Holiday Pay Compliance: Employers & Agencies Risks

By Kaushik Chaudhuri, Senior Consultant at Chartergate Legal Services

The Employment Tribunal (ET) decision in Mr Mohamed Ageli v Sabtina Limited (a link to the judgment can be found here and here) is a stark reminder that holiday entitlement is far more than an administrative issue. Where employers allow, encourage or simply tolerate holidays being carried forward over many years, the financial consequences can be significant.

In this case, the ET ordered Sabtina Limited to pay £391,942.77 gross for unpaid holiday entitlement, alongside compensation for unfair dismissal. The case also comes at a time when the government’s Fair Work Agency (FWA) is set to strengthen enforcement of employment rights, meaning holiday pay errors could attract regulatory scrutiny as well as tribunal claims.

Why This Case Matters

Mr Ageli worked for Sabtina Limited from 1987 until March 2024. During his employment, his annual leave entitlement increased from 30 to 45 days. The Tribunal found that, because of business pressures, leave requests were often refused or deferred, and unused holiday was routinely carried forward.

Accrued Holiday

When his employment ended, he had accumulated a substantial amount of untaken leave. Although the employer disputed the claim, the Tribunal concluded that the entitlement had not lapsed. Internal records and memos, the informal arrangements and the employer’s own conduct were sufficient for the ET to find that accrued holiday remained payable, resulting in an award of almost £392,000.

Relevant Businesses

The judgment is particularly relevant for businesses with long-serving employees, informal holiday arrangements or workplace cultures where key staff regularly postpone annual leave because they are considered indispensable.

Controlling Holiday Compliance

Importantly, the decision does not mean employees can accumulate unlimited holiday indefinitely. However, it demonstrates the risks where employers fail to ensure employees take annual leave, operate unclear carry-over arrangements or allow informal practices to develop without proper controls.

The Impact of the Fair Work Agency

The FWA changes the landscape considerably. Holiday pay has traditionally become an issue only when an employee brings an ET claim. Under the new enforcement model, holiday pay compliance is expected to become an area of proactive regulatory oversight.

Protecting Workers’ Rights

The Government has stated that the FWA will help protect workers’ rights, improve compliance and ensure responsible employers are not undercut by businesses that fail to meet their legal obligations.

Compliance Investigations

For employers, this means holiday pay errors may no longer remain hidden until employment ends. Poor record keeping, inaccurate holiday calculations or unexplained accrued balances could trigger wider compliance investigations, particularly where there is evidence of repeated underpayments or systemic failings.

Potential Penalties

Drawing on the approach already used for National Minimum Wage enforcement, the FWA may be able to require repayment of underpaid holiday pay while imposing financial penalties of up to 200% of the underpayment. Employers may also face the burden of appealing any enforcement notice through the Tribunal.

Impact to Businesses

Equally, alongside the financial cost, reputational damage cannot be overlooked. Public enforcement action can affect relationships with employees, customers, suppliers and prospective recruits, particularly for regulated businesses and organisations operating in competitive sectors.

Key Lessons for Employers

The Ageli decision highlights several practical steps employers should take:

• Ensure any holiday carry-over arrangements are clearly documented and consistently applied. “A use it or lose it” policy can be entirely undermined if local management operate differently.
• Actively encourage employees to take annual leave rather than allowing large balances to build up.
• Reconcile HR and payroll records so entitlement, leave taken and holiday payments remain accurate.
• Maintain records that can withstand both Tribunal proceedings and regulatory scrutiny.
• Monitor senior employees and key personnel who are more likely to defer holiday because of business demands.
• Review historic holiday liabilities rather than assuming older balances have expired.

Practical Action Points

Employers should consider:

1. Auditing accrued holiday balances, particularly for long-serving or senior employees.
2. Reviewing holiday policies to ensure they reflect both legal requirements and actual working practices.
3. Testing holiday pay calculations, including commission, overtime and other variable pay where applicable.
4. Recording any refusal of annual leave, together with alternative dates offered.
5. Training managers to understand the legal and financial risks of discouraging holiday.
6. Checking accrued holiday carefully before dismissals, redundancies or settlement discussions.
7. Including holiday liabilities within regular HR and financial reporting.
8. Keeping clear records of holiday entitlement, leave taken, payments made and any corrective action.

How Chartergates Can Help

The Ageli decision demonstrates that holiday pay compliance is becoming both a legal and regulatory risk. ET awards can already be substantial, and the Fair Work Agency may add enforcement notices, financial penalties and reputational consequences to the equation.

If your business has employees with significant unused holiday balances, informal carry-over arrangements or holiday pay calculations that have not been reviewed recently, now is the time to act.

Chartergates employment law specialists work with employers to review holiday policies, audit historic liabilities, test holiday pay calculations, and implement practical processes that reduce the risk of claims, regulatory action and unnecessary cost. Early review can help identify issues before they develop into expensive disputes.

26 June 2026

Disclaimer: Chartergate Legal Services Ltd has drafted this email update to provide you with a general overview of the relevant law and developments at the date of sending only. This email is provided as a general overview and should be taken as such. It is not a substitute for professional advice that is specific to your circumstances and should not be relied upon as such.