Holiday Pay Enforcement: Prepare for 2027

Preparing for the new holiday pay enforcement regime

The Government’s recently released consultation sets out how the FWA will enforce holiday pay from next year. For the first time, employers may face civil penalties for underpayment of holiday pay, with enforcement powers mirroring those used for minimum wage breaches.

The penalties will be up to 200% of arrears per worker, capped at £20,000, with a £100 minimum

The Government proposes a six‑year claim period, aligned with the six‑year holiday record‑keeping requirement. Much longer than the current three month time limit for almost all tribunal claims.

The consultation closes on 22 September 2026. Employers are encouraged to respond, particularly those with irregular‑hours, part‑year or seasonal workforces, where correct calculation of holiday pay can be tricky and where there have been notably changes to holiday pay laws in the last ten years.

Why the change?

The Government considers that millions of workers may not be receiving the correct amount of paid holiday pay, and lower‑paid workers often do not pursue tribunal claims due to the low amounts involved and the delays in the tribunal system.

State enforcement will be able to:

Recover arrears more efficiently where holiday pay has been calculated wrongly or not paid. The FWA will have powers to take enforcement action on behalf of workers

Take a “whole employer” approach. Meaning that the FWA can look at compliance across an employer’s entire workforce rather than dealing with individual complaints in isolation

Protect vulnerable and precariously employed workers who chose not to enforce their rights.

This shift signals a more proactive approach to holiday pay enforcement.

How holiday pay must be calculated

Full‑time workers receive 5.6 weeks of paid annual leave; part‑time workers receive this pro‑rated.

This is straightforward for a full time worker but is more difficult to calculate for workers who have irregular‑hours, such as zero hours worker. In this case employers may use either:

Rolled‑up holiday pay, applying a 12.07% uplift to pay (note that misapplication of this uplift is one of the most common causes of underpayment claims); or

Paying holiday pay when it is taken, calculated based on the average amount of weekly pay over the previous 52 weeks.

For all workers, holiday pay must reflect a worker’s normal remuneration, including regular paid overtime and shift premiums. In many cases commission, allowances and even some bonuses must be included in the calculation of holiday pay too.

What employers should be doing now

To prepare for holiday pay enforcement, employers should take proactive steps:

Review holiday pay calculations – especially for irregular‑hours workers and those with variable remuneration (e.g. commission, paid overtime), ensuring all elements of normal remuneration are included

Audit record‑keeping processes – employers must retain six years of holiday pay records and ensure they are “adequate to show compliance” with the Working Time Regulations

Assess use of rolled‑up holiday pay – confirm the 12.07% uplift is applied correctly and only to eligible workers

Identify and correct underpayments – addressing issues now will reduce risk once enforcement begins.

Our Employment Law team advises businesses across all sectors on holiday pay compliance, record‑keeping obligations, and risk mitigation ahead of the FWA’s enforcement powers coming into force. If your organisation employs irregular‑hours, part‑year or seasonal workers, early preparation is essential.