From 6 April 2026, the Employment Rights Act 2025 has introduced a new statutory duty requiring employers to keep detailed records of annual leave and holiday pay. For the first time, what was previously treated as good administrative practice is now a legal obligation.
Employers must be able to demonstrate, with clear records, how much annual leave a worker is entitled to, how much has been taken, what has been carried forward, and how holiday pay has been calculated. This includes payments made in lieu of untaken leave on termination. These records must be retained for six years.
The legislation does not prescribe how records should be kept, although it does require that they are “adequate” to demonstrate compliance. In practice, this means employers must be able to evidence how holiday entitlement operates in reality, not just what their policies say. Failure to meet this requirement is a criminal offence and can result in financial penalties.
Enforcement will sit with the Fair Work Agency, a new regulator bringing together a range of labour market enforcement functions. While its full powers are still being phased in, the direction is towards more active oversight of employment rights, including holiday pay.
A tribunal case shows what can go wrong
Against this backdrop, a recent Employment Tribunal decision illustrates the scale of risk where holiday is not properly managed. The case involved Mossadek Ageli, a senior employee who had worked for the same company since the 1980s. Due to chronic understaffing, he was repeatedly denied holiday. Over time, an informal arrangement developed in which his untaken leave was recorded and carried forward, with the expectation it would eventually be paid.
That arrangement continued for decades without any formal control or review. When he was dismissed in 2024, the company refused to pay for 827 days of accrued leave. The tribunal found the dismissal unfair and ruled that the employer had failed in its obligation to ensure the employee had a genuine opportunity to take leave. The result was an award of more than £390,000 for unpaid holiday, alongside compensation for unfair dismissal.
The case is unusual in scale, although the underlying issue is not. It reflects a failure to align policy, practice and record-keeping over a prolonged period.
The right to paid annual leave is long established under the Working Time Regulations 1998. Employers are required to ensure that workers can take that leave. Where they do not, entitlement may carry forward rather than expire at the end of the leave year.
What the new regime changes is the ability to evidence compliance. In the absence of clear records, employers are far more exposed to claims that leave was not properly managed. Informal arrangements, particularly those allowing leave to be deferred indefinitely, are unlikely to withstand scrutiny.
The Ageli case demonstrates how liability can build over time. Years of denied leave and informal carry-over created an entitlement that only crystallised when the employment relationship ended. Without clear records or limits, the employer had little ability to challenge the claim.
Financial and regulatory consequences
The financial impact of failing to comply with holiday pay obligations can be significant. Tribunal awards for unpaid leave can extend over long periods where entitlement has been allowed to accumulate. In addition, employers may face claims for unfair dismissal or unlawful deduction from wages where holiday pay is not properly handled.
The introduction of a statutory record-keeping duty adds a further layer of risk. Failure to maintain adequate records is now itself a breach of the law, with potential fines and regulatory scrutiny. As enforcement by the Fair Work Agency develops, employers can expect increased attention on whether they can demonstrate compliance in practice.
The combined effect of the tribunal decision and the new legislation is to remove any ambiguity around employer responsibilities. It is no longer sufficient to rely on policy statements or informal understandings. Employers must ensure that leave is actually taken, that any carry-over is controlled, and that records accurately reflect entitlement and usage.
The focus now is on evidence. Organisations that cannot clearly demonstrate how holiday is managed across the workforce will face both legal and financial exposure. The Ageli case shows how quickly that exposure can escalate when issues are left unresolved over time.
