Holiday Pay for Employers: A Complete UK Guide

Holiday pay rules for UK employers in 2026 are governed by the Working Time Regulations 1998, as amended by the Employment Rights Act 2025. From 6 April 2026, employers must keep records demonstrating compliance with holiday entitlement and pay rules and retain those records for six years. The Fair Work Agency now enforces holiday pay alongside national minimum wage and statutory sick pay. This guide explains how to calculate holiday pay, the rules for irregular hours and part year workers, term time worker entitlements, carry over and the new record keeping duty.

Holiday pay has been one of the most confusing areas of employment law for years. A long run of tribunal cases changed the picture piece by piece. The 2024 reforms to the Working Time Regulations brought welcome simplification. And now, from 6 April 2026, the Employment Rights Act 2025 has added a new layer that every employer needs to know about.

If you have not reviewed your holiday pay processes since the 2024 changes, now is the moment.

Holiday pay record keeping from 6 April 2026

This is the biggest holiday pay development of 2026 and one that every employer needs to act on.

Section 35 of the Employment Rights Act 2025 inserted a new regulation 16B into the Working Time Regulations 1998. From 6 April 2026, every employer must keep adequate records to demonstrate compliance with holiday entitlement and holiday pay rules. The records must be retained for six years from the date they are made.

Failure to keep adequate records is a criminal offence and can result in a fine. This is a meaningful change. Before April 2026, holiday pay compliance was largely reactive. An employee would bring a claim and an employer would have to defend it. Now, the obligation to evidence compliance sits with the employer up front.

What “adequate records” means in practice

There is no prescribed format. The legislation says records can be created, maintained and kept in any manner and format the employer reasonably considers suitable, provided they are sufficient to prove compliance. In practice that means your records need to show:

• Holiday entitlement for each worker and how it has been calculated, including for different contract types
• Holiday actually taken, with dates and amounts
• Any holiday carried forward and the reason (for example sickness or family leave)
• Holiday pay calculations, including which pay elements were included and the supporting evidence (such as a 52 week reference period breakdown)
• Accrual or rolled up payments for irregular hours and part year workers (the 12.07% addition or the separate pot)
• Any payments in lieu on termination, including for carried over leave
• Evidence that workers had the opportunity to take their statutory holiday and were not prevented from booking it The records must cover compliance with the specific regulations governing the basic four weeks’ leave, the additional 1.6 weeks, the accrual rules for irregular hours and part year workers, the right to take leave, the rules on payment for leave and payment in lieu on termination.

You do not need to recreate records going back before 6 April 2026. The duty applies to records created from that date onwards.

The Fair Work Agency

The Fair Work Agency launched on 7 April 2026. It brings together previously separate enforcement bodies and now enforces national minimum wage, statutory sick pay and holiday pay. It can require employers to produce documents and evidence and where breaches are found it can demand the repayment of statutory underpayments. Its enforcement powers in respect of holiday pay are retrospective to December 2025.

If you have not already done so, audit your payroll and HR systems now. Check that holiday entitlement, booking, approval, payment and carry over can all be tracked end to end. Make sure your records are accessible and can be retrieved on request.

Statutory minimum holiday

All workers have a statutory right to 5.6 weeks holiday each year. Where a worker is full time and paid a regular salary, this is straightforward. Where someone works part time, irregular hours or has additional payments like overtime, commission or bonuses, it gets more complicated.

For someone who works 5 days a week, 5.6 weeks is 28 days. Many smaller employers give 20 days plus the 8 bank and public holidays to meet the minimum. Larger employers often give more than 20 days in addition to bank and public holidays.

Part time workers have their entitlement calculated by multiplying their normal working week by 5.6.

Calculating holiday pay

From 1 January 2024, the payments that must be included when calculating “normal” pay for holiday purposes are:

• Payments, including commission, intrinsically linked to the performance of tasks the worker is contractually obliged to carry out
• Payments relating to professional or personal status, such as length of service, seniority or professional qualifications
• Other payments, such as overtime, that have been regularly paid to a worker in the 52 weeks before the calculation date Put simply: any payment associated with being a worker that they would normally earn by being at work.

For holiday pay purposes there are two pots of statutory leave. The first four weeks must be paid at “normal” pay as defined above. The remaining 1.6 weeks can be paid at basic pay. In reality most employers pay all leave at normal pay because the administrative cost of running two rates is not worth the saving. If you are going to pay the 1.6 weeks at the lower rate, that needs to be clearly communicated to employees in their contract or your handbook.

Workers on irregular hours or part year contracts can have their pay calculated using either the rolled up method below or the 52 week reference period (averaging pay over the previous 52 weeks in which work was carried out).

