Employment Rights Act 2025: holiday pay enforcement

The Government has published a new consultation on holiday pay compliance and enforcement by the Fair Work Agency (FWA). 

The FWA was established as a new enforcement body under the Employment Rights Act 2025 (ERA 2025), bringing together existing enforcement functions of multiple different bodies. The Government’s intention was to extend the remit of the FWA to cover a wider range of employment rights, including holiday pay and SSP (see our previous article).  

New consultation

The consultation proposes a new enforcement regime for statutory holiday pay, to be operated by the FWA from 2027. The Government’s objective is to create a more proactive enforcement system capable of identifying and remedying holiday pay underpayments across an employer’s workforce, rather than relying on individual tribunal claims to achieve compliance.

The consultation does not propose any changes to holiday pay entitlement, holiday pay calculations, or the Working Time Regulations 1998. Instead, it focuses on how compliance and enforcement should work in practice.

Key proposals under consideration

1. FWA enforcement of holiday pay from 2027 

The FWA will have powers to enforce statutory holiday pay rights, investigate employers, inspect records, recover arrears for workers and impose civil penalties where necessary. Enforcement will sit alongside, rather than replace, the employment tribunal system. 

The FWA will only enforce statutory holiday pay rights. Contractual holiday entitlements above the statutory minimum will remain outside its remit.  

2. Employer support 

The FWA will provide guidance, tools and support to employers. It will allow employers to rectify errors before formal investigations begin and, where arrears are fully repaid, a penalty will generally not be imposed. 

3. Six-year enforcement period 

The Government proposes that the FWA should be able to investigate holiday pay claims dating back up to six years, aligning it with: 

• the six-year limitation period used for minimum wage enforcement; and 

• the new requirement (introduced under the ERA 2025 from April 2026) for employers to keep holiday pay records for six years.  

However, the FWA would only be able to enforce underpayments arising after 18 December 2025 (the date the ERA 2025 received Royal Assent). A six-year claim period is significantly longer than the current three-month time limit (due to increase to six months from October 2026), meaning that workers unable to bring a tribunal claim may still be able to take enforcement action through the FWA. 

4. Civil penalties 

The Government proposes adopting the same penalty regime already used for minimum wage enforcement: 

• penalty of 200% of the arrears owed per worker 

• maximum penalty of £20,000 per worker 

• minimum penalty of £100 per case. 

Employers who pay all arrears and the penalty within 14 days would receive a 50% reduction in the amount of the penalty (100% of the arrears). There would be no penalty payable if the employer voluntarily corrects underpayment before the FWA investigates. 

5. Public naming of employers  

The consultation also seeks views on extending the existing National Minimum Wage naming scheme so that employers found to have underpaid holiday pay could also be publicly named, serving as an additional deterrent to underpayment. 

6. Lower paid and vulnerable workers 

The Government wants enforcement activity to be directed primarily towards lower-paid and vulnerable workers. Options being considered include: 

• prioritising complaints from lower-paid workers 

• targeting enforcement activity in sectors or geographical areas with higher concentrations of lower-paid or precarious workers and a greater risk of non-compliance 

• potentially introducing a cap on the amount recoverable through FWA enforcement, to discourage higher-paid workers from using the FWA rather than seeking redress through the employment tribunals. 

7. Rolled-up holiday pay 

The consultation also seeks evidence about how employers are using rolled-up holiday pay for irregular-hours and part-year workers following the reforms introduced in 2024. It is not proposing to make any further policy changes at this stage. 

What does this mean for employers?

Employers should expect a significant increase in enforcement activity from 2027 onwards. The proposed penalties, combined with potential public naming, create significant financial and reputational risks for employers found to be in breach of the holiday pay rules.

Employers should ensure they are prepared for FWA requests for holiday pay records and information, ensuring that ‘adequate’ holiday pay records are retained for at least six years (this requirement was introduced under the ERA 2025 from April 2026). It would also be prudent to review current holiday pay calculations, especially where variable pay, irregular hours or part-year working arrangements exist.

Next steps

The consultation closes on 22 September 2026. The Government will then review responses and publish its formal response before finalising the enforcement framework. The FWA is expected to commence holiday pay enforcement on a date to be confirmed during 2027.