Annual Leave – Employers will need to retain records for 6 years

Annual Leave – Employers will need to retain records for 6 years

From 6 April 2026, under the Employment Rights Act 2025, employers are required to keep records on annual leave and holiday pay for a period of six years.

This will be a major change for employers with the current approach tending to be more informal, perhaps through payroll spreadsheets or through an online HR portal, and for smaller businesses it may have been a secondary concern.

Now this will be a mandatory requirement with financial penalties for failure to comply.

Despite not previously being included in the government’s April 2026 timeline, reforms to the Working Time Regulations were included in the Employment Rights Act 2025 (Commencement No.2 and Transitional and Saving Provisions) (Amendment) Regulations 2026, put down on 16 March 2026.

The move which has caught people by surprise as it had not been included in the Plan to Make Work Pay timetable of measures produced by the Department for Business & Trade.

A spokesperson for the Chartered Institute of Payroll Professionals (CIPP) said: ‘Interestingly, this amendment has not been publicly highlighted by the government. It does not appear in the Department for Business and Trade’s implementation timeline of Plan to Make Work Pay and the Employment Rights Act. As a result, many employers may be unaware of the upcoming obligation.’

‘This will undoubtedly put further administrative pressure on employers and pay professionals. Whilst you may already have some methods in place to record annual leave, these processes should be reviewed to ensure that all annual leave and pay is clearly recorded.’

This is quite a major administrative change to the current HR process.

From 6 April 2026, employers are required by law to keep records of employee annual leave and pay, including the payment of outstanding leave on termination of employment. These records must be kept for six years.

Failure to do so will be a criminal offence with the potential for unlimited fines.

Under the new rules, employers will have to:

• record both ordinary and additional annual leave.
• keep details of annual leave carried forward from previous years.
• document holiday pay, specifying which pay elements are included or excluded; and
• record any payments in lieu of annual leave, including carried-over leave.

Record keeping requirements

While there is no prescriptive method about how to keep the records, it is mandatory and a failure to maintain adequate records could result in criminal liability, with fines for the employer.

If employers underpay holiday pay, the new Fair Work Agency will be able to enforce repayment to affected employees as well as financial penalties for the organisation.

The penalties will be up to 200% of the underpayment (capped at £20,000 per underpaid individual).

Double Easter bank holidays create HR challenge

There is another light aside on the timing of bank holidays as this April 2026 to March 2027 holiday year we will have two Easters in one year, the rather aptly named Fat Year if you fancy a few chocolate treats this weekend. 

A ‘fat year’ is when two Easters, and therefore two sets of bank holidays, fall in the same leave year, resulting in more than the standard number of bank holidays in the year.

An associate director at HR consultancy Peninsula, said: ‘As Easter falls in line with the lunar calendar, the dates change every year. In 2026 we celebrate Easter this weekend, on Sunday 5 April, but in 2027 it falls on Sunday 28 March.’

‘This means that employers whose annual leave year runs from 1 April 2026 to 31 March 2027 will have to manage a ‘fat year’ – a term that has nothing to do with the amount of chocolate eggs eaten.’

‘While employees would surely celebrate having more time off work, they’re not automatically entitled to take every bank holiday as standard. Entitlements will vary depending on what is stated in employee contracts, for example, some will only be entitled to certain bank holidays, some none, and some all – regardless of how many there are in a year.

‘Many employees assume it’s a given that they will get bank holidays off. Some employers automatically deduct bank holidays from employees’ annual leave entitlement; others give the days in addition to annual leave.

‘And with a ‘fat year’ having two Good Fridays, if the contract of employment states that they get one Good Friday off a year, then they will not be entitled to automatically take the second one. Both employers and employees should check contracts to ensure that they don’t get caught out…’

However, With Easter 2028 falling on 16 April, it means the April 2027-March 2028 annual leave year will have no Easter bank holidays. This is known as a ‘lean year’.’

As the government introduces the new mandatory holiday record rules, this Easter niggle is just one more thing for employers to look out for.