Fair Work Agency & Holiday Pay Compliance & Enforcement
Readers will recall that the Fair Work Agency (FWA) is the Government’s new enforcement body. It is responsible for upholding workers’ rights and providing a single point of contact for individuals who believe their employment rights have been breached.
With the FWA now fully established, one of its key responsibilities will be the compliance and enforcement of statutory holiday pay from 2027.
Government Consultation on Holiday Pay Enforcement
To support these new powers, the Government has launched a consultation paper. They are seeking views on how holiday pay enforcement should operate in practice. While the consultation does not propose changes to workers’ statutory holiday entitlement or the way it is calculated, it represents a significant shift in how those rights will be enforced.
Find the full consultation document here.
How Is Holiday Pay Currently Enforced?
Currently, workers who believe they have been underpaid for holidays generally have to bring a claim before an Employment Tribunal. The Government considers that this process can be complex and time-consuming. For some workers, it can also be a barrier to enforcing their rights.
What Are the Proposed Changes?
The Employment Rights Act 2025 has introduced a new enforcement regime by giving the FWA powers to investigate employers. These powers allow the FWA to identify instances of statutory holiday pay underpayment and, where appropriate, recover unpaid holiday pay on behalf of workers.
Supporting Workers Who Are Less Likely to Bring Tribunal Claims
These powers are intended to improve compliance and support workers who are less likely to pursue Tribunal proceedings. This is particularly relevant for those in lower-paid or less secure employment.
Not a Replacement of Employment Tribunals
Importantly, the FWA’s powers do not replace the Employment Tribunal approach to enforcing statutory holiday pay. Workers can continue to pursue claims in the Tribunal. However, claimants will not be able to recover the same holiday pay arrears through both the FWA and the Tribunal.
The FWA’s Holiday Pay Remit
The FWA’s remit will be limited to enforcing statutory holiday pay rights under the Working Time Regulations 1998. Enhanced contractual holiday entitlement above the statutory minimum will remain enforceable through the Employment Tribunal or the civil courts.
A Whole Employer Approach to Holiday Pay Compliance
A significant feature of the proposals is the FWA’s ability to adopt a “whole employer” approach.
Rather than investigating only an individual complaint, the FWA will have the power to review an employer’s holiday pay practices. This is across its workforce where there is evidence of wider non-compliance. It may also examine compliance across other areas of employment law.
The Proposed Six-Year Enforcement Period
The enforcement period for holiday pay arrears will be six years. This would allow the FWA to recover holiday pay arrears going back up to six years. This reinforces the importance of accurate payroll systems and comprehensive record-keeping.
The Royal Assent Limitation
It is worth noting that the six-year enforcement period is subject to an important limitation.
Before the Royal Assent
The FWA will not be able to enforce holiday pay claims relating to periods before the Royal Assent of the Employment Rights Act 2025, which took place on 18 December 2025. This means that any holiday pay underpayments arising before this date will fall outside the FWA’s enforcement powers and cannot be recovered through the new regime.
Which Workers Are Likely to Be Prioritised?
The Government also intends that the FWA’s resources should be focused on workers who are least able to enforce their rights themselves. This includes lower-paid workers and those in vulnerable or precarious employment, such as part-year and irregular-hours workers.
Prioritising Holiday Pay Complaints
To support this objective, the consultation document seeks views on prioritising complaints from these groups. It also considers targeting enforcement in geographical areas where non-compliance is most prevalent. In addition, the consultation considers triaging cases so that those most in need receive support first.
Could There Be a Limit on Recoverable Holiday Pay?
The Government is also considering whether a limit should apply to the amount of holiday pay recoverable through the FWA.
If introduced, any cap would be set at a level that ensures lower-paid workers are still able to recover the full amount of holiday pay owed to them. Higher-paid workers would continue to have access to the Employment Tribunal where appropriate.
The FWA’s Enforcement Powers
For employers that already comply with their statutory holiday pay obligations, the Government expects there will be little practical impact. However, businesses that fail to comply should expect greater scrutiny once the FWA’s enforcement powers come into force.
Compliance & Enforcement
The Government proposes giving the FWA a range of compliance and enforcement powers designed to encourage voluntary compliance. These powers are also designed to provide effective sanctions where employers fail to meet their obligations.
Proposed Compliance and Enforcement Measures
These include:
- Raising awareness and offering guidance and support to employers on how to comply with holiday pay legislation.
- Encouraging employers to review their records and voluntarily repay any holiday pay owed.
- Investigating suspected underpayments and carrying out workplace inspections.
- Issuing notices of underpayment and financial penalties where non-compliance is identified.
- Issuing notices of underpayment and financial penalties where non-compliance is identified. The Government proposes adopting a penalty regime similar to that used for National Minimum Wage enforcement, allowing the FWA to impose penalties of 200% of the holiday pay underpayment, imposing a maximum penalty of £20,000 per worker or a minimum penalty of £100 per case.
- Publicly naming and shaming employers found to have underpaid statutory holiday pay.
What This Means for Holiday Pay Compliance
Overall, the introduction of the FWA’s holiday pay enforcement powers represents a significant shift in how statutory holiday pay compliance will be monitored and enforced.
A Changing System
The proposals set out in the consultation paper do not change workers’ holiday pay entitlement or the way holiday pay is calculated. They do however, signal a move away from a system where enforcement is primarily initiated by individual workers through Employment Tribunal claims. Instead, the regime would move towards a more proactive approach led by the state through the FWA.
Consultation Deadline and Next Steps
The consultation on holiday pay compliance and enforcement closes on 22 September 2026.
The Government will then consider the responses received before finalising how the FWA’s enforcement powers will operate in practice ahead of implementation in 2027.
As always, we will continue to monitor developments and provide a further update once the Government publishes its response and confirms the final approach to holiday pay compliance and enforcement.
What Employers Should Do Now
We suggest that employers should use this period to review their holiday pay arrangements.
Improve Accuracy
Employers should ensure payroll systems accurately calculate statutory holiday pay, maintain appropriate records and address any areas of potential non-compliance.
Act Now
Taking action now will help employers minimise the risk when the new enforcement regime comes into force.
Speak to Chartergates About Holiday Pay Compliance
If you need any advice or assistance regarding the above, please get in touch with your usual contact.
