From 2027, the new Fair Work Agency (FWA) will have powers to take enforcement action where an employer fails to pay the correct statutory holiday pay. This new state enforcement regime will sit alongside existing Employment Tribunal remedies.
The Government’s latest consultation on holiday pay compliance and enforcement gives employers an early indication of how the FWA is likely to use those powers. Key themes include:
- Supporting compliance as a first step: the Government recognises that holiday pay is complex and underpayments can arise from genuine mistakes. Employers should therefore expect FWA tools, guidance and opportunities to correct underpayments before punitive enforcement action is taken.
- Enforcement action: where employers fail to engage with the FWA, or where underpayments appear deliberate, stronger enforcement action could be taken. The proposed regime is expected to mirror National Minimum Wage enforcement, with powers to investigate, conduct inspections and issue notices of underpayment. The Government is also consulting on expanding the naming and shaming scheme in the future to cover holiday pay non-compliance.
- Civil penalties: where a notice of underpayment is issued, the FWA could also impose a civil penalty. The proposed penalty (subject to consultation) is 200% of the arrears owed, capped at £20,000 per worker. The Government is also consulting on a 50% reduction if payment is made within 14 days. Widespread holiday underpayments or misclassification issues could therefore cost employers more.
- “Whole employer” approach: a key feature of the consultation is the potential for the FWA to take a “whole employer” approach. In practice, this means a complaint from one worker could trigger a wider review of holiday pay compliance across the workforce, and potentially other compliance areas such as National Minimum Wage.
- Time limits: although the FWA would not be bound by the same time limits as Employment Tribunal claims, the Government is consulting on limits for underpayment claims referred to the FWA. The FWA could not investigate underpayments arising before Royal Assent of the Employment Rights Act 2025 on 18 December 2025. After that, the Government’s preferred option is a six-year time period, consistent with National Minimum Wage enforcement.
- Initial focus: the FWA is likely to focus initially on lower-paid and more vulnerable workers, including those in the gig economy. However, other employers should not be complacent. Holiday pay remains a common source of error, particularly where work patterns, variable pay, overtime, commission, worker status or rolled-up holiday pay arrangements are involved.
The consultation closes on 22 September 2026, and we will provide a further update once the Government responds.
In the meantime, employers should not wait for the FWA’s holiday pay enforcement regime to take effect before reviewing their approach. Holiday pay errors can be historic and workforce-wide, so even a single complaint may expose broader compliance issues. Taking steps now to check holiday pay calculations, worker status and holiday records will help employers identify and address issues early, reducing the risk of claims in the Employment Tribunal or, from 2027, action by the FWA.
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