The Employment Rights Act 2025 marks a significant step towards strengthening workers’ rights and improving the enforcement of employment law in the UK. A key development is the establishment of the Fair Work Agency (FWA), which launched on 7 April 2026 to bring several existing enforcement functions under one roof. For HR professionals, one of the most immediate changes is the new legal requirement, effective from 6 April 2026, to maintain adequate records demonstrating compliance with statutory annual leave and holiday pay obligations. Employers must retain these records for six years. With the FWA expected to begin enforcing statutory holiday pay rights from 2027, now is the time to review record-keeping practices, payroll processes and holiday policies to ensure your organisation is prepared.

What is the Fair Work Agency, and what does it mean for employers?

The FWA brings together existing enforcement functions, including those relating to the National Minimum Wage, employment agencies and labour exploitation. Its remit is intended to expand over time, including the enforcement of statutory holiday pay and statutory sick pay.

The aim is to provide a more coordinated approach to employment rights enforcement, making it easier to identify non-compliance and take action against employers who fail to meet their obligations. For responsible employers, this also means greater access to guidance and support to help them comply with the law.

What are the new holiday recording requirements?

Since 6 April 2026, employers have been legally required to maintain records that clearly demonstrate compliance with statutory holiday entitlements.

Records should cover, as applicable:

• Holiday entitlement and leave taken: sufficient information to demonstrate that workers receive their statutory annual leave entitlement.
• Holiday carried over: records of leave carried forward between leave years, including where relevant circumstances permit this.
• Holiday pay: evidence of payments made and the calculations used to determine the correct amount, including relevant elements of normal pay such as commission or regular overtime where applicable.
• Payments in lieu of holiday: records of payments for accrued but untaken statutory holiday when employment ends, where payable.

Records must be retained for six years from the date they were made. Employers can choose the format that best suits their organisation, whether this is an HR information system, payroll software or a spreadsheet, provided the records are sufficiently complete and accessible.

What happens if an employer fails to comply?

Failure to maintain adequate records can constitute a criminal offence. The legislation provides for enforcement action, and potential consequences may include financial penalties. Separately, inaccurate holiday pay calculations may result in underpayments and further enforcement action.

The FWA is expected to take on enforcement of statutory holiday pay rights from 2027, with this not expected to begin before April 2027. Employers should not, however, treat this as a grace period: the record-keeping obligation is already in force.

Does this mean our existing systems are no longer sufficient?

Not necessarily. Many organisations already record annual leave through HR systems and process holiday pay through payroll. The key question is whether those systems collectively provide adequate evidence of compliance, rather than simply recording that leave was booked or a payment was made.

Employers should pay particular attention to workers with irregular hours, part-year workers, variable pay arrangements and employees leaving the business, as these situations can make holiday entitlement and pay calculations more complex.

What actions should HR take now?

1. Audit existing records and systems. Review HR, time-and-attendance and payroll systems to identify gaps. Check that records demonstrate entitlement, leave taken, carry-over, holiday pay calculations and relevant termination payments.
2. Confirm the six-year retention period. Update document-retention schedules and ensure historic records are preserved for the required period. Check that information remains accessible when systems are replaced or upgraded.
3. Review holiday pay calculations. Work with your payroll teams or providers to confirm that statutory holiday pay is calculated correctly for different worker groups, particularly where pay varies due to commission, overtime or irregular working patterns.
4. Clarify responsibilities. Establish who is responsible for recording leave, checking calculations, reconciling HR and payroll data, and responding to requests for evidence. Document the process and arrange regular checks.
5. Check data protection arrangements. Ensure holiday and payroll records are securely stored, access is appropriately restricted, and retention practices comply with UK GDPR data protection requirements.
6. Prepare for increased scrutiny. Monitor official guidance from the FWA, Acas and the government as enforcement arrangements develop. Review relevant policies and provide training to HR and payroll teams and line managers.

Conclusion

The introduction of the Fair Work Agency represents a shift towards more coordinated enforcement of employment rights, while the new holiday record-keeping requirements place an immediate responsibility on employers to demonstrate compliance. Employers should prioritise accurate, accessible records and reliable holiday pay processes now, rather than waiting for the FWA’s enforcement to begin. A proactive review can help reduce legal risk, protect workers’ entitlements and give the organisation confidence that its practices meet the new requirements.

If you have any questions about this topic or would like support for another HR matter, please contact Sue Meehan Boyes in the at Narrow Quay HR team at smeehanboyes@narrowquayhr.co.uk.