In brief
The Employment Rights Act 2025 ("Act") has introduced a new obligation for UK employers to keep "adequate" records relating to annual leave and holiday pay entitlement, in force from 6 April 2026.
The relevant provision was not expected to come into force at this time, based on the government's implementation roadmap. However, its introduction marks a significant step towards compliance with the Act, as failure to keep adequate holiday records represents a criminal offence and could be subject to a fine.
Key takeaways
The record-keeping obligation broadly covers the entitlement to paid leave, and the information maintained must show compliance with:
- Ordinary and additional annual leave
- Any leave carried forward
- Details of holiday pay calculations
- Payments made in lieu of leave, including any leave carried forward
Employers must keep "adequate records" to demonstrate compliance with annual leave entitlements. There is no specific guidance for what "adequate" records mean, or any prescribed way in which they should be kept, and the records may be “created, maintained and kept in such a manner and format as the employer reasonably thinks fit.” The changes come into force on 6 April 2026.
In more detail
Annual leave requirements
Under UK law, there is a distinction drawn between statutory and additional contractual leave. There are three distinct categories of leave:
- "Euro leave" - The Working Time Regulations 1998 (WTR 1998) implemented the EU Working Time Directive into domestic law, which confers a minimum of four weeks' paid annual leave per year (regulation 13).
- "UK leave" - Regulation 13A was a "top-up" domestic provision that adds an additional 1.6 weeks' to the EU mandated four-week period. Employers may include public holidays (typically eight over the course of a year) within the overall entitlement.
- "Contractual leave" - Employers may also offer additional "contractual" annual leave on top of statutory entitlements.
The new record-keeping requirement highlights difficulties associated with distinguishing between the annual leave types for the purposes of demonstrating that the leave has been taken and paid at the correct rate of pay. The items that should be included within the EU‑derived element of holiday pay are much broader, typically including items such as commission, overtime of different types and bonus. A distinction is also drawn in relation to the circumstances in which each type of leave may be carried forward.
In recent years, it has become more common for some employment contracts to provide for the deemed use of regulation 13 leave first, with regulation 13A leave to be taken after. However, drawing this distinction in a standard employment contract remains relatively uncommon. Under the new legislative framework, compliance will need to be evidentiary rather than assumed. In the light of this, employers' records may need to reflect the distinction between different types of statutory (and contractual) leave that has been taken or carried forward and the applicable rates of remuneration for each period of leave.
Irregular hours workers
Compliance risks are heightened for irregular hours workers (e.g., casual workers, zero hours workers and term-time workers). For these workers, holiday entitlement is accrued on a pro‑rated hourly basis at a rate of 12.07% of the actual hours worked.
Employers must therefore be clear not only on how holiday entitlement (and pay) is calculated for irregular hours workers, but also ensure that workers in this category are actually taking their holiday and keeping records of when it is taken. If records are not considered "adequate," this may increase exposure to claims based on underpayment of holiday.
Compliance with record-keeping best practice
The Fair Work Agency, the Government's centralised enforcement body established to oversee compliance with the Act was formally launched on 7 April 2026.
The Agency replaces a previously fragmented, multi-agency approach and intends to increase the coordination and efficiency of regulation in the labour market. The Agency has a broad remit, which holiday pay falls within, and will have the power to scrutinise and investigate employment practices of individual businesses. As part of these powers, which are expected to support monitoring annual leave, the Agency may require employers to produce relevant documents and evidence and, where breaches are identified, can demand the repayment of statutory underpayments.
While it is anticipated that the Agency may in due course issue enhanced guidance on holiday pay record-keeping best practice in line with the new legislation, no such information has yet been published. In the meantime, it is advisable for employers to proactively conduct a full audit of existing holiday pay record-keeping systems to ensure they are sufficient to evidence full compliance and minimise legal risk.
In particular, employers should work with their HR and payroll teams to review:
- The calculation of holiday pay;
- Where employees are permitted to carry over their holiday;
- Provisions in template employment contracts and policy documents in relation to the sequencing of leave categories;
- How annual leave is recorded (including different categories of leave entitlement); and
- Whether current retention practices are consistent with the six-year minimum threshold.
For further updates in respect of the other proposed changes under the ERA, please read our summary and next steps guide, or contact your usual Baker McKenzie contact to ask about joining our training and insight sessions on the Act.
For advice or to discuss what this means for you and your business, please contact your usual Baker McKenzie contact.
Polly Mainds, Senior Associate, and Philippa Kirby, Trainee, have contributed to this update.