New holiday pay and leave record-keeping requirements from 6 April 2026

The reforms coincide with the launch of the new Fair Work Agency (FWA), which will assume enforcement responsibilities currently held by HMRC. the Employment Agency Standards Inspectorate, the Director of Labour Market Enforcement, and the Gangmaster and Labour Abuse Authority.

What employers need to be aware of

1. Six-year statutory record requirement

Employers must keep “adequate records” demonstrating:

• The amount of statutory annual leave taken by each worker.

• The calculation of holiday pay, including pay in lieu of holiday upon termination of employment and any variable pay components such as:

• Overtime

• Commission

• Bonuses

• Allowances

2. Alignment with NMW documentation standards

This mirrors the existing NMW requirement for six-year retention and sets a clear expectation that employers must be able to demonstrate compliance proactively, not just respond when challenged.

3. Enhanced enforcement powers

From April 2026, in relation to holiday pay, the Fair Work Agency will be able to:

• Inspect business premises and interview workers.
• Require records or other evidence of compliance to be produced on request.
• ISeize documents or equipment.
• Issue penalty notices and criminal sanctions, including unlimited fines, for failure to keep adequate records.
• Raise employment tribunal claims on behalf of employees.
• Enforce tribunal orders and holiday pay arrears.

While holiday entitlement and pay are areas in which employers should already be compliant, this represents a significant escalation in compliance risk.

Important of compliance

• Legal risk: Failure to maintain adequate records of holiday entitlement, leave taken and pay will constitute a criminal offence, not just a civil violation.
• Tribunal exposure: Longer retention periods align with extended limitation periods, meaning holiday pay issues could be raised up to six years after a breach.
• Audit and defensibility: Employers must have defensible, documented evidence of holiday entitlement and pay compliance - even after employees leave - to withstand FWA or tribunal scrutiny.

Recommended actions

• Audit existing documents and records: Ensure holiday entitlement and holiday pay (a) are being calculated correctly for each type of worker, (b) are clearly set out in contracts of employment and/or annual leave policies and (c) records comprehensively track leave taken, pay calculations, and, for at least four weeks of the statutory entitlement, include all variable pay elements.
• Implement or update systems: Use electronic systems wherever possible to securely store these records for six years, whether created before or after 6 April 2026.
• Train HR & payroll teams: Clarify what's adequate - they need to know the FWA may request leave logs, payslips with holiday pay breakdowns, and the basis for holiday pay calculations including variable pay elements.
• Communication: Ensure there is adequate liaison between HR and payroll, so nothing is missed; entitlement and calculations are typically managed by HR, while the processing is usually the responsibility of payroll.
• Review compliance policies: Update internal record-retention policies to reflect the six-year statutory requirement and establish record destruction schedules thereafter in line with data protection legislation.

We’re here to help

Our specialist teams can support you in reviewing your current systems, updating your contracts and policies, and preparing for the introduction of the Fair Work Agency. From day one, the FWA will enforce a wide range of employment rights – including the new record‑keeping obligations outlined above – alongside several other compliance areas. We can assist with all aspects of your employment compliance, ensuring your organisation is fully prepared for the changes ahead.

If you have any questions about your obligations – or want to ensure your business is fully compliant ahead of April 2026 – please get in touch with Lyn Newbury, lyn.newbury@azets.co.uk or 01233 629255.