Azets warns businesses are ‘in a state of panic’ over holiday rules

Thousands of UK employers are struggling to comply with new holiday entitlement and pay rules, according to Azets, the accountancy and business advisory firm with offices across the Midlands.

The rules follow the government’s introduction of the Fair Work Agency on 6 April, which requires employers to maintain holiday entitlement and pay records for six years, including annual entitlements, when leave is taken and what employees are paid for each period, in line with National Minimum Wage record-keeping.

H-J Dobbie, head of HR consultancy at Azets, said the principle is simple but the reality is far more complex, particularly for workers with fixed hours but variable pay, such as those receiving regular overtime, allowances or commission.

She said the required “calendar method” calculation is so complicated that “employers often don’t know where to start,” and that Azets is identifying underpayments where variable pay components have not been included in holiday calculations correctly.

Dobbie explained: “Employers are in a state of panic as they don’t know how much will be owed to employees when the extent of the underpayments is known, especially as they may have to go back as far as two years to make good with their workers. What’s more, they are terrified that the new Fair Work Agency will impose hefty fines or open criminal investigations for worker exploitation even though they are trying to do right by staff.”

She added: “I’m getting calls from bosses of well-run companies worried sick about falling foul of compliance through no fault of their own… we haven’t found two employers tackling this in the same way.”

The Fair Work Agency has powers to inspect premises, demand records and impose unlimited fines or criminal sanctions for non-compliance. Government research shows 900,000 UK workers annually have holiday pay withheld, worth £2.1bn, with nearly 20% of minimum wage workers underpaid.

Julie Gunnell, associate director for growth payroll at Azets, said the rules, dubbed “R-Day,” are a wake-up call for businesses: “Employers need clear protocols for record access and ownership. If the FWA comes knocking and records are fragmented across HR and payroll, it becomes an admin emergency.” She added that the legislation should push HR and payroll teams to work collaboratively rather than maintaining separate records.

A recent employment tribunal awarded a former employee £391,942.77 after their employer failed to pay accrued holiday entitlement amounting to 827.25 days.