July 22, 2026
LR Knowledge Article | July 2026
UK employers should prepare for important developments in holiday pay compliance in 2026. While the holiday pay reforms introduced in 2024 changed calculations for irregular-hours and part-year workers, April 2026 is expected to place greater emphasis on record keeping, compliance, and enforcement.
For holiday years beginning on or after 1 April 2024, the reforms introduced changes including:
These changes were designed to simplify holiday entitlement calculations for employees with variable working patterns while providing employers with greater consistency and certainty.
Employers should remember that statutory holiday pay for workers with regular working patterns should not be less than the pay they would normally receive while at work.
Holiday pay calculations should take account of a worker’s normal remuneration where required, which may include regularly worked overtime, commission payments, shift premia, and other payments that are closely linked to the performance of their duties.
The principle is that employees should not be financially disadvantaged for taking annual leave, and payroll teams should regularly review their holiday pay calculations against current employment law, guidance, and relevant case law. Employers should also ensure that appropriate holiday pay records are maintained as part of the wider employment rights reforms.
From 6 April 2026, employers are expected to keep more detailed records to help demonstrate compliance with holiday entitlement and holiday pay obligations. The requirement is relevant across the workforce, including workers on regular hours, irregular-hours contracts, and part-year arrangements.
Employers must maintain records showing:
In practice, employers should be prepared to retain these records for at least six years from the date they are created.
The legislation does not specify exactly how records should be kept. Employers can use payroll software, HR systems, holiday management software, spreadsheets, or other reasonable methods.
However, records must be sufficiently detailed to demonstrate compliance if requested by regulators. As a result, many businesses may need to strengthen the integration between HR and payroll systems to ensure a clear and accessible audit trail is available.
Where employers cannot demonstrate compliance with holiday entitlement and holiday pay obligations, they may face greater scrutiny and possible enforcement action. In some cases, failure to keep required records could lead to penalties or other consequences. The Fair Work Agency is also expected to have powers to investigate underpayments and take action where non-compliance is identified.
This signals a potential move away from a system that has largely relied on employee complaints and towards one where regulators may be better equipped to investigate workplace compliance more proactively.
Alongside the new record-keeping obligations, the Government has set out plans for the Fair Work Agency to bring a number of employment rights enforcement functions under a single regulator.
Over time, the Fair Work Agency is expected to take on responsibility for enforcing holiday pay rights and related record-keeping requirements, alongside wider labour market enforcement and worker protection duties.
The move represents a significant shift towards more proactive enforcement of employment rights and a greater focus on employer compliance.
With the new requirements already in force, employers should take proactive steps to ensure compliance by:
Holiday pay compliance is increasingly about being able to evidence the approach taken, not just calculating entitlement correctly. While the 2024 reforms introduced simpler accrual methods and rolled-up holiday pay for eligible workers, the changes from April 2026 mean employers should review how they maintain holiday records and prepare for greater oversight. Businesses that review their processes now and invest in robust payroll systems will be better placed to meet their obligations and reduce unnecessary compliance risks.
Keeping up with holiday pay legislation has become increasingly complex. Employers must not only calculate holiday pay correctly but also maintain detailed records, retain them for six years, and be prepared to demonstrate compliance if requested by regulators.
At Lakin Rose, our specialist payroll team provides a comprehensive end-to-end payroll service designed to help businesses remain compliant with changing employment and payroll legislation. Whether you are a small employer or an established organisation with a larger workforce, we can help manage your payroll processes accurately and efficiently, giving you peace of mind that your obligations are being handled by experienced professionals.
Our payroll services include payroll processing, pension administration, payrolling of benefits, approved BACS processing, custom reporting, employee self-service payslip portals, and secure cloud-based payroll software. Our CIPP-qualified payroll specialists stay up to date with legislative developments to help clients reduce risk, improve efficiency, and maintain accurate payroll records.
As holiday pay compliance becomes an increasing area of regulatory focus, outsourcing your payroll to Lakin Rose can help strengthen your systems, processes, and records so they are better prepared for future changes.
Our service is designed to be practical, accessible, and proportionate to your business needs, making professional payroll support available without unnecessary complexity.
To learn more call us now on 01223 235707 or pop over to our Contact Us page and send us a message.
