Holiday Pay: What the Government's New Enforcement Proposals Mean for Employers

What is the consultation seeking views on?

The consultation ‘Make Work Pay: Holiday Pay Compliance and Enforcement’ seeks views on the proposed approach to state enforcement of holiday pay entitlement. The consultation also asks for views on three options for how the FWA can focus holiday pay enforcement on lower-paid workers or those in more vulnerable or precarious employment: either setting a ‘cap’ on the maximum arrears a worker can receive from FWA enforcement, prioritising holiday pay complaints from lower-paid workers, or proactively targeting compliance and enforcement by geographical area. Views are also being sought on how, and to what extent, rolled-up holiday pay for workers with irregular hours or part-year working patterns is currently being used in practice. The consultation closes on 22 September 2026.

Fair Work Agency enforcement of holiday pay – what could this look like?

From 2027, the statutory right to holiday pay will be enforced by the new Fair Work Agency (FWA), the single labour market enforcement body which was established by the Employment Rights Act 2025. The consultation document is clear that the FWA will only enforce statutory holiday pay entitlement;  “If a worker has a contractual arrangement with their employer which provides additional holiday entitlement (entitlement over and above the statutory minimum), the FWA will not enforce that additional entitlement. Claims relating to non-statutory holiday entitlement can still be taken to the tribunal or civil courts.”

The consultation document highlights that the FWA can take a “whole employer” approach, whereby the FWA can look at an employer’s compliance with holiday pay law in relation to all of their workers, rather than only dealing with a worker’s complaint in isolation. In addition, and importantly “the FWA can also look at an employer’s compliance with multiple aspects of employment law”, giving the example of “if a business is inspected for compliance with holiday pay law, they may also be inspected for compliance with the minimum wage at the same time.”

The government proposes for the focus to be on supporting employers to comply with the law and only to take punitive enforcement action where necessary. The consultation notes that calculating holiday pay entitlement can be complex and can lead to accidental non-compliance and underpayment. The FWA will therefore provide opportunities for employers to correct any underpayment rather than move straight to punitive enforcement action. This may involve the FWA promoting compliance by “nudging” employers and encouraging them to check their records and voluntarily pay any arrears that may be owed. “A penalty would not ordinarily be issued where an employer has correctly repaid all holiday pay arrears that are owing to the workers before the start of an FWA investigation.”

The key proposals are that:

• the claim period for FWA enforcement of holiday pay will be set at a maximum of six years (which aligns with the six-year period for which employers must keep holiday pay records). However, holiday pay claims will not be enforceable by the FWA if they occurred before the date on which the ERA 2025 received Royal Assent, i.e. 18 December 2025,

• the rules setting the amount of civil penalty for holiday pay enforcement will mirror the ones for enforcement of the minimum wage, i.e. a penalty amount of 200% of arrears owed for each worker, a maximum penalty of £20,000 per worker and a minimum penalty of £100, and

• employers could be “named” for holiday pay underpayment, in a similar way to those businesses that do not pay the NMW. 

These are only proposals at this stage but they do give an indication of how the state enforcement of holiday pay entitlement will be tackled from 2027.

 It is worthwhile remembering that compliance with holiday pay provisions is essential, as individuals are already able to bring a claim at the employment tribunal if they consider that they have been underpaid. The tribunal will consider the claim and decide whether or not the worker is owed arrears for holiday pay. The FWA will introduce a new state enforcement element, which the government hopes will provide a more efficient route to resolution. The consultation document does stress that the enforcement by the FWA will not replace a worker’s right to make a claim to an employment tribunal. However a worker cannot recover the same arrears from both an employment tribunal and the FWA. We shall need to wait for the outcome of the consultation to understand precisely what these enforcement powers will look like, but it is important to ensure that an audit is undertaken now to ensure compliance with holiday pay obligations, to avoid any potential employment tribunal claims and the scrutiny of the FWA from 2027 onwards.