At a Glance
The Government launched a consultation on 30 June 2026 on the Government’s proposed approach to statutory holiday pay compliance and enforcement by the Fair Work Agency (‘FWA’) from 2027.
The Government is proposing that statutory holiday pay compliance and enforcement will be “highly supportive with an emphasis on helping businesses to comply with the law and only taking punitive action where necessary.” However, the FWA is set to have some significant enforcement tools, including the ability to investigate holiday pay claims going back up to six years and a strong civil penalty regime for non-compliance.
The consultation is open until 22 September 2026.
What is the FWA?
The FWA was established on 7 April 2026 under the Employment Rights Act 2025 (‘ERA 2025’) as a new state enforcement agency of the Department for Business and Trade, bringing together existing labour market enforcement functions. It has significant statutory enforcement powers to investigate non-compliance, including to: enter and inspect workplaces, require the production of documents and evidence, issue notices of underpayment (requiring the employer to pay workers for underpayments) and impose civil penalties. Over time, the FWA’s powers will also expand and the FWA will take on responsibility for enforcing a wider range of employment rights, including statutory holiday entitlement, pay and the requirement to keep annual leave records. Please see our previous article for further information.
The Government has launched a consultation on how the FWA will enforce statutory holiday rules and entitlements as part of its next phase. The consultation cites analysis suggesting significant non-compliance including Resolution Foundation analysis indicating 2.2 million jobs were not given any annual leave in 2025 and Trade Union Congress anaylsis suggesting around 1.1 million workers were not given holiday pay in 2023.
What is Proposed?
How will the FWA change statutory holiday enforcement?
At present, holiday pay is enforced by workers bringing individual claims in the employment tribunal. The consultation argues that formal tribunal claims are considerably lower than the estimated non-compliance indicating many affected workers do not pursue enforcement via the tribunal system. Bringing the enforcement of statutory holiday entitlement and pay within the remit of state enforcement by the FWA is therefore intended to enable more workers to have their rights enforced more quickly, efficiently and without having to pay to do so. In addition, the FWA will be able to assess compliance for a whole workforce of a business and not just single workers.
State enforcement by the FWA will not replace a worker’s ability to make an individual tribunal claim, but workers will not be able to recover the same arrears from both the tribunal and the FWA. The consultation also states that tribunals may decide not to consider a claim if the FWA are investigating, although there is no detail on how this would work in practice. An FWA investigation relating to holiday pay could also look at other aspects of employment law compliance at the same time, such as national minimum wage.
The consultation seeks views on many aspects of the FWA’s approach to upholding compliance with statutory holiday pay and entitlement under the Working Time Regulations 1998 (‘WTR’) and how this will work once the new enforcement role comes into force, anticipated in 2027. Importantly, it is not proposing changes to how statutory holiday pay and entitlement are calculated, or how such rights are enforced in the employment tribunal. The FWA will also enforce only the statutory minimum entitlements and pay under the WTR, not contractual enhancements, which would remain for the employment tribunals or civil courts.
Consultation
General approach to compliance and enforcement
The consultation explains that the Government wants a framework that is fair, proportionate and effective for workers and employers, with a “highly supportive” approach ranging from compliance support to punitive action. Proposed measures include:
- Raising awareness and offering guidance and support to employers – acknowledging the complexity of existing holiday pay laws
- Promoting compliance, for example, by encouraging record checks and supporting voluntary repayment to workers
- Investigating claims of underpayment and carrying out proactive inspections
- Issuing notices of underpayments and civil penalties; for example, no penalty would be issued where an employer repays all arrears before the start of a FWA investigation
It also asks for views on whether further support would be useful, such as a more detailed holiday entitlement and pay calculator or self-assessment tool, publishing worked examples, developing a chatbot, holding webinars and publishing more consolidated guidance. Given the complexity of holiday pay, tools of this kind are likely to be welcomed by employers.
The consultation also seeks views on naming and shaming employers in a similar way to those who do not pay minimum wage.
Claim periods and penalties for holiday pay compliance and enforcement
The ERA 2025 sets the default framework for FWA enforcement powers, with scope to adjust via regulations. The consultation seeks views on:
- Claim period – The default six-year claim period in the ERA 2025 which the Government proposes to adopt to align with national minimum wage enforcement and with the new six-year holiday record-keeping requirement. However, the FWA would not be able to enforce claims arising before Royal Assent of the ERA 2025 on 18 December 2025.
- Civil penalties – Largely mirroring the national minimum wage regime, the FWA can issue civil penalties to employers who have not paid statutory holiday pay correctly following the FWA issuing a notice of underpayment. The arrears would be paid to workers directly and the civil penalty on top of that would be paid to the Government. The Government is proposing penalties as per the default in the ERA 2025, at 200% of the arrears owed per worker (i.e. double the unpaid holiday pay for each unpaid worker), capped at £20,000 per worker and with a minimum penalty of £100 per case. Where the employer pays all unpaid arrears to the worker and half the penalty within 14 days of the notice of, the remaining 50% of the penalty will not be payable. The Government says it would rarely expect the maximum to apply, except where there has been sustained underpayment over an extended period.
- Targeting enforcement to low-paid workers – While any worker can bring a claim to the FWA, the main focus of state enforcement would be low-paid and vulnerable workers. Targeted intervention options include triaging complaints to focus on lower-paid workers, targeting proactive compliance and enforcement in geographical areas with higher concentrations of low-paid or precarious work, and capping the maximum arrears a worker can receive through the FWA to discourage higher-paid workers from using the state enforcement route.
Rolled-up holiday pay
Following 2024 WTR changes permitting rolled-up holiday pay for workers with irregular hours or part-year working patterns, the consultation seeks input on how this right is working in practice. No changes to the rolled-up holiday pay regime are proposed; the aim is to gather evidence and identify further support or clarification where it may be needed.
Impacts for Employers
Although FWA enforcement of statutory holiday pay is not expected until 2027, enforcement is shifting from individual employment tribunal claims towards state-led investigations that can cover whole workforces, potentially alongside checks on other obligations such as national minimum wage compliance. Holiday laws are complex and inadvertent errors are common. The FWA’s notices of underpayment and civil penalties across a workforce could increase financial risk, and the ability to enforce claims going back six years could also compound costs.
Employers may wish to consider reviewing their holiday pay arrangements for compliance now, particularly for workers with complex working or pay arrangements such as those with: irregular hours, part-year working patterns, variable pay, overtime, commission or other complex pay elements. Employers should also check whether their annual leave and holiday pay records are sufficiently detailed and retained for the required six-year period that came into force in April 2026.
Next Steps
The consultation closes on 22 September 2026, after which the Government will consider responses before publishing its response and finalising its policy proposals. Responses can be submitted online here.
As noted above, it is anticipated that the FWA will take on the role of enforcement of statutory holiday pay and entitlements from 2027 – so now is the time to start preparing.
Please contact your usual Littler contact if you would like any support with preparing your business for the upcoming changes. For further information on the latest developments, see our Reform Hub.
