Keeping Annual Leave and Holiday Pay Records Simple, Accurate and Compliant

As part of the new Employment Rights Bill, effective from 6^th April 2026, new statutory requirements place a clear obligation on employers to maintain detailed and accurate records of annual leave and holiday pay. 

These changes represent a significant shift in compliance expectations and form part of a broader move toward increased transparency and enforcement in workplace rights. We look at the steps employers should take now to review their processes and ensure they are fully compliant.

What is the key aim of the new requirements?

At the core of the new rules is a requirement for employers to keep comprehensive records relating to workers’ holiday entitlement and pay. This includes not only the amount of holiday taken by each worker, but also any holiday carried over from previous leave years. In addition, employers must maintain clear records of holiday pay, including a breakdown of what is included in that pay. For example, where holiday pay calculations include elements such as bonuses or commission, these must be explicitly recorded.

Employers are also required to document any payments made in lieu of holiday. This typically arises when a worker leaves employment and has accrued unused holiday entitlement or when they work additional hours and they take time off in lieu. The requirement ensures there is a clear audit trail demonstrating that workers have received the correct financial compensation.

How long do I need to store these records?

Importantly, these records must be retained for a minimum of six years from the date they are created. This aligns with broader record-keeping requirements in employment and tax law, and reflects the increased scrutiny employers may face in relation to historic underpayments or disputes.

Is there a particular format required? 

In terms of format, the legislation provides flexibility. Employers may keep records in any format that is reasonable and accessible. This could include digital HR systems, payroll software, paper records or structured spreadsheets. Many organisations may already have systems in place that capture some of this information, particularly within payroll or HR platforms. However, it is essential to ensure that existing systems capture all of the required data points under the new rules. Partial or incomplete records may still leave an employer exposed to risk.

What if my records are incomplete? 

Failure to comply with the new record-keeping obligations carries significant risk. Where an employer cannot demonstrate that adequate holiday records have been maintained, this may constitute a criminal offence. Enforcement powers will sit with the Fair Work Agency (which was also introduce on 6^th April 2026), which is expected to take an active role in ensuring compliance. Penalties are potentially severe, with the possibility of unlimited fines. In addition, employers may face enforcement action requiring repayment of underpaid holiday pay, as well as further financial penalties.

From an employee relations perspective, inadequate record-keeping can also lead to disputes. Workers who believe their employer is not maintaining appropriate records may initially raise concerns informally. If unresolved, this can escalate into a formal grievance process, increasing the administrative and legal burden on the organisation.

What should I do now?

To ensure compliance and mitigate risk, employers should consider taking the following actions:

• Conduct an audit of existing holiday and payroll systems. Identify what data is currently captured and assess whether it meets the new legal requirements. Pay particular attention to whether holiday pay calculations are clearly documented, including variable elements such as overtime, commission, or bonuses.
• Update internal procedures. Ensure there is a clear, consistent approach to recording holiday taken, carry-over, and payments in lieu. 
• Review payroll processes. Employers should confirm that holiday pay is calculated correctly and that there is sufficient detailed recorded to evidence how each payment has been determined. 
• Train relevant staff. Payroll/accounts teams and line managers should understand the new requirements and their role in maintaining accurate records. Consistency in record-keeping across the organisation is critical.
• Consider implementing or upgrading digital systems where needed. Automated HR and payroll systems can reduce the risk of human error and provide a clear audit trail, which will be particularly valuable in the event of an inspection or dispute.

How we can help

Our HR experts work with businesses like yours every day. We will explain what these changes mean in practical terms and help you put the right measures in place without overcomplicating things.

Contact our team today for advice.
Speak to our team to find out how we can help your business. 
Email HR@skaltd.co.uk or call 01427 420 403 to get started.