Holiday pay enforcement moves a step closer

Background

On 30 June 2026, the Department for Business and Trade published a consultation on how the Fair Work Agency will enforce statutory holiday pay from 2027. The consultation builds on the Employment Rights Act 2025, which gives the FWA responsibility for enforcing holiday pay alongside its existing remit for national minimum wage and other labour market protections.

The consultation closes on 22 September 2026.

What is changing?

Currently, workers who believe they have been underpaid holiday pay generally have to bring an employment tribunal claim themselves. The proposals would allow the FWA to investigate statutory holiday pay underpayments, recover arrears on behalf of workers and, where appropriate, issue financial penalties.

The FWA's powers will apply only to statutory holiday entitlement under the Working Time Regulations. Disputes about contractual entitlement will continue to be dealt with through the courts or employment tribunals.

The proposals also reinforce the FWA's ability to take a "whole employer" approach. Rather than dealing only with an individual complaint, the agency could review compliance across an employer's entire workforce and inspect compliance with other employment rights at the same time.

Workers would retain the right to bring tribunal claims, although they would not be able to recover the same underpayment twice.

A supportive approach, backed by enforcement

The consultation suggests that the FWA will seek to support employers to comply with the law before resorting to formal enforcement. Alongside inspections and financial penalties, the government is considering developing practical compliance tools, such as holiday pay calculators or digital guidance, to help employers calculate holiday pay correctly.

The government proposes that enforcement will be supportive, rather than punitive including allowing employers to avoid penalties by repaying any outstanding pay. Where enforcement action is necessary, the government proposes penalties mirroring the national minimum wage regime. Employers could face penalties of up to 200% of the arrears owed, subject to statutory limits, although no penalty would normally apply Where an employer has voluntarily corrected any underpayment before a FWA investigation begins.

The consultation also asks whether employers found to have underpaid holiday pay should be subject to a naming scheme similar to that used for national minimum wage breaches.

Longer enforcement period

One of the most significant proposals is to allow the FWA to recover holiday pay arrears going back up to six years. This would be considerably longer than the time limits for bringing an employment tribunal claim and would align with both the new six-year holiday pay record-keeping requirement and the FWA's enforcement powers in relation to the national minimum wage.

The consultation also proposes that the FWA should focus its resources on lower-paid and more vulnerable workers, including those with irregular hours or part-year working patterns.

Learning points for employers

Although these proposals remain subject to consultation, they provide a clear indication of how holiday pay enforcement is expected to operate from 2027. Employers should not assume that holiday pay disputes will continue to arise only through individual tribunal claims. Instead, a single complaint could lead to a wider review of holiday pay practices across the workforce.

This also underlines the importance of the new requirement to keep adequate holiday pay records for six years. Employers should use the lead-in time before 2027 to review their holiday pay calculations, particularly where they employ irregular hours or part-year workers, and ensure they have robust systems in place to demonstrate compliance if the FWA investigates.

For more information on the FWA, including its remit and enforcement abilities, please listen to our latest Podcast series "The Fair Work Agency: Enforcement, Compliance and What Employers Need to Do Now".