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Newspage RawSource: Kate Underwood, Kate Underwood HR & Training

£20,000 per worker. Holiday pay just became the most expensive spreadsheet in your business

ended 09. October 2026

The government has set out how the new Fair Work Agency will police statutory holiday pay from 2027, and the numbers are brutal. The proposed penalty is 200% of the arrears per worker, cut to 100% if you pay the arrears and half the penalty within 14 days. The cap is £20,000 per worker, the minimum £100 a case, and the proposed claim window is six years. It covers unpaid, underpaid and miscalculated holiday pay, plus refused leave and carry over. https://assets.publishing.service.gov.uk/media/6a3e79add52550a19950f617/make-work-pay-holiday-pay-compliance-and-enforcement.pdf

Nobody sets out to short someone's holiday pay. They just leave out the overtime, or the commission, or the bank holiday that fell on a Tuesday. Then they do it for six years across eleven staff and the total stops being a rounding error. A payroll mistake compounding quietly for six years is a slow puncture, and the bill arrives once the tyre is already flat. The consultation closed on 26 September and the response is still pending, so audit your holiday pay calculation this month, before somebody else does it for you.

Tell us:

  • Fair enforcement, or a fine designed to punish the honest mistake?
  • Six years of back pay: protect the worker or protect the business, which comes first?
  • Have you ever found a holiday pay error in your own payroll? What was it?

6 responses from the Newspage community

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Kate UnderwoodVerified
Founder & Chief People Strategist at Kate Underwood HR & Training
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Let's be honest about who this actually catches. Not the Cowboys; they know exactly what they're doing and will carry on regardless. It'll be the owner who set the holiday calculation up in 2019, got it slightly wrong, and has cheerfully repeated that mistake ever since while doing payroll at 10pm with a cold cup of tea. Six years of compounding, times your headcount, is a business-ending number for a lot of the people I work with. I'm not against enforcement, before anyone starts. Workers have been shortchanged for years, with overtime left out, commission ignored and the bank holiday that fell on a Tuesday quietly forgotten, and tribunals are a hopeless way to fix that. But if the government wants compliance rather than revenue, it has to help people get it right first. Give small employers a proper calculator, plain English guidance and a window to self-correct without a 200% penalty bolted on. You don't improve food hygiene by handing out fines alone. Check your sums this month.
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Nouran MoustafaVerified
Practice Principal & IFA at Roxton Wealth
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Workers should obviously receive every penny of holiday pay they are owed. The difficult question is proportionality when an employer has made a genuine payroll mistake rather than deliberately withheld pay.
A six-year lookback means a small calculation error involving overtime or commission can quietly multiply across several employees before anyone notices. By the time it is discovered, the arrears and potential penalties could become a serious cash-flow problem for a small business.
That makes auditing payroll now incredibly important.
Enforcement should protect workers without creating an incentive for businesses to hide honest mistakes. The best system is one where employers are encouraged to identify, correct and repay genuine errors quickly, while deliberate underpayment is treated much more seriously.
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Harvey DhillonVerified
Founder & CEO at Zmartly
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Policing holiday pay is overdue, and it's fair enforcement for any owner who finds and fixes their own mistake first. The proposal is that no penalty is normally issued if all the back pay owed is paid before an investigation starts. After that, if it runs like minimum wage enforcement today, a penalty is likely even where the error was accidental, and the law gives no honest-mistake ground of appeal. On back pay the worker comes first, because those were wages due at the time and the business has had the cash ever since. A Fair Work Agency notice can't reach holiday pay that fell due before the Employment Rights Act was passed in December 2025, so the proposed six-year claim period can't apply in full before December 2031. Find the mistake yourself and you should only pay what you owed, but wait for an investigation and expect a penalty on top.
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Tony RedondoVerified
Founder at Cosmos Currency Exchange
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Another nail in the coffin for UK business from this two-tier, interventionist government. On top of £66bn of tax rises and the Employment Rights Act, the Fair Work Agency's proposed penalties from 2027 will turn holiday pay from a minor tribunal risk into a major liability: a 200% penalty on arrears, capped at £20,000 per worker, with a six-year back-pay window. One small, recurring error across eleven staff can snowball into serious debt. Burnham's government, like Starmer's, thinks businesses exist only to be milked as cash cows. Treating honest miscalculations like deliberate fraud hits employers without legal teams hardest. Restoring workers' statutory entitlements is right, but without a safe harbour for good-faith errors, expect a fresh wave of insolvencies and rising private sector unemployment. Holiday pay errors rarely stem from malice. They come from tangled rules on overtime, commission and 52-week reference periods. Audit your payroll now, before enforcement begins.
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Michelle LawsonVerified
Director at Lawson Financial
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Being an employer has never been so unattractive. What has made us get to a point where human error is now punished so severely. If something has been done intentionally this is a different matter but things such as this can sink a business and cause untolled stress to the owner, other staff and all their families for what could have been a genuine mistake. Relentless punitive measures hurt small businesses which make up a significant chunk of the economy.
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Kelly SmallcombeVerified
Fractional Chief People Officer at Meliorem HR Consultancy
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Fair enforcement, yes. This is not that. A 200% penalty and a six year claim window hits the honest mistake as hard as the deliberate one. Most holiday pay errors are a payroll setting nobody checked, not an employer cutting corners. So where is the support to get it right?

Holiday pay is not what is clogging tribunals. Claimants are waiting months, often years, for hearings on dismissal and discrimination cases. That is where workers and employers are both stuck. If the government wants to ease pressure in the system, focus on something that addresses these areas. Do not build a new penalty regime for a problem the tribunals are not struggling with.