Employers have until 30 September 2026 to complete mandatory holiday pay recalculations for irregular-hours and part-year workers, under legislation that took effect on 1 April 2026.
The Legal Framework
The Holiday Pay (Accrual and Payment) Regulations 2025 came into force on 1 April 2026. Under these regulations, employers must calculate holiday pay for irregular-hours and part-year workers using an accrual method based on 12.07% of hours worked in each pay period.
The regulations apply to workers whose hours vary from one pay period to the next, including:
- Zero-hours contract workers
- Agency workers
- Seasonal staff
- Part-year workers (those who work only part of the year)
The Transitional Arrangement
The legislation includes a transitional period allowing employers until 30 September 2026 to:
- Recalculate holiday pay for the period from 1 April 2026 onwards
- Identify any underpayments that occurred during the initial implementation
- Issue corrected payments where necessary
After 30 September 2026, the transitional arrangement ends. Employers who have not completed the recalibration process will be treated as non-compliant from the date the regulations came into force.
Employer Obligations
- HMRC guidance on gov.uk sets out the following requirements for employers:
- Maintain accurate records of hours worked for irregular-hours and part-year workers
- Calculate holiday pay using the 12.07% accrual method for each pay period
- Retain holiday pay and annual leave records for a minimum of six years
- Issue payslips showing holiday pay accrued and taken
The six-year record-keeping requirement aligns with the standard retention period for National Minimum Wage records.
The Leaver Risk
Employment law practitioners have identified a specific risk relating to workers who leave employment on or after 1 October 2026.
If a departing irregular-hours worker brings a claim for unlawful deduction from wages covering the April–September 2026 period, the employer must demonstrate that the recalculation was completed and any shortfall paid before the cut-off date.
Without evidence of compliance by 30 September, the employer has no statutory defence against such claims.
Potential HMRC Enforcement
HMRC has enforcement powers under the regulations, including:
- The ability to request payroll records for inspection
- Penalties for non-compliance
- Requirement to correct underpayments
Employers found to have underpaid workers may be required to:
- Repay the full amount owed
- Pay interest on late payments
- Face civil penalties
