This is a significant change to the current regime where the onus is placed on workers to enforce their rights by bringing an employment tribunal claim. Workers will retain the right to bring an employment tribunal claim (but will not be able to recover the same arrears twice). However, enforcement by the FWA is likely to be more powerful as it will be able to investigate compliance across the whole workforce and impose civil penalties, as well as recovering arrears of holiday pay for workers. FWA enforcement also exposes employers to the risk of investigation for employment law compliance more generally, with the FWA potentially investigating National Minimum Wage compliance, for example, at the same time.
The Government recognises that holiday pay can be complex. The FWA will therefore provide opportunities for employers to correct any underpayment rather than move straight to punitive enforcement action. The Government envisages the FWA supporting employers with compliance in the first instance, with punitive enforcement action only being taken if an employer has been provided with an opportunity to correct an underpayment but has failed to do so.
The Government has issued a consultation on its proposed approach and seeks view on:
- The types of support that the FWA could provide, ranging from detailed holiday pay calculators and self-assessment tools to worked examples, chatbots, webinars and centralised guidance.
- The claim period for FWA enforcement. The Government proposes that the FWA would be able to investigate any underpayment in the previous six years. This is significant as workers currently have to bring tribunal claims within three months of an underpayment (or the last in a series). Workers who have missed the tribunal deadline will still be able to make a complaint to the FWA. The FWA will not be able to enforce underpayments occurring before 18 December 2025, the date the Employment Rights Act 1995 received Royal Assent.
- The level at which civil penalties should be set. The Government proposes these be set at 200% of the arrears owed for each worker, subject to a maximum penalty of £20,000 per worker and a minimum penalty of £100. These penalties go to the Government and are separate to the arrears owed to the worker.
- Whether businesses that underpay holiday pay should be “named” (mirroring what happens where employers fail to pay the National Minimum Wage).
While any worker will be able to bring a claim to the FWA, the Government intends that the FWA’s main focus should be on supporting lower paid workers and workers in more vulnerable or precarious employment (including part-year and irregular hours workers). It seeks view on options to achieve this, including a cap on the maximum arrears a worker can receive from the FWA, prioritising holiday pay complaints from lower-paid workers, or proactively targeting compliance and enforcement by geographical area.
In 2024, the Government took steps to simplify holiday entitlement for “irregular hours” and “part-year” workers by allowing employers to pay them “rolled up” holiday pay. As part of the consultation, the Government is seeking views from employers who pay “rolled up” holiday pay how easy/difficult they find it to operate.
Responses to the consultation are required by 22 September 2026. This is a significant opportunity for employers to tell the Government about the difficulties they encounter when calculating holiday pay and what support they need to get it right. From next year, if you are not paying holiday pay correctly you could be on the FWA’s radar. Remember also that from 6 April 2026 employers have been required to keep holiday records demonstrating compliance, and there can be criminal penalties if they fail to do so
Please get in touch if you want to check you are paying holiday pay correctly and keeping appropriate holiday records.