Not getting it wrong. Not being able to prove you got it right.
Everyone is talking about the Fair Work Agency’s big numbers. £20,000 per worker. 200% penalties. Six years of retrospective reach. LinkedIn is full of compliance summaries. You have probably scrolled past three already today.
None of that is the bit that should keep you up.
The duty that quietly went live
From 6 April 2026, you have a legal duty to keep adequate holiday pay records for six years. Employment Rights Act 2025, section 35, which inserts a new Regulation 16B into the Working Time Regulations 1998. Failure is a criminal offence. Not a fine. Not a slap. Criminal. Punishable by an unlimited fine. That is already live. Not coming. Live.
The Fair Work Agency does not need a complaint. It does not need a reason. Officers can enter your premises, inspect your records and require you to produce documents. Obstruction is a separate criminal offence, carrying up to 51 weeks inside for intentionally obstructing an enforcement officer. Knowingly or recklessly producing false documents is another offence entirely. Just in case you were thinking about tidying things up after the fact.
So.
Can you prove, right now, that your holiday pay has been correctly calculated for the last six years?
Not “payroll handles it.” Not “we use a system.” Prove it. With records. That you could hand to an officer who has turned up unannounced on a Tuesday morning.
Most businesses cannot. Because holiday pay sits in the gap between HR, payroll and finance, and nobody actually owns it. The calculation is harder than anyone admits, especially for shift workers, variable hours, overtime and commission. And the records are either incomplete, wrong, or in a system nobody has looked at since it was implemented.
Put some numbers on it
500 workers. Average underpayment of £380 per worker per year. Over six years that is £1.14 million in arrears. Add the 200% penalty, capped at £20,000 per worker, and you are looking at another £2.28 million. Legal costs on top. Total exposure north of £3.5 million.
Not fraud. Not negligence. Just not checking.
The part that should sting
The Fair Work Agency has been clear that it will prioritise employers who have not engaged. Employers who have already identified and corrected historical underpayments are in a materially better position than those who wait for a knock on the door.
Doing nothing is not a risk appetite decision. It is the most expensive option on the table, and you are choosing it by default every week you do not act.
The record-keeping duty is live. The enforcement regime is active. And nobody in your leadership team has raised it, because nobody thinks holiday pay is their problem.
It is. It just became a criminal one.
What to do on Monday morning
Find out who owns holiday pay in your organisation. If the answer is “it depends” or “I think it sits with payroll,” you already have your first problem.
Pull the calculation methodology. Not the policy document. The actual formula being applied in payroll every month. Check it against the Working Time Regulations 1998 and the case law on variable pay. Especially overtime, commission and allowances.
Run a sample audit. Pick twenty workers across different patterns. Check their holiday pay for the last twelve months against what the calculation should have produced. Extrapolate the gap.
Document what you find. Fix what needs fixing. Keep a paper trail that shows you engaged, identified the issue and acted. That paper trail is worth more than almost anything else in the file when the Fair Work Agency comes calling.
If you are not sure where you stand on the Employment Rights Act 2025 more broadly, the free ERA 2025 Compliance Audit covers the Fair Work Agency as one of its ten domains. Twenty minutes, no sign-up, a risk-rated view of where the gaps are.