Employers warned of criminal risk under new UK holiday pay rules

UK businesses are being warned to urgently review how they calculate and record staff holiday pay, as new legislation coming into force on Monday 6 April makes inadequate record keeping a criminal offence.

The changes require employers to keep detailed records proving workers have received their full 5.6 weeks’ statutory holiday and have been paid correctly for it. Failure to do so could lead to fines and enforcement action.

Jenny Arrowsmith, partner in Irwin Mitchell’s employment team, said:

“Holiday pay is already one of the most complex areas of employment law, and these new rules significantly raise the risk for employers. It’s no longer enough to assume you’re paying people correctly – you’ll need clear records that prove exactly how holiday entitlement and holiday pay have been calculated for every worker.”

Under the new rules, employers must be able to demonstrate that they have:

Calculated holiday entitlement correctly, including for irregular hours and part year workers

Paid the correct amount of holiday pay, reflecting recent changes to what must be included in a ‘week’s pay’, such as commission, regularly paid overtime and status related payments

Properly dealt with untaken holiday when staff leave, including any carry over

Records must be kept for six years and can be stored in any format, provided they are “adequate”.

Jenny said:

“Many employers are still getting holiday pay wrong without realising it. This legislation turns what was previously a civil risk into a potential criminal one, with fines on top of back pay and reputational damage.”

The newly created Fair Work Agency is expected to enforce this – although it is not yet known when it will be given the specific powers it needs to do so. However, once it is up and running it will have powers to inspect records, interview staff and issue penalties for underpayment.

Irwin Mitchell is urging employers to act now by reviewing contracts and policies, auditing holiday pay calculations, and checking how irregular hours and part year workers are paid.

Jenny added: “This is an area where doing nothing is no longer an option. Businesses that don’t get on top of this now could face serious consequences.”