The government is consulting on how the Fair Work Agency (FWA) should enforce statutory holiday pay from 2027. The proposals include a six-year claim period and civil penalties of up to 200% of arrears, meaning employers should consider reviewing their holiday pay practices and records before the new regime takes effect. A consultation is now open on how these enforcement powers should operate and employers have until 22 September 2026 to influence the outcome.
The FWA, established by the Employment Rights Act 2025 to be the UK’s single labour market enforcement body, launched on 7 April 2026. From 2027, it will enforce statutory holiday pay and the government proposes a supportive, compliance-led approach. It recognises that holiday pay remains a complex area and that employers may underpay workers through genuine mistakes. Under the proposals, the FWA would seek to support compliance and encourage employers to correct underpayments, while retaining powers to investigate and impose penalties where necessary.
Key proposals
The government proposes to:
- introduce a six-year claim period for FWA holiday pay enforcement, although the FWA would only be able to enforce underpayments that arise after 18 December 2025;
- apply civil penalties broadly in line with the National Minimum Wage regime, including penalties of 200% of arrears (discounted to 100% if the employer pays the arrears plus half the penalty within 14 days), capped at £20,000 per worker, with a minimum penalty of £100 per case;
- focus compliance and enforcement activity on lower-paid workers and those in more vulnerable or precarious employment; and
- gather evidence on employers’ use of rolled-up holiday pay for irregular-hours and part-year workers.
The consultation indicates that formal penalties would not necessarily follow every underpayment. In particular, the FWA would not ordinarily issue a Notice of Underpayment where an employer has repaid all arrears before the FWA starts its investigation. It also seeks views on whether the FWA should extend its scheme of publicly naming employers who underpay the National Minimum Wage to include employers who underpay holiday pay.
What will the FWA enforce?
The consultation makes clear that the FWA will enforce statutory holiday pay only. It will not enforce contractual holiday entitlement that exceeds the statutory minimum. Workers will remain able to pursue relevant claims through the employment tribunal system or courts. The government intends that state enforcement will complement, rather than replace, the existing system of individual enforcement.
The FWA’s statutory holiday pay enforcement powers will apply in England, Wales and Scotland. Employment law remains devolved in Northern Ireland.
What should employers do now?
Although the FWA will not begin enforcing holiday pay until 2027, employers may wish to use the lead-in period to review their existing arrangements.
In particular, consider reviewing:
- holiday pay calculations, particularly where workers have irregular hours, variable pay or overtime arrangements;
- whether existing systems retain sufficient holiday pay records for the required six-year period;
- the operation of any rolled-up holiday pay arrangements for irregular-hours and part-year workers; and
- whether there are any historic areas of potential underpayment and, if so, whether corrective action is appropriate.
Key takeaways
The proposals would significantly expand holiday pay enforcement beyond reliance on individual employment tribunal claims by giving the FWA a proactive state enforcement role. Although the government intends the regime to focus on supporting compliance, the combination of a six-year claim period and potentially substantial civil penalties means employers should consider auditing their holiday pay arrangements before enforcement begins.
