Are Your Holiday Records Ready for Scrutiny?

The New Legal Duty Employers Can’t Afford to Ignore

Annual leave has always been one of those areas that looks deceptively simple on the surface but becomes increasingly complex the moment you scratch beneath it. Most employers know they must provide paid holiday, but far fewer can say with confidence that their records would withstand detailed scrutiny.

That matters now more than ever.

Under the Employment Rights Act 2025, a new and explicit obligation has been introduced requiring employers to maintain accurate and comprehensive records of annual leave and holiday pay. This is not just a technical adjustment. It signals a shift in how seriously holiday compliance is being treated, particularly when viewed alongside the creation of the Fair Work Agency, which has been given enhanced powers to enforce employment rights.

This raises an important question: if your organisation were asked to produce six years’ worth of holiday records tomorrow, could you?

The Complexity Employers Often Underestimate

Holiday entitlement in the UK is not a single, uniform concept. Instead, it is layered and, at times, inconsistent.

There remains a distinction between leave derived from EU law and that provided under UK legislation. On top of that, many employers offer enhanced contractual leave, which introduces further variation in how leave is treated and, crucially, how it is paid.

Then there are workers with irregular hours or variable pay. For these individuals, entitlement is often calculated using the well-known 12.07% method. While this approach may appear straightforward, it still requires accurate tracking of hours worked and payments made. Without this, the calculation itself becomes unreliable.

When you combine these different categories, the result is a system where not all leave is equal, and not all leave should be paid in the same way.

So, how confident are you that your systems reflect that?

Record-Keeping Is Now a Legal Risk Area

The introduction of a formal record-keeping duty changes the conversation. This is no longer simply about getting holiday right in principle; it is about being able to evidence that you have done so.

The Fair Work Agency has been established to take a far more proactive role in enforcement. That means employers are no longer just reacting to individual claims; they may find themselves subject to inspection or investigation where poor practices are suspected.

And holiday pay has historically been one of the most litigated areas of employment law.

Without clear records, employers may struggle to demonstrate:

• what leave was taken,
• how it was categorised,
• and how it was paid.

In the absence of evidence, the risk is obvious.

A Moment for Honest Reflection

This is where I would encourage you, and your HR and payroll teams, to pause and take stock.

Not at a surface level, but properly.

Do you have full visibility over how holiday pay is calculated across your workforce, particularly for those with variable pay? Are you clear on when employees are allowed to carry leave forward, and whether that is being applied consistently? If challenged, could you show how different types of leave are treated within your contracts and policies, and whether there is a clear structure or sequencing in place?

And perhaps most importantly, how are you actually recording leave?

Is it simply a total number of days taken, or are you distinguishing between different types of entitlement? Are your systems aligned between HR and payroll, or are they operating in silos? If you needed to go back six years, would those records exist, and would they make sense?

Because that six-year retention period is not just good practice anymore. It is fast becoming an expectation.

Why This Matters Now

The direction of travel is clear. Employment rights are being strengthened, enforcement is becoming more active, and the tolerance for poor record-keeping is diminishing.

Holiday pay, in particular, has long been an area where employers unintentionally get things wrong. The difference now is that the spotlight is shifting from what you intended to do to what you can prove you have done.

For many businesses, this will require more than a quick policy review. It may mean revisiting systems, aligning HR and payroll processes, and ensuring that those responsible for managing leave fully understand the distinctions that sit behind it.

A Practical Opportunity, Not Just a Compliance Exercise

While this new obligation may feel like another layer of regulation, it also presents an opportunity.

An opportunity to bring clarity to an area that is often misunderstood.
An opportunity to reduce risk before it becomes a problem.
And an opportunity to ensure your practices are robust, consistent, and defensible.

Because if the Fair Work Agency were to come knocking, or if an employee were to challenge their holiday pay, the question will not be whether you meant to get it right.

It will be whether your records show that you did.