Until now, getting holiday pay wrong carried little risk for most employers. An underpaid worker had to spot the problem and bring their own claim to an employment tribunal. Most never did. The government's own consultation cites an estimate that 2.2 million jobs were given no paid leave at all in 2025, against around 8,000 tribunal claims about annual leave in 2024/25.
That's changing. From 2027 the new Fair Work Agency is set to enforce statutory holiday pay, much as minimum wage is enforced now. The government consulted on how it would work from 30 June to 22 September 2026. The response hasn't been published yet, but the proposals are clear enough to plan around.
What's proposed
If the Fair Work Agency finds holiday pay has been underpaid, it can issue a Notice of Underpayment. You'd owe your workers the arrears and the government a penalty. The consultation proposes the same settings as for minimum wage:
- A penalty of 200% of the arrears for each worker underpaid.
- A maximum of £20,000 per worker and a minimum of £100 per case.
- Half the penalty off if you pay all the arrears and the other half within 14 days.
Three other proposals matter:
- Six years back. The agency could enforce underpayments from up to six years before, though nothing from before the Act became law on 18 December 2025.
- The whole workforce. It can look at every worker, including those who haven't complained, and check minimum wage on the same visit.
- Fix it first. A notice wouldn't normally be issued if you've already paid all the arrears before an investigation starts.
The government is also asking whether employers who underpay should be named publicly, as they already are for minimum wage.
What's in scope is statutory holiday pay. That covers pay that's been underpaid, not paid or calculated wrongly, and cases where an employer refused leave or refused to let it carry over. Contractual holiday above the statutory minimum stays a matter for tribunals.
Separately, workers are getting longer to bring their own claims. The usual three-month tribunal deadline is moving to six months, no earlier than October 2026.
The rules themselves aren't changing
The consultation says plainly that it isn't changing how holiday pay is calculated or how much leave people get. Most workers on a five-day week still get at least 28 days, or 5.6 weeks, including bank holidays. The rules for working out the pay are already harder than many businesses realise, and that's where the risk is.
Regular overtime and commission count
GOV.UK says a worker's normal pay includes commission and regular overtime. It doesn't usually include bonuses. "Regular" isn't defined by a set number. Overtime worked in most weeks is likely to count; genuinely occasional overtime is less likely to. Calling it "voluntary" in a contract doesn't settle it either. The safest course is to include it for at least the first four weeks of leave. Some employers apply it to all 5.6 weeks.
Average over 52 paid weeks, not 12
When pay varies, holiday pay is based on the average over the last 52 weeks. Weeks with no pay are skipped, and you can look back up to 104 weeks to find 52 paid ones. Payroll set-ups still using the old 12-week reference period will underpay anyone whose overtime has dropped recently, and overpay others.
Irregular hours and part-year workers
For leave years starting from 1 April 2024, irregular-hours and part-year workers build up holiday as they work, usually worked out as 12.07% of the hours worked, overtime included. Employers can also pay them rolled-up holiday pay: an uplift of 12.07% on each payslip instead of pay when leave is taken. The consultation asks how well that's working in practice. Either way, this doesn't apply to staff on regular hours.
Your records are your defence
Since 6 April 2026, employers must keep detailed records of annual leave and holiday pay for at least six years. The six-year enforcement window was chosen to match.
In practice, the records should show each person's entitlement and how you worked it out. They should also cover the leave taken, what carried over and why, what you paid for it, and anything paid in lieu when someone left. For refused leave, record who decided and why.
Those records are how you show you got it right. And if you didn't, they're how you find the problem and pay the arrears before the agency starts looking.
Four things to check now
- Who works regular overtime or earns commission? Make sure it reaches their holiday pay, averaged over 52 paid weeks.
- Are your irregular-hours staff accruing 12.07% of every hour, overtime included? If you pay rolled-up holiday pay, is it shown separately on payslips?
- Can you find six years of leave records for current staff and leavers? Piecing together six years of spreadsheets and email approvals is hard. Bring that history with you when you change systems.
- Is every refusal and carry-over decision written down with a reason?
How RotaTiger helps
RotaTiger is leave and absence software that counts every balance in hours. Here's what it does for the points above:
- Staff log overtime and their line manager approves it, or a manager records it for them. HR can import a month of hours from payroll or a clocking system as a CSV file.
- Each allowance policy says whether overtime is paid, banked as time off in lieu at a rate you set, or the person's choice. Banked hours go into their own time off in lieu balance and never touch the annual allowance.
- For casual and irregular-hours staff, approved overtime counts towards their 12.07% holiday, just like rostered shifts.
- The holiday records pack is one click. For each leave year it shows every person's entitlement and how it was worked out, the leave they took, and every declined or cancelled request with the reason given. Carry-over, overtime, the "book your time off" reminders RotaTiger sent and anything owed when someone left are in there too.
- The payroll export is in hours. It lists leave by day and type, plus the overtime worked. For each person it gives their average weekly overtime and hours over the last 52 paid weeks, and how many of those weeks had overtime, which helps you judge whether it's regular. Anyone paid rolled-up holiday pay is flagged.
- Records for people who've left are kept for at least six years.
- Moving from Timetastic? Upload its export to bring over people, yearly allowances, brought-forward days, time in lieu and every booking. Declined and cancelled requests can come too, with who decided and the reason, so the years before you switched still show up in your holiday records. RotaTiger checks each leave year's balance against Timetastic's own figure.
RotaTiger doesn't run payroll. It holds hours, not pay rates. Your payroll provider turns those hours into money, so the calculation stays in one place.