The Fair Work Agency's (FWA) enforcement powers over statutory holiday pay are due to commence in 2027. It will be able to take action on behalf of a worker rather than an individual having to make a claim to an Employment Tribunal (although a worker’s right to make a claim to an Employment Tribunal is not replaced by enforcement action).
The FWA's remit will cover statutory holiday pay that has been underpaid, unpaid, or incorrectly calculated (including where an employer has refused leave or refused to allow leave to carry over), although the FWA will not be limited to these scenarios. Enforcement of any additional contractual holiday entitlement will remain a matter for an individual to pursue.
The key proposals
The Government has put forward the following:
- Extending the policy of naming businesses to the underpayment of holiday pay: currently non-payment of the minimum wage can result in businesses being issued with a penalty, and they are generally named publicly by the Department for Business and Trade. Views are sought on similar treatment in relation to naming for holiday pay underpayment.
- A six-year look-back: the claim period for the FWA's enforcement of statutory holiday pay will be up to six years in the past, mirroring the six-year period for which employers are required to keep holiday pay records. The FWA will not be able to enforce holiday pay claims that occurred before 18 December 2025, the date on which the Employment Rights Act 2025 (ERA) received Royal Assent.
- Civil penalty settings: the civil penalty settings for holiday pay underpayment will be the default settings enabled through the ERA, aligning with those for enforcement of the minimum wage (namely, a penalty of 200% of arrears per worker; (although if the full arrears and half the penalty are paid within 14 days, the penalty will be 100% of arrears) a maximum penalty of £20,000 per worker; and a minimum penalty of £100 per case).
The consultation recognises that holiday pay calculations can be complex, and miscalculations can lead to unintended non-compliance – this is particularly the case for employees with variable remuneration (like commission) or irregular working hours which attract specific rules for holiday pay under statute. To that end, the consultation confirms that the FWA intends to work with employers to rectify accidental non-compliance and offer opportunities to correct underpayments before resorting to punitive enforcement action, which would be reserved for cases of serious or persistent non-compliance in line with the FWA's Enforcement Policy Statement.
Also up for consultation
The consultation also seeks views on:
- The protection of low-paid and vulnerable workers: how the FWA can focus its enforcement on lower-paid or vulnerable workers. The consultation proposes: implementing a legal cap on the maximum amount of holiday pay arrears that a worker can recover through the FWA's enforcement (leaving higher-paid workers to recover arrears in excess of the cap through the Employment Tribunal); the FWA prioritising lower-paid workers' complaints; or the FWA targeting particular geographical areas where there are higher concentrations of lower-paid or vulnerable workers.
- Rolled-up holiday pay: the use and implementation of current practices on rolled-up holiday pay for workers with irregular hours or part-year working patterns under the Working Time Regulations 1998, whereby employers pay a separate, identifiable uplift in holiday pay during the year, rather than paying and calculating holiday pay when leave is taken.
What should employers be thinking about?
Although 2027 may seem like a while away, the consultation is a timely reminder for employers to review current and historic holiday pay practices and payroll systems to ensure they are compliant with legislation, and in particular, calculations of variable elements of holiday pay (such as commission and over-time).
This is especially important as the consultation indicates that the FWA can take a ‘whole employer’ approach to holiday pay compliance and enforcement. This means that the FWA may decide to take a look at an employer’s compliance with holiday pay requirements in relation to all their workers. Additionally, because of the FWA's remit, if a business is inspected for holiday pay compliance, they may also be inspected, for example, for compliance with the minimum wage at the same time.
Other author: Charlotte Ball, Senior Associate.
