Holiday Pay Changes in 2026 - What Employers Need to Know

         

UK employers should prepare for important developments in holiday pay compliance in 2026. While the holiday pay reforms introduced in 2024 changed calculations for irregular-hours and part-year workers, April 2026 is expected to place greater emphasis on record keeping, compliance, and enforcement.

A Reminder of the Recent Holiday Pay Reforms
For holiday years beginning on or after 1 April 2024, the reforms introduced changes including:

• A new statutory holiday accrual method for irregular-hours and part-year workers, based on 12.07% of hours worked.
• The lawful reintroduction of rolled-up holiday pay for irregular-hours and part-year workers.
• Clearer definitions of "irregular-hours" and "part-year" workers.
• Clarification of what should be included in holiday pay calculations to ensure workers receive their normal remuneration when taking leave.

These changes were designed to simplify holiday entitlement calculations for employees with variable working patterns while providing employers with greater consistency and certainty.

Holiday Pay Compliance Remains a Key Focus
Employers should remember that statutory holiday pay for workers with regular working patterns should not be less than the pay they would normally receive while at work. Holiday pay calculations should take account of a worker's normal remuneration where required, which may include regularly worked overtime, commission payments, shift premia, and other payments that are closely linked to the performance of their duties.

The principle is that employees should not be financially disadvantaged for taking annual leave, and payroll teams should regularly review their holiday pay calculations against current employment law, guidance, and relevant case law. Employers should also ensure that appropriate holiday pay records are maintained as part of the wider employment rights reforms.

New Holiday Record-Keeping Requirements from 6 April 2026
From 6 April 2026, employers are expected to keep more detailed records to help demonstrate compliance with holiday entitlement and holiday pay obligations. The requirement is relevant across the workforce, including workers on regular hours, irregular-hours contracts, and part-year arrangements.

Employers must maintain records showing:

• Annual leave taken.
• Holiday carried over from previous leave years.
• Holiday pay paid to workers.
• Payments made in lieu of untaken holiday when employment ends.
• Details of how holiday pay has been calculated, including any overtime, bonuses, commission, or other variable payments that form part of holiday pay calculations.

In practice, employers should be prepared to retain these records for at least six years from the date they are created.
                                                 
No Prescribed Format, But Records Must Be Adequate
The legislation does not specify exactly how records should be kept. Employers can use payroll software, HR systems, holiday management software, spreadsheets, or other reasonable methods.

However, records must be sufficiently detailed to demonstrate compliance if requested by regulators. As a result, many businesses may need to strengthen the integration between HR and payroll systems to ensure a clear and accessible audit trail is available.

Where employers cannot demonstrate compliance with holiday entitlement and holiday pay obligations, they may face greater scrutiny and possible enforcement action. In some cases, failure to keep required records could lead to penalties or other consequences. The Fair Work Agency is also expected to have powers to investigate underpayments and take action where non-compliance is identified.

This signals a potential move away from a system that has largely relied on employee complaints and towards one where regulators may be better equipped to investigate workplace compliance more proactively.

The Fair Work Agency Arrives
Alongside the new record-keeping obligations, the Government has set out plans for the Fair Work Agency to bring a number of employment rights enforcement functions under a single regulator.

Over time, the Fair Work Agency is expected to take on responsibility for enforcing holiday pay rights and related record- keeping requirements, alongside wider labour market enforcement and worker protection duties.

The move represents a significant shift towards more proactive enforcement of employment rights and a greater focus on employer compliance.

What Employers Should Do Now
With the new requirements already in force, employers should take proactive steps to ensure compliance by:

• Reviewing current holiday recording processes.
• Ensuring holiday and holiday pay records can be retained for at least six years.
• Checking payroll systems accurately record holiday pay calculations.
• Maintaining evidence to support calculations involving overtime, commission and bonuses.
• Reviewing arrangements for irregular-hours and part-year workers to ensure holiday entitlement and rolled-up holiday pay are applied correctly.
• Reviewing arrangements for regular/salaried workers to ensure they are not financially disadvantaged for taking annual leave.

Holiday pay compliance is increasingly about being able to evidence the approach taken, not just calculating entitlement correctly. While the 2024 reforms introduced simpler accrual methods and rolled-up holiday pay for eligible workers, the changes from April 2026 mean employers should review how they maintain holiday records and prepare for greater oversight. Businesses that review their processes now and invest in robust payroll systems will be better placed to meet their obligations and reduce unnecessary compliance risks.

How Lakin Rose Can Help
Keeping up with holiday pay legislation has become increasingly complex. Employers must not only calculate holiday pay correctly but also maintain detailed records, retain them for six years, and be prepared to demonstrate compliance if requested by regulators.

At Lakin Rose, our specialist payroll team provides a comprehensive end-to-end payroll service designed to help businesses remain compliant with changing employment and payroll legislation. Whether you are a small employer or an established organisation with a larger workforce, we can help manage your payroll processes accurately and efficiently, giving you peace of mind that your obligations are being handled by experienced professionals.

Our payroll services include payroll processing, pension administration, payrolling of benefits, approved BACS processing, custom reporting, employee self-service payslip portals, and secure cloud-based payroll software. Our CIPP-qualified payroll specialists stay up to date with legislative developments to help clients reduce risk, improve efficiency, and maintain accurate payroll records.

As holiday pay compliance becomes an increasing area of regulatory focus, outsourcing your payroll to Lakin Rose can help strengthen your systems, processes, and records so they are better prepared for future changes.

Our service is designed to be practical, accessible, and proportionate to your business needs, making professional payroll support available without unnecessary complexity.

• Payroll fees start from as little as £50 per month, giving employers access to specialist support at a manageable cost.
• Flexible service tailored to suit clients of all sizes, from small employers needing straightforward payroll support to larger organisations requiring a more comprehensive outsourced solution.
• Friendly and approachable payroll team who are on hand to talk through any aspect of your payroll and provide clear, practical guidance when you need it.

Need help with holiday pay or payroll compliance? Our payroll specialists can help you review your processes, reduce compliance risk and keep your payroll running smoothly.  Contact our friendly team for more information, or visit our website to find out more about us.

https://lakinrose.co.uk/payroll-bureau-services/ 


This article is intended as general information only and should not be treated as legal advice. Employers should take specific advice on their own circumstances before making changes to holiday pay or payroll processes.