Holiday Pay Enforcement by the Fair Work Agency - What the 2027 Regime Will Look Like
Holiday pay has always been enforced one tribunal claim at a time. That ends in 2027, when the Fair Work Agency takes on proactive enforcement of the statutory right to holiday pay, with investigation powers, civil penalties and arrears recovery on the minimum wage model.
The detail is being settled now. A government consultation on holiday pay compliance and enforcement runs until 11:59pm on 22 September 2026, covering the penalty levels, the look-back period and whether underpaying employers should be publicly named.
This guide sets out what is proposed, what is already fixed, and why the smart money is on auditing your holiday pay calculations before a regulator does.
The Proposed Regime at a Glance
| Element | Position |
|---|---|
| Enforcement starts | 2027, by the Fair Work Agency |
| Mechanism | Notices of Underpayment requiring arrears to be repaid |
| Proposed civil penalty | 200 per cent of arrears owed, capped at £20,000 per worker, minimum £100 |
| Look-back period | Six years by default, but not before Royal Assent on 18 December 2025 |
| Public naming | Consulted on, modelled on the minimum wage naming scheme |
| Self-correction | Repaying arrears before an investigation starts avoids a penalty |
From Tribunal Claims to Regulator Enforcement
Today, an underpaid worker has to bring a claim themselves, and most never do. From 2027 the Fair Work Agency, which launched in April 2026 and already enforces the minimum wage and statutory sick pay, will be able to investigate holiday pay on a complaint or on its own initiative.
The consultation is explicit that the model is minimum wage enforcement: Notices of Underpayment, arrears for workers, civil penalties for employers, and criminal offences behind the civil regime for the worst cases. Employers who have watched minimum wage enforcement operate know how mechanical it is once an investigation starts.
The Penalty Model Copies Minimum Wage
The proposed penalty is 200 per cent of the arrears owed to each worker, with a £20,000 per-worker maximum and a £100 minimum. On a workforce-wide miscalculation, the arithmetic escalates quickly, because holiday pay errors are rarely confined to one person.
The consultation also asks whether the public naming scheme that operates for minimum wage underpayment should extend to holiday pay. For consumer-facing businesses, naming has often stung more than the penalty itself.
The Six-Year Look-Back Meets Your New Records
The default claim period is six years, although claims cannot reach back before the Employment Rights Act received Royal Assent on 18 December 2025. This is exactly why the six-year annual leave record-keeping duty arrived in April 2026: the government has said plainly that the records exist to support Fair Work Agency enforcement from 2027.
Read together, the design is straightforward. The records you must keep now are the evidence base the regulator will test later, and an employer who cannot show how holiday pay was calculated will struggle to defend the calculation.
Self-Correction Pays
The consultation's worked example is unusually generous and worth knowing: an employer who identifies an underpayment and repays all arrears before the FWA starts an investigation faces no penalty. The window for cheap corrections is open now and closes when enforcement begins.
That makes a voluntary audit the rational move in 2026. Check the calculation basis for every variable pay element, including commission, regular overtime and allowances, check rolled-up holiday pay for irregular-hours staff is paid and itemised correctly, and fix what you find while fixing is free.
What Employers Should Do Before 2027
Audit your holiday pay calculations and your records against the four categories the law now expects: leave taken, carry-over, pay calculations and payments in lieu. Update your annual leave policy and payroll procedures so the method is written down rather than tribal knowledge, and if the proposals would hit your sector hard, respond to the consultation before 22 September 2026.
Our guides to the UK annual leave regulations and the Fair Work Agency cover the entitlement rules and the regulator's wider remit.
Holiday Pay Policy and Procedure Writers
Policy Pros writes the documents this regime will test: annual leave policies, holiday pay calculation procedures, record-keeping and retention schedules and the payroll process notes that evidence compliance. Our HR policy writing service can bring the whole set up to the 2026 position in one consistent update.
If your holiday pay method lives in a spreadsheet nobody documented, contact us for a free quote, or call 020 3951 2875.
Frequently Asked Questions
When will the Fair Work Agency start enforcing holiday pay?
From 2027. The government has confirmed the statutory right to holiday pay will be enforced by the Fair Work Agency from 2027, with the consultation on the detail closing on 22 September 2026 and the final rules set in regulations after that.
What penalties are proposed for holiday pay underpayment?
A civil penalty of 200 per cent of the arrears owed to workers, with a maximum of £20,000 per worker and a minimum of £100, issued alongside a Notice of Underpayment requiring the arrears to be repaid. Public naming, on the minimum wage model, is also being consulted on.
How far back can holiday pay claims reach?
The default claim period is six years, aligning with the six-year record-keeping duty that began in April 2026. Claims cannot reach back before 18 December 2025, the date the Employment Rights Act received Royal Assent.
Can we avoid a penalty by fixing underpayments ourselves?
Under the consultation's proposed approach, yes. An employer who identifies an underpayment and repays all arrears before the Fair Work Agency begins an investigation would face no penalty, which is a strong argument for auditing calculations voluntarily in 2026.
