Holiday Pay and Leave Record-Keeping: A Compliance Guide

Holiday pay is one of the most litigated areas of UK employment law, and it keeps changing. Since 2022, the Supreme Court has redrawn how holiday accrues for part-year staff, the government has rewritten the rules on rolled-up holiday pay, the COVID-era carry-over concessions have been phased out, and a brand-new statutory duty to keep annual leave records has arrived. For HR and payroll teams managing casual, zero-hours or term-time staff alongside full-time employees, getting this wrong is no longer a minor administrative slip — it is a direct route to employment tribunal claims and, now, to a specific record-keeping offence. This guide sets out where the law actually stands today.

Statutory holiday entitlement: the baseline

Under the Working Time Regulations 1998, almost all workers in the UK are entitled to a minimum of 5.6 weeks' paid annual leave each year. For a full-time employee working five days a week, that works out at 28 days, which is also the statutory cap — employers are not required to go beyond 5.6 weeks even if a worker's normal week is longer than five days.

Part-time workers are entitled to the same 5.6 weeks, pro-rated for the hours or days they actually work. A worker doing three days a week, for example, is entitled to 16.8 days (3 x 5.6). This entitlement is made up of 4 weeks derived from the original EU Working Time Directive and 1.6 additional weeks added under UK domestic law — a distinction that still matters for carry-over rules, covered below.

Workers with irregular hours or who work only part of the year — casual staff, term-time-only workers, seasonal workers — are entitled to the same 5.6 weeks in principle, but the mechanics of how that entitlement is calculated and paid have been the subject of major legal change, which is where most employer errors now originate.

How holiday pay must be calculated: Harpur Trust v Brazel and "normal remuneration"

Holiday pay is not simply basic salary divided by 52. The core legal principle, developed through a long line of European and UK case law, is that workers should receive their normal remuneration while on holiday — not just basic pay — so that taking annual leave does not leave them financially worse off. In practice this means holiday pay calculations must include, where applicable:

• Regular or settled overtime (including overtime that is contractually guaranteed or has been worked with sufficient regularity to be considered "normal")
• Regular commission payments directly linked to performance of the role
• Other regular and recurring allowances (e.g. shift premiums, standby payments) that form part of a worker's usual pay

For workers without fixed hours or fixed pay, holiday pay is calculated using a 52-week reference period: employers look back over the previous 52 weeks in which the worker was actually paid (going back up to 104 weeks if needed to find 52 paid weeks) and average that pay to set the holiday pay rate.

The 2022 Supreme Court judgment in Harpur Trust v Brazel is central here. Mrs Brazel was a visiting music teacher on a permanent, part-year contract — she worked only during term time but was employed year-round. Her employer had calculated her holiday pay using the 12.07% method (treating her as accruing holiday only in proportion to the weeks she actually worked), which produced a lower figure than simply applying the 52-week averaging approach to her full year of employment. The Supreme Court ruled that this was wrong: part-year workers on permanent contracts are entitled to the full 5.6 weeks of statutory leave, calculated using the average pay method, even though this can mean their holiday entitlement is proportionally more generous than that of a comparable full-year worker. The case confirmed that employers cannot simply pro-rate leave by the proportion of the year actually worked for permanent part-year staff.

Rolled-up holiday pay: the current rules from April 2024

Harpur Trust v Brazel created real difficulty for employers of genuinely irregular-hours and part-year workers, because the 52-week averaging method is administratively heavy and rolled-up holiday pay (adding a percentage uplift to every payslip instead of paying holiday pay when leave is taken) had previously been found unlawful. The government responded with reforms to the Working Time Regulations that took effect from 1 January 2024, with the rolled-up holiday pay option available for leave years starting on or after 1 April 2024.

The current position, as set out by gov.uk and Acas, is:

• Rolled-up holiday pay is now lawful again, but only for irregular hours workers and part-year workers — it cannot be used for workers with normal, regular hours.
• Employers are not obliged to use it; it is an optional alternative to paying holiday pay when leave is taken.
• Where used, it must be calculated at a minimum of 12.07% of the worker's total pay for the pay period (that figure reflects 5.6 weeks' leave as a proportion of the 46.4 working weeks in a year).
• It must be paid alongside normal wages for each pay period and shown as a clearly separate line item on the payslip — it cannot be buried inside a single consolidated hourly rate.
• Holiday pay accrued this way cannot be reduced or withheld because a worker is on sick leave or statutory family leave (maternity, paternity, adoption, parental, bereavement or carers' leave); for those periods, the average pay method still applies.

Employers should also consult with affected workers, and where relevant trade unions, before introducing rolled-up holiday pay, and may need to vary contracts to implement it properly.

Record-keeping obligations: what employers actually have to do

Employers have long been expected to keep records under the Working Time Regulations 1998, but for years there was genuine uncertainty about how detailed those records needed to be. That changed with the 2019 CJEU ruling in CCOO v Deutsche Bank, which held that employers must have an "objective, reliable and accessible" system to measure daily working time — a principle UK tribunals and commentators have continued to apply post-Brexit when assessing whether an employer's records are adequate to defend a working time or holiday pay claim.

