Employment Rights Act: Preparing for the New Holiday Pay
Key takeaways
- From 2027, the newly established Fair Work Agency will enforce statutory holiday pay rights on behalf of workers throughout the United Kingdom.
- A government consultation, open since 30 June 2026, invites workers and employers to comment on the proposed enforcement framework before it takes effect.
- Penalties of up to 200 per cent of arrears are proposed, subject to a cap of GBP 20,000 per affected worker.
- State enforcement will operate alongside Employment Tribunal proceedings rather than replacing the right of a worker to bring an individual claim.
- A six-year enforcement claim period is proposed, which aligns with the record-keeping duties the legislation already imposes on employers.
Background to the consultation
On 30 June 2026, the government launched a consultation on how compliance with statutory holiday pay entitlements should be ensured once the relevant provisions of the Employment Rights Act come into force. Full details of the proposals are set out in the consultation paper on holiday pay compliance and enforcement published on GOV.UK and interested parties can respond directly through that document.
The consultation reflects a wider concern. Survey evidence gathered by the government indicates a significant level of non-compliance with holiday pay law in the United Kingdom, and it also shows that many affected workers never take formal steps to recover what they are owed. Introducing enforcement by a public body is intended to close that gap and to bring the United Kingdom into line with the approach already taken in many other countries, where a state authority oversees compliance with paid leave rules.
The role and powers of the Fair Work Agency
Under the Employment Rights Act, responsibility for upholding statutory holiday pay will pass to the Fair Work Agency from 2027. The agency will be able to investigate suspected underpayments, require employers to repay arrears, impose financial penalties and take broader steps to promote compliance across the labour market.
The agency is also expected to perform a significant educational function. It will support businesses through guidance, advice and training activities designed to help them meet their obligations under the legislation. Importantly, the agency’s enforcement does not remove a worker’s right to bring a claim before an Employment Tribunal: the two routes will coexist, and workers will remain free to pursue their own proceedings.
Conduct falling within the enforcement regime
The remit of the Fair Work Agency will cover the full range of failures connected with statutory holiday pay. This includes situations where holiday pay has not been paid at all, has been underpaid, or has been calculated on an incorrect basis. The regime will also extend to cases in which an employer has refused to grant statutory leave or has refused to allow leave to be carried over into a later period where the law permits this.
Proposed penalties and the six-year claim period
The government has set out its preferred penalty settings for underpayment of holiday pay. In summary, it proposes:
- a penalty of 200 per cent of the arrears owed to each worker, reduced to 100 per cent where the employer pays the full arrears and half of the penalty within 14 days;
- a maximum penalty of GBP 20,000 for each worker; and
- a minimum penalty of GBP 100 for each case.
The agency proposes a six-year claim period for enforcement. This aligns with the record-keeping requirements the legislation imposes on employers, so that the period over which arrears can be pursued corresponds to the period for which records must be retained. The government is also considering how enforcement activity might be directed, in particular towards lower-paid workers, who are regarded as most at risk of losing out.
In addition, the government has indicated that the naming regime, which currently applies to breaches of the National Minimum Wage, may in future be extended to holiday pay, meaning that non-compliant employers could be identified publicly.
Questions posed to workers and employers
The consultation invites responses from both sides of the employment relationship. Workers are asked whether they believe they have received less holiday pay than they were entitled to.
Employers are asked to comment on a wider set of issues, namely:
- how easy or difficult it is in practice to comply with holiday pay obligations;
- whether the proposed approach of the Fair Work Agency to supporting compliance is appropriate;
- whether the agency should undertake any further compliance activities;
- whether the naming policy should be extended to holiday pay breaches; and
- whether the proposed six-year enforcement claim period is the right one.
Views are also sought on the treatment of rolled-up holiday pay, under which an element of holiday pay is included in a worker’s ordinary wages rather than paid at the time leave is taken.
Matters outside the scope of the consultation
It is worth noting what the consultation does not address. The government is not consulting on any change to the way holiday pay or holiday entitlement is enforced through the Employment Tribunal. Nor does the consultation deal with how holiday pay is calculated, how much leave a worker is entitled to, or which elements of pay must be included in the calculation. Those rules remain as they are.
Preparing for the new regime
The stated aim of the government is twofold: to help employers understand and meet their legal obligations, and to make sure that workers are aware of their holiday pay rights and can rely on them in practice. With state enforcement due to begin in 2027, the period before the new framework takes effect gives employers an opportunity to examine how holiday pay is calculated and recorded within their organisations, and to seek employment law advice on any shortcomings before the Fair Work Agency acquires its enforcement powers.
