New holiday pay and leave requirements are being implemented from April this year. They are among a number of regulation changes that business owners and company directors must be aware of.
A number of these changes have made headlines – and we’ll take a brief look at those later. But employers might have missed the new regulations for holiday pay and leave, as they were drowned out by other headline-grabbing announcements.
New holiday pay and leave requirements
UK employers face the new legal obligations from 6 April 2025. These are the result of changes introduced by the Employment Rights Bill. They will bring annual leave documentation in line with National Minimum Wage compliance.
Rules on statutory holiday entitlement are familiar to most businesses, but these reforms mean you will be required to keep accurate documents to legally comply.
Employers of all sizes are affected by the new laws. And they mean payroll processes, leave systems and record retention practices will need to be reviewed in most businesses. This could be more challenging for SMEs and mid-sized companies that do not have dedicated HR teams.
Why are the rules changing?
Employers have been required to provide statutory annual leave and pay it correctly for many years. But businesses have not been expected to keep detailed records. Enforcement has normally relied on employee complaints or tribunal claims.
But that changes from April this year. A statutory requirement for employers to maintain adequate records of holiday entitlement, holiday pay and leave taken will be enforced due to government legislation.
It’s part of its creation of the Fair Work Agency, which will have wide-ranging powers to inspect records. Where necessary, the agency will take action where employers fall short.
What records will I need to keep?
Business owners will need to keep clear and accurate records showing that employees have received their statutory holiday entitlement. They will also need to record that holiday pay has been correctly calculated. This means being able to demonstrate:
- That holiday pay has been calculated and paid.
- How much statutory annual leave each worker is entitled.
- What leave has been taken during the leave year.
It applies not just to basic salary but also to variable elements of pay that must be included in holiday pay calculations, such as bonuses, regular overtime, commission and certain allowances. The records must also cover what payments in lieu have been given for untaken holiday when an employee leaves.
There are no rules about the format the records should be kept in. You can use paper files, digital payroll and HR systems or spreadsheets. No matter how you keep your records, they must be complete, accurate and accessible.
How long should I keep records?
Employers will need to keep holiday pay and leave records for at least six years from when they are created. And this applies even once an employee leaves the company!
The government says this is to give enforcement bodies the chance to investigate historic non-compliance.
What does it mean for employers?
In blunt terms, it means more work for already stretched employers.
Most employers will already provide the correct holiday entitlement and pay. But even those who already do could face issues of non-compliance if they cannot evidence how holiday pay was calculated or how leave was tracked.
It will be particularly relevant for businesses with:
- Casual or seasonal staff
- Workers on variable hours or pay
- Part-year workers
And it will also be a challenge for any business using different payroll or HR systems that don’t integrate well.
Unclear audit trails, manual processes that rely on individual knowledge and gaps in documentation may cause issues if a company is scrutinised.
Don’t wait
The new rules don’t take effect until April 2026. But don’t wait until 1 April to review your current arrangements. Check that your current payroll and HR systems
are properly capturing holiday entitlement, pay calculations and leave taken in a way that is easy to retrieve.
Employers would be wise to review internal policies and employment contracts to make sure holiday pay calculations are explained clearly and consistently applied.
What else is new in April 2026?
The new holiday pay and leave requirements are part of National Minimum Wage (NMW) compliance. And from 1 April, NMW and National Living Wage (NLW) will increase. The rates changes are:
- 21 and over: From £12.21 to £12.71 an hour
- 18-20: From £10 to £10.85 an hour
- Under 18: From £7.55 to £8 an hour
Employment Rights Act
Workers in England, Wales and Scotland will also gain new rights under the Employment Rights Act. This includes:
- Collective redundancy protective award – doubling the maximum period of the protective award
- Day one’ Paternity Leave and Unpaid Parental Leave
- Whistleblowing protections
- Statutory Sick Pay – remove the Lower Earnings Limit and waiting period
- Simplifying trade union recognition process
- Electronic and workplace balloting
What do I need to do?
If you are unsure about the changes, we can help. Contact our team today to talk about your payroll and compliance needs. We’re also experts at helping you plan your business by analysing your numbers.
