The Employment Rights Act 2025 has generated a lot of noise. Day one unfair dismissal rights. Fire and rehire reforms. The Fair Work Agency. All of it warranted, all of it well-documented.
But buried in the detail of the Act, with no government press release and very little commentary, is a change that is just as consequential for payroll teams – and most employers still haven’t heard about it.
From 6 April 2026, every UK employer is legally required to keep detailed records of annual leave and holiday pay for six years. Not as good practice or sensible administration, but as a legal obligation, with potentially unlimited fines if you get it wrong.
What’s changed, and why now?
Until now, the Working Time Regulations required employers to keep records relating to maximum weekly working time – but there has been no specific legal duty to keep records that prove holiday pay has been calculated and paid correctly. Many employers have had good systems in place, and that stands them in good stead. But for those who haven’t, the days of getting away with it are over.
The Employment Rights Act 2025, which received Royal Assent on 18 December 2025, inserts a new regulation into the Working Time Regulations 1998. It creates a direct obligation on all employers to maintain records demonstrating compliance with statutory annual leave rules.
The commencement regulations confirming 6 April 2026 as the implementation date were published with minimal fanfare. No announcement or press release; it was just quietly added to the legislation and left for employers to find.
What records do you actually need to keep?
The Act says records must be “adequate to show” compliance, and there is no prescribed format. You can keep records in whatever way you reasonably see fit. But adequate is doing a lot of heavy lifting in that sentence, and the Fair Work Agency is expected to issue further guidance in due course.
At a minimum, you need to be able to demonstrate the following.
Annual leave entitlement
Each employee’s full entitlement, covering the statutory 5.6 weeks and any contractual entitlement above that, along with how it has been calculated. That 5.6 weeks includes the four-week EU-derived entitlement (paid at “normal” remuneration, including regular overtime, commission and bonuses) and the additional 1.6 weeks (which can be paid at basic rate).
Leave actually taken
Dates, duration, and whether each period of absence fell within the four-week or 1.6-week element.
Holiday pay calculations
What was paid, when it was paid, and which variable elements were included. For workers with irregular patterns of overtime, commission or bonuses, the “normal remuneration” calculation needs to be detailed and fully auditable.
Irregular hours and part-year workers
The 12.07% accrual method, which came into force for holiday years starting from April 2024, needs to be evidenced. That means records of leave accrued, leave taken, and any rolled-up holiday pay, which should be clearly identified separately on payslips.
Carry-over
Documentation showing where leave was carried over and why. The valid reasons are illness, maternity leave, and situations in which the employer prevented the worker from taking leave during the holiday pay year.
Termination payments
Any payment in lieu of untaken statutory leave on termination, including any carried-forward entitlement.
All of this needs to be retained for six years from the date the records are made.
The Fair Work Agency changes the enforcement picture
The Fair Work Agency launched on 7 April 2026 – the day after the record-keeping duty came into force. That timing is not a coincidence.
The FWA consolidates the enforcement functions that were previously spread across HMRC and other bodies. It can enforce the National Minimum Wage, statutory sick pay, and holiday pay. It has the power to enter premises, inspect documentation, issue civil penalties, and bring tribunal claims on behalf of workers.
The FWA can also look back retrospectively at potential holiday pay underpayments going all the way back to December 2025, when the Employment Rights Act received Royal Assent. Records you have been keeping since that point will matter.
In its early months, the FWA is expected to focus primarily on minimum wage, gangmaster licensing, and modern slavery. Holiday pay enforcement will follow. But later is not never, and a six-year retention period means records you fail to keep now will be conspicuously absent when an investigation eventually comes
around.
The criminal offence question
Failing to keep adequate holiday records is a criminal offence.
Inadequate records can attract an unlimited fine. The most serious breaches – knowingly providing false information to the FWA, obstruction, or failure to comply with an enforcement order – can result in criminal charges on top of that.
There is also a very practical risk. If a worker brings a holiday pay claim in the Employment Tribunal and you cannot produce records, you are going to find it very difficult to mount a defence. Without documentation, a tribunal is likely to take a dim view, and the burden will fall on you to demonstrate compliance
that you cannot evidence.
Where the risk sits
For simple, salaried, full-time employees, holiday records are relatively straightforward. The real challenge is with the payrolls that are already complex – and these are the ones we know best at Ascend.
Hospitality and care – workers with variable hours, irregular shifts, and high turnover. Leave accrual under the 12.07% method needs to be tracked per pay period. Rolled-up holiday pay must be clearly identified and recorded separately on payslips.
Education – term-time only workers whose leave year, accrual pattern, and carry-over rights have always been a source of confusion. Records need to be watertight, especially where carry-over due to illness or school closure patterns is involved.
Zero-hours and casual workers – irregular-hours workers were at the centre of the Harpur Trust case, and the new rules fix the calculation method. But proving the method has been applied correctly is now a legal requirement, not just good practice.
Multi-site businesses – where workers move between sites, hold multiple roles, or have different contractual arrangements across the same organisation. Each worker’s records need to be individually accurate and clearly distinguishable.
If you are managing payrolls like these without a system that tracks and evidences all of the above, that is a problem that starts now.
What you should be doing right now
Audit your current position
Do your existing systems capture everything you need? Not just that leave was taken, but when it was taken, how pay was calculated, what was paid, and whether carry-over rules were applied correctly?
Check that your payroll and HR systems are aligned
Holiday pay errors frequently stem from the gap between HR recording leave and payroll calculating the payment. If those two systems are not talking to each other, your records will not hold up under scrutiny.
Review your approach to variable pay
If workers regularly receive overtime, commission or bonuses, these need to be factored into the four-week holiday pay calculation and evidenced in the records. Many employers are still getting this wrong.
Do not forget leavers
When an employee leaves, you need records of their entitlement, what they took, what carry-over they were entitled to, and what termination payment was made. Those records still need to be retained for six years after the employee has gone.
Update your retention policies
Six years is longer than many payroll teams routinely keep records. Make sure your data retention policies reflect the new legal minimum.
Get advice if you are unsure
The Act allows flexibility in format, but flexibility is not the same as latitude. Records that cannot demonstrate compliance do not meet the legal standard, however neatly they are filed.
This is not the most headline-grabbing reform in the Employment Rights Act 2025. It did not get the coverage that day one unfair dismissal rights attracted, or the fire and rehire changes. But it is in force now, it has real teeth, and it is the kind of change that will catch employers off guard precisely because they were not paying attention.
The businesses that will feel the consequences of the Fair Work Agency’s holiday pay enforcement are unlikely to be those who were deliberately trying to underpay their workers. They will be the ones whose records are a mess – spreadsheets that do not reconcile, HR systems that do not match payroll outputs, leave
accrual for casual workers that was never tracked properly.
Good payroll is not just about getting the numbers right on payday. It is about being able to prove, years later, that you got the numbers right. That is what record-keeping is for. And from 6 April 2026, it is what the law requires.
If you are not sure your current setup is up to the task, we would be happy to have a conversation.
