As the full details of the changes made by the Employment Rights Act 2025 (ERA) continue to be worked out, the government has launched a new consultation on how compliance with employees' rights to statutory holiday pay will be enforced.
From next year the Fair Work Agency (FWA) will have the ability to investigate whether employers have been paying statutory holiday pay correctly and to impose penalties where they have not. This will bring holiday pay enforcement in line with other civil penalty regimes such that in force for non-payment of the National Minimum Wage. The key change is that the FWA will take a “whole employer” approach so that, rather than workers needing to bring individual claims for non-payment, action can be taken across the workforce as a whole. The FWA will also be able to investigate compliance with other statutory obligations, such as non-payment of the National Minimum Wage.
This system is not intended to replace the Employment Tribunals, and workers will still be able to bring individual claims although they will not be able to recover the same arrears from both the FWA and the Tribunal. The Tribunal may decide not to deal with a claim while a relevant FWA investigation is on-going.
An important difference between the Tribunal and the FWA is time limits. Workers wishing to bring a Tribunal claim will (from October this year) need to do so within six months of the latest underpayment and can recover up to two years' of arrears. In contrast, the time limit for reports to the FWA will be six years and the FWA will be able to require employers to repay up to six years of arrears. This is, however, subject to a ‘back-stop’ of 18 December 2025, which is the date on which the ERA received Royal Assent. The FWA will not be able to enforce any arrears of holiday pay that accrued before this date.
Initially, then, workers may be able to recover more by bringing a Tribunal claim. It is also worth noting that the FWA will only have the ability to enforce statutory holiday pay, so workers with more generous contractual entitlements may still wish to pursue a Tribunal claim on this basis.
The consultation also indicates that the FWA will prioritise enforcement on behalf of workers who experience systematic disparities in relation to the proper payment of holiday pay, such as low earners and those in precarious employment. The government is consulting on how this could be achieved, suggesting for example deprioritising claims from highly paid workers and/ or focusing enforcement on certain sectors and geographical areas. Again, this may incentivise certain workers to bring claims in the Tribunal rather than contact the FWA.
Where underpayments are found, the penalties imposed by the FWA could be significant. The government's preferred approach is for the penalty to be set at 200% of the arrears owed to each affected worker, with a minimum penalty of £100 per worker and a maximum penalty of £20,000 per worker, reduced by half if paid with 14 days. This would be payable to the government in addition to payment of any arrears owed to the worker themselves. In the consultation the government stresses, though, that it also sees the role of the FWA as being to educate employers on their obligations. With this in mind, it appears that where an employer takes steps to investigate its own compliance with its holiday pay obligations and makes good any arrears before a formal investigation is started no penalty will be payable. The consultation also asks what help the FWA can give to employers to help them comply with their obligations.
The consultation can be found here: Make Work Pay: holiday pay compliance and enforcement. It will close at 11:59pm on 22 September 2026.
What ever the outcome of the consultation, the risk to employers of not meeting their obligations to pay holiday pay is set to materially increase. Ahead of the changes coming into effect, employers should therefore review how they calculate holiday pay, particularly for workers with variable earnings or working patterns, and consider undertaking an internal audit to identify and address any historic underpayments. It is also very important that they comply with the new requirement to keep records of holiday pay, detailed here: Are you keeping records on holiday pay?
