The state is about to start auditing your holiday pay, and the meter started running in December

If you pay anyone casual or variable hours, there is a number that should be on their payslip every week, and from 2027 a government agency can come and check whether it was. Holiday pay itself is not changing. What changes is that it stops being something a worker has to sue you for and becomes something the state audits, with a proposed penalty of double whatever you owe. The record-keeping duty behind it quietly started on 6 April this year. Two pieces of good news: the penalty is avoidable in full if you find the problem before they do, and the amount they can reach back for is smaller today than it will ever be again.

Nothing about holiday pay changed. Who checks it did

The law here is old. Workers have had a paid annual leave right under the Working Time Regulations 1998 for nearly thirty years. Most people on a five-day week get 5.6 weeks a year, capped at 28 days including bank holidays, pro-rated if they work part time. None of that is moving.

What is moving is who polices it. Right now, the only way underpaid holiday pay comes back to you is a worker taking you to an employment tribunal, and almost nobody does. The government's own consultation sets the two numbers side by side: survey analysis suggesting 2.2 million jobs were given no annual leave at all in 2025, against roughly 8,000 working time (annual leave) claims and 13,000 Wages Act claims filed at tribunals in 2024/25. It flags those survey estimates as not robust, and it draws the obvious conclusion anyway, that "many affected workers do not pursue formal enforcement routes".

From 2027 the Fair Work Agency takes holiday pay on. It is the state body launched on 7 April 2026 that already enforces the minimum wage, and it will not start on holiday pay before April 2027. But it will not be starting from a blank sheet, and that is the part worth your attention.

Since 6 April you have been required to keep the records

On 6 April 2026, regulation 16B went into the Working Time Regulations 1998. It requires you to keep records "adequate to show whether the employer has complied" with the holiday entitlement rules, and to keep them for six years.

There is no prescribed form. The regulation says you may keep them "in such manner and format as the employer reasonably thinks fit". A spreadsheet is fine. Nothing is not.

That duty was not put there for its own sake. It exists so that when the Fair Work Agency starts in 2027, there is something to look at.

Three places a cafe gets rolled-up holiday pay wrong

For staff whose hours are "wholly or mostly variable" under their contract, or who work only part of the year, you are allowed to pay holiday as an uplift of 12.07% on every pay packet instead of paying it when leave is taken. That is rolled-up holiday pay, and it has been available for leave years beginning on or after 1 April 2024. The 12.07% is not arbitrary: it is 5.6 weeks of leave expressed against the 46.4 working weeks that are left.

It is a simple rule with three common failures underneath it.

The all-in rate. "Fourteen pounds an hour, that includes your holiday" is not rolled-up holiday pay. The government guidance is explicit that the uplift "should be clearly marked as a separate item on each payslip" and paid at the same time as the pay for the work done. Fold it into one headline number and you cannot show what you paid, which is precisely what regulation 16B now asks you to show.

Using it on the wrong people. Rolled-up pay is for irregular-hours and part-year workers only. Someone who works every Tuesday and Thursday, eight hours each, does not have variable hours. They are entitled to 5.6 weeks pro-rated, taken as leave and paid as leave. An uplift on their payslip is not compliance, it is a second, different mistake.

Forgetting who counts. The right belongs to "workers", which is wider than employees. The regulations reach casual and seasonal staff, zero-hours staff, agency workers and some freelancers. People genuinely self-employed and in business on their own account sit outside it. What matters is how the arrangement actually runs, not what the paperwork calls it.

What being wrong costs, on numbers you can check

Say you have three casual baristas, each averaging 15 hours a week over 45 weeks of the year. At the National Living Wage of £12.71 an hour from April 2026, that is £8,579 of wages each.

The holiday pay owed on top, at 12.07%, is £1,035 each. For the three of them, about £3,100 a year.

If you have never paid it, that £3,100 is arrears. On top of the arrears, the consultation proposes the same penalty settings the minimum wage already uses: 200% of arrears, a maximum of £20,000 per worker, a minimum of £100 per case, and the penalty effectively halved if the arrears plus half the penalty are paid within 14 days.

So on those figures: roughly £3,100 back to your staff, plus roughly £3,100 to the government. About £6,200 for one year of a line you did not think you had. Run it on your own hours rather than mine.

Both of those settings are proposals, not settled law. Six years and 200% are the defaults written into the Employment Rights Act 2025, and ministers can change either by regulations. That is exactly what the consultation is asking about, and it is open to anyone until 11.59pm on 22 September 2026.

The date most of the coverage will get wrong

Here is the bit worth reading twice.

Every write-up will say "six-year lookback", and owners will picture six years of exposure already sitting behind them. That is not how it works. The consultation is explicit that the Fair Work Agency cannot enforce anything that happened before the Employment Rights Act 2025 received Royal Assent, which was 18 December 2025.

So the window is not six years deep. It is filling from December 2025 forwards. Today it is about eight months old. When enforcement starts in 2027 it will be about sixteen months old. It only reaches its full six years in late 2031, and it grows every single month in between.

Which turns the obvious conclusion upside down. "We have until 2027" is precisely backwards. The cost of this is a function of how long you leave it and almost nothing else, so this is the cheapest week the problem will ever be.

The penalty half of it is optional too. The government has written down that a penalty "would not ordinarily be issued where an employer has correctly repaid all holiday pay arrears that are owing to the workers before the start of an FWA investigation". Fix it yourself and you pay wages you always owed. Wait to be found and you pay them twice.

One complaint opens the whole book

The other thing to understand is scope. A tribunal claim is one person arguing about their own money. State enforcement is not. The consultation describes a "whole employer" approach: one complaint lets the agency assess holiday pay compliance across everyone who works for you, not just the person who called.

It can also look wider than holiday pay while it is there. In the government's words, "if a business is inspected for compliance with holiday pay law, they may also be inspected for compliance with the minimum wage at the same time". If your rota has unpaid trial shifts, unpaid closing time or unpaid handover minutes anywhere in it, that sentence is the real risk, not the 12.07%.

One honest limit: these powers extend to England, Wales and Scotland only. Employment law is devolved in Northern Ireland.

Why a buyer cares about this before you do

When you sell, the buyer's solicitor asks for employment records. Since 6 April 2026 you are legally required to hold six years of holiday records, so "we never really kept those" stopped being untidiness and became a breach.

Unquantified employment liabilities are the oldest problem in due diligence. A buyer cannot price what nobody can measure, so they do one of three things: hold back part of the money, make you personally indemnify it, or take a round number off the offer and move on. None of those is a negotiation you win.

A folder showing 12.07% calculated, itemised and paid, month by month, costs you an afternoon now and removes an entire conversation later. The same afternoon also tells you something you probably do not know: what an hour of casual labour actually costs you once holiday is counted.