Holiday pay: are your records up to scratch?

How much detail is required?

More than you might expect. Regulation 16B of the Working Time Regulations stipulates that every employer must keep “adequate" records to show it has complied with its duty to: 

• Give employees 5.6 weeks holiday per year (Reg's 13(1) and 13A(1))
• Give employees who are classified as irregular hours or part year workers the equivalent of 5.6 weeks leave per year, calculated by reference to the amount of holiday they have accrued either at the time they take the leave, or been paid for it (Reg 15B(2))
• Pay employees the correct amount of holiday pay (Reg 16(1))
• Make a payment in lieu of accrued but untaken holiday where an employee leaves part-way through a holiday year (Reg 14(2) and 15E(2)); and
• Carry over untaken leave from one holiday year to the next and include this in any payment in lieu on termination (Reg 14(6)). 

You will, therefore, have to demonstrate that you correctly calculated the amount of leave each member of staff is entitled to receive and have paid them correctly for that leave.

Bear in mind that amendments to the Working Time Regulations which came into force on 1 January 2024 set out very clear guidelines about what you must include in holiday pay - and the period of time you must use to work out their “week's pay”.

There are separate rules that apply to Reg 13 leave (four weeks) and for an irregular hours or part-year worker which require you to include the following payments in your calculation: 

• Payments which are intrinsically linked to the tasks the employee is required to do (such as commission payments linked to their personal performance)
• Payments for professional or personal status related to an employee's length of service, seniority or professional qualifications; and
• Other payments such as overtime which have been regularly paid to the employee over the previous 52 weeks.

Is there a particular form or table employers should use? 

No. You can record this information in any way you “reasonably think fit”. But the records must include all of the information set out above. 

How long do employers have to retain these records?

You must keep these records for six years from the date they were made.

Will employers be penalised if their records are not adequate? 

Yes. It will become a criminal offence to not provide and keep adequate records. In most cases a conviction will result in a fine.

Who will enforce this?

The government has indicated that the Fair Work Agency will become responsible for enforcing the rules around paid holiday. It will start to operate from 7 April, but it won't take over responsibility for holiday pay yet. Once it is up and running it will have the power to conduct inspections, demand access to your records and interview your staff.

We also expect it to be able to issue notices of underpayment and impose penalties if an inspector finds that you have not paid your staff correctly. 

How should you prepare?

Holiday pay calculations are notoriously complex and many employers are still not paying their staff the right amount. We recommend that you:

• Review what your contracts and policies say about holiday entitlement. Do they accurately explain how much holiday workers can take each year? Different rules apply to different categories of workers, so if you are using the same precedent for all staff, you may need to take advice.
• Review how you calculate holiday pay. Do you differentiate between the two types of leave (four weeks under Reg 13(1) and 1.6 weeks under Reg 13A(1)? Are you including all relevant payments under Reg 13(1)? And are you correctly averaging a worker's rate of pay by looking back over the previous 52 weeks?
• How are your irregular hours and part-year workers paid for their holiday? If you are paying them rolled up holiday, do their contracts clearly set out how you calculate this and do their payslips differentiate between paid work and paid holiday?

We can help

Our exceptional team of employment lawyers have extensive expertise in advising on holiday pay. Please contact  Jenny Arrowsmith to find out how we can provide the support you need. 

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