Crucially, this is no longer just good practice guidance. Under the Employment Rights Act 2025, a new specific duty comes into force on 6 April 2026 requiring employers to keep records covering:

• Workers' annual leave entitlement, including arrangements for irregular hours and part-year workers
• Holiday pay entitlement and what was actually paid
• Payments made in lieu of untaken leave on termination of employment

These records must be retained for six years from the date they are created, and the newly established Fair Work Agency (operational from 7 April 2026) has enforcement powers, with failure to comply treated as a specific offence rather than merely a factor in a tribunal claim. For any organisation still tracking holiday on spreadsheets or informal manager sign-off, this is a strong prompt to move to a proper leave-management system — the same principles covered in our guide to records and information management in the workplace apply directly to holiday and leave data.

Carry-over rules

The default position remains that statutory holiday should be used within the leave year it is accrued, and untaken leave is generally lost — "use it or lose it" — unless a specific exception applies.

The main exceptions are:

• Sickness: workers unable to take leave due to long-term sickness can carry over up to 4 weeks of statutory leave (the EU-derived element), which must be used within 18 months of the end of the leave year in which it accrued.
• Family-related statutory leave: workers who cannot take their holiday because they are on maternity, paternity, adoption, shared parental, or other family-related statutory leave must be allowed to carry over the untaken leave to the following leave year.
• Employer default: if an employer fails to give a worker a reasonable opportunity to take their leave, or does not adequately inform them that unused leave will be lost, the worker can carry over up to 4 weeks into the next leave year.

The temporary COVID-19 carry-over rules, which had allowed workers to carry over up to 4 weeks of leave across two leave years where the pandemic made it impracticable to take holiday, were phased out under the Working Time (Amendment) Regulations 2023: any COVID-related carried-over leave had to be used by 31 March 2024, and the provision does not apply to leave years starting on or after 1 January 2024. Employers should treat that concession as closed and revert to the ordinary carry-over exceptions above.

Common payroll and HR mistakes

Most holiday pay disputes trace back to a small set of recurring errors:

• Applying 12.07% to permanent staff who aren't irregular hours or part-year workers. This is the exact error at the heart of Harpur Trust v Brazel, and it remains unlawful outside the specific rolled-up holiday pay route introduced in 2024.
• Calculating holiday pay on basic salary alone, leaving out regular overtime, commission or shift allowances that should count as normal remuneration.
• Mixing up the 12.07% accrual method with rolled-up pay's specific conditions — for example, not showing it as a separate payslip line, or applying it to workers with fixed, regular hours.
• Poor or informal record-keeping — no audit trail of hours worked, leave taken, or how holiday pay was calculated — which leaves an employer badly exposed if a worker brings an unlawful deduction from wages or working time claim, and which will now breach the specific record-keeping duty from April 2026.
• Failing to carry over leave correctly for sickness or family leave absences, or applying the old COVID carry-over rules to leave years where they no longer apply.
• No consistent policy for zero-hours or casual staff, often compounding the risks already present in how these workers' hours and entitlements are managed more broadly.

Given how closely holiday pay rules are now tied to worker status and contract type, HR teams should review holiday policies alongside the separate reforms covered in our guide to zero-hours and guaranteed-hours contract changes, since the same workers are often affected by both sets of rules.

Frequently asked questions

Is rolled-up holiday pay legal for all workers?

No. Since April 2024 it is only lawful for irregular hours workers and part-year workers, calculated at a minimum of 12.07% of pay in each pay period and shown separately on the payslip. It remains unlawful to apply it to workers with regular, fixed hours.

Do we have to include overtime and commission in holiday pay?

Yes, where overtime is worked with sufficient regularity to be considered normal, or commission is a regular part of a worker's earnings, both must be included in holiday pay calculations so that the worker receives their normal remuneration while on leave.

How long do we now need to keep holiday and leave records?

From 6 April 2026, employers must keep records of annual leave entitlement, holiday pay entitlement and payments, and payments in lieu of untaken leave for six years from the date the record is created, with enforcement by the Fair Work Agency.

Can staff still carry over holiday because of the pandemic?

No. The COVID-19 carry-over rules were phased out under the Working Time (Amendment) Regulations 2023 and do not apply to leave years starting on or after 1 January 2024. The standard exceptions — long-term sickness, family-related statutory leave, and employer default — now apply instead.

Staying ahead of the changes

Holiday pay and leave record-keeping have moved from a background payroll task to an area with its own specific legal duties, enforcement body and financial exposure. Reviewing how your organisation calculates holiday pay for irregular hours and part-year staff, and how (and for how long) you record leave and pay decisions, is worth doing now rather than waiting for the April 2026 duty to bite or for a tribunal claim to surface gaps in your records. Learnsignal's CPD courses include practical training on UK employment law compliance for HR and finance professionals who need to keep these obligations current across their organisations.