Rolled up holiday pay: irregular hours and part year workers

The Working Time Regulations now define two specific categories of worker who can be paid rolled up holiday pay:

Irregular hours worker - someone whose paid hours under their contract are wholly or mostly variable in each pay period. This includes casual and zero hours contracts.

Part year worker - someone required under their contract to work only part of the year, with periods of at least a week where they are not required to work and not being paid. This includes term time only contracts where hours are fixed during term time but no payment is made outside it and seasonal work.

In leave years beginning on or after 1 April 2024, holiday can be accrued at 12.07% of actual hours worked. This is the equivalent of the statutory minimum of 5.6 weeks. Where contractual holiday entitlement is higher than 5.6 weeks, a different percentage will need to be used.

Rolled up holiday pay can be paid as an additional amount in each payslip rather than paying when the worker is on leave. The rules now permit this, provided the payment is transparent and comprehensible (shown clearly on the payslip as holiday pay).

A note of caution. Holiday is fundamentally about giving people a break from work. There should be no detriment for taking it. If you are paying rolled up holiday pay, make sure your workers still actually take time off and that they understand the breakdown of their payslip. The new record keeping duty above means you also need to show that they had the opportunity to take leave, not just that they accrued the equivalent payment.

Holiday for term time only and compressed hours workers

Compressed hours are fixed within the contract, even if the hours one week are different from the next. That means compressed hours workers are not classed as irregular hours workers under the definition above.

For compressed hours workers (someone doing a 9 day fortnight with 9 longer days to make the full time hours, for example), entitlement needs to be worked out in hours if the length of their days varies or in days if all their days are the same length.

The formula starts with their average weekly hours. If they work 40 hours in week one and 35 in week two, their average is 37.5. That average is then multiplied by 5.6 for the statutory minimum entitlement, giving 210 hours for the full year. You then deduct any bank or public holidays they are required to take.

The same method works for anyone on a multiple week pattern.

Carry over of statutory holiday

From 1 January 2024 the following rules apply to carrying over statutory holiday:

• Up to 8 days of additional contractual holiday can be carried over into the next holiday year with the agreement of the employer
• If holiday cannot be taken due to maternity or other family related leave, the full statutory entitlement can be carried over to the following year
• If a regular hours worker is unable to take holiday due to sickness, they can carry over 20 days (4 weeks) of untaken holiday, provided it is used within 18 months of the end of the leave year. For an irregular hours or part year worker this is 28 days (5.6 weeks)
• Holiday can also be carried forward if the employer has refused to pay holiday pay, has not given the worker reasonable opportunity to take leave, has encouraged them not to take it or has failed to inform them that untaken leave will be lost Where holiday entitlement is above the statutory minimum of 5.6 weeks, employers can set their own rules on carry over of the additional contractual entitlement.

The new record keeping duty makes the last point particularly important. If a worker reaches the end of the leave year without taking their entitlement, you need to be able to evidence that they had the opportunity to take it and were informed they would otherwise lose it. A “use it or lose it” policy that prevents booking does not satisfy this.

What this means for your business

The headline message for 2026 is straightforward. The technical rules for calculating holiday pay are now reasonably settled. What has changed is the burden of proof.

Where previously an employer might assume their payroll was getting holiday pay right and only find out otherwise if someone made a claim, the new record keeping duty puts the obligation to evidence compliance up front. The Fair Work Agency can ask. Records must be retained for six years.

If you have not reviewed your holiday pay processes recently, the practical steps are:

1. Check your contracts and handbook reflect the current position on normal pay, rolled up holiday pay, carry over and the two pots of statutory leave
2. Audit your payroll system so you can produce the records required from 6 April 2026 onwards
3. Make sure managers and HR understand the carry over rules, particularly the requirement to give workers reasonable opportunity to take leave and to warn them that untaken leave will be lost
4. If you employ irregular hours or part year workers, check the 12.07% calculation is being applied correctly and that rolled up holiday pay (if used) is shown transparently on payslips If you are planning to change the way holiday is paid, that may be a contractual change and advice should be taken before making it.

This guide covers the principles. Every situation has its own complexities, so always seek professional advice on your specific circumstances.

Where to go next

If you are reviewing your holiday pay processes to meet the new April 2026 record keeping duty or you have a specific situation you want to talk through, we can help in two ways.

For a one off question, book a PAYG HR advice call and we will work through it with you.

If your contracts or handbook need updating to reflect the 2024 and 2026 changes, our HR Documentation Packages can rewrite them properly.

If you’re looking to change the way holiday is paid, this may be a change to contract and therefore advice should be sought before making this change.