifications and other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date. Employers must be prepared to show their workings on holiday pay in record form. Ideally calculation methodologies for holiday pay should be clearly documented and employers should be able to retrieve records quickly if challenged.
- How is holiday carry-over managed and recorded? Those who are on statutory leave (for example maternity leave), those on long-term sick leave and those who have not been given a reasonable opportunity to take holiday, are able to carry over certain parts of their annual leave.
- Is there evidence that the employer has encouraged/given workers a reasonable opportunity to take annual leave and informed all workers that any leave not taken by the end of the leave year, which cannot be carried forward, will be lost?
- It is not uncommon for irregular hours workers to be paid rolled up holiday pay, but for there to be no evidence that they take the holiday (or in fact they may not take it). Employers must be prepared to show records of holiday actually taken.
This is a good time to carry out a full review of holiday entitlement and pay to ensure compliance and to make sure it can be evidenced in a way to withstand regulatory scrutiny.
