New Annual Leave Record-Keeping Rules: What UK Employers Must Know Now

Last month (April 2026), a significant change to UK employment law came into force. Under the Employment Rights Act 2025, employers are now legally required to maintain detailed records of annual leave and holiday pay — and the penalties for getting it wrong could run into hundreds of thousands of pounds.

If your organisation still relies on spreadsheets, informal arrangements, or patchy HR systems to track holiday entitlement, this is a wake-up call you cannot afford to ignore.

What the New Law Requires

The Employment Rights Act 2025 creates a statutory duty for all UK employers to keep adequate records covering:

• Annual leave entitlement — how much each worker is entitled to
• Leave taken — accurate dates and duration of all leave used
• Leave carried forward — what has been rolled over and under what conditions
• Holiday pay calculations — including how pay has been calculated for each period of leave
• Payments in lieu of untaken leave — particularly important on termination of employment

These records must be retained for six years. Failure to maintain adequate records is not just poor practice — it is now a criminal offence.

Enforcement sits with the newly created Fair Work Agency, which brings together a range of labour market enforcement functions and is being positioned as a more active regulator of employment rights compliance.

The Real Cost of Getting It Wrong: A £390,000 Tribunal Warning

The scale of financial risk has been dramatically illustrated by a recent Employment Tribunal case that should concern every UK employer.

In the case of Ageli v Sabtina, an employee who had worked for the same company since the 1980s was repeatedly denied the opportunity to take annual leave due to chronic understaffing. An informal arrangement developed over the years whereby untaken leave was recorded and carried forward, with the expectation that it would eventually be paid out.

This continued for decades without any formal control or review. When the employee was dismissed in 2024, the employer refused to pay for 827 days of accrued leave. The Employment Tribunal found the dismissal unfair and ruled that the employer had failed in its legal obligation to ensure the employee had a genuine opportunity to take leave.

The result: an award of more than £390,000 for unpaid holiday, plus additional compensation for unfair dismissal — taking the total past £400,000.

The lesson is stark. Years of informal carry-over, without adequate records or formal limits, created an enormous liability that only came to light when the employment relationship ended. Without clear documentation, the employer had no credible defence.

Why “Good Intentions” Are No Longer Enough

The right to paid annual leave has been established under the Working Time Regulations 1998 for over two decades. Employers have always been required to ensure workers can take that leave.

What has changed under the 2025 Act is the evidential burden. Employers must now be able to prove compliance — not simply point to a written policy. In the absence of clear records, any claim that leave was properly managed becomes very difficult to sustain.

This is especially relevant where informal arrangements exist, whether that is leave being rolled over year after year, employees “banking” unused days, or managers making ad hoc agreements that are never formally documented.

Those arrangements are now a significant legal risk. If a claim is brought and records are incomplete, the presumption is likely to favour the employee.

The Three Compliance Risks Employers Face

1. Financial exposure from tribunal claims Unpaid leave claims can extend over long periods where entitlement has been allowed to accumulate unchecked. The Ageli case shows that awards can quickly reach six figures — and in extreme cases, exceed them.

2. Criminal liability for record-keeping failures Failure to maintain adequate records under the new statutory duty is itself a criminal offence, independent of any underlying holiday pay dispute. Employers face fines and regulatory scrutiny even where no individual claim has been brought.

3. Scrutiny from the Fair Work Agency As the Fair Work Agency develops its enforcement capacity, employers can expect increased inspection and audit activity focused on holiday pay compliance. Organisations that cannot demonstrate clear, accurate records are at elevated risk.

Practical Steps to Take Now

If you are reviewing your organisation’s approach to annual leave management in light of the new rules, here is where to start:

Audit your current records. Can you demonstrate, for every employee, how much leave they are entitled to, how much they have taken, and how their holiday pay has been calculated? If the answer is anything other than a clear yes, you have a gap to address.

Review carry-over arrangements. Are there employees who have been accumulating leave without taking it? Are informal arrangements in place that have never been formally documented? These need to be brought within a proper framework as a matter of priority.

Train your managers. Line managers are often the first point of contact for leave requests and decisions. Ensuring they understand the new requirements — and the consequences of getting it wrong — is essential.

Implement adequate systems. Whether that is an HR information system, time and attendance software, or a structured eLearning programme to build compliance capability across the organisation, the right tools make a significant difference.

How PeopleFirstHR can help

PeopleFirstHR is an authorised reseller of YouManageHR from Worknest that can help your business record accurate holiday and absence records and the Astute eLearning platform, powered by VinciWorks that will help your business stay compliant and which integrates with YouManageHR to reduce admin.

YouManageHR Helps You Meet Record-Keeping Requirements

YouManageHR is a cloud-based HR software platform designed specifically to replace the spreadsheets, paper trails, and disconnected systems that put employers at risk. For annual leave compliance under the Employment Rights Act 2025, it addresses the challenge directly.

Accurate leave records, automatically maintained. YouManageHR’s Holiday and Absence Management module tracks entitlement, bookings, approvals, and carry-over for every employee in real time. There is no manual reconciliation at year-end and no reliance on a manager’s memory. Every leave transaction is recorded, time-stamped, and accessible.

A complete audit trail. Because leave requests flow through the system — employees submit, managers approve, records update automatically — you have a clear, documented history for every individual. If a claim is ever brought, or the Fair Work Agency comes calling, you can demonstrate exactly what leave was taken, when, and on what basis.

Carry-over control. One of the key risk factors highlighted by the Ageli case is uncontrolled carry-over that builds unchecked over years. YouManageHR allows you to set and enforce carry-over rules, ensuring that informal arrangements cannot develop outside the system. When entitlement rolls over, it does so within defined parameters that are visible to both HR and managers.

Six-year retention built in. With records held securely in the cloud, the statutory six-year retention requirement is met without any additional administrative effort. Data is accessible when you need it, without relying on archived spreadsheets or filing cabinets.

Reporting at the push of a button. YouManageHR’s reporting and analytics tools allow you to generate leave reports instantly — by individual, team, or the whole organisation. Whether you need a snapshot for a board meeting, an audit response, or a compliance check, the data is ready when you are.

Self-service that reduces manager risk. Employees can view their own entitlement and request leave through the self-service portal, reducing the informal verbal arrangements that create liability. Managers receive instant notifications and approvals are handled within the system, not over email or in conversation.

Organisations using YouManageHR typically report a reduction in HR admin time of up to 50%, and implementation can be completed within 30 days with minimal disruption. A free 30-day trial is available, so you can see the difference it makes before committing.

Astute eLearning Can Help Your Organisation Stay Compliant

Compliance with the new record-keeping rules is not just a systems question — it is also a people question. Managers need to understand their obligations. HR teams need to know how to apply the rules correctly. And line managers across the business need to be confident in handling leave requests, carry-over conversations, and holiday pay in a way that is consistent and legally sound.

This is precisely where structured, up-to-date eLearning delivers real value.

The Astute eLearning platform, provides access to over 800 courses covering employment law, HR compliance, and workforce management. Courses are regularly updated by the content team to reflect the latest legislative changes — so when rules change, as they have now, your training keeps pace.

With Astute you can:

• Enrol managers and HR staff on relevant compliance courses quickly — individually or by role
• Track completion rates and demonstrate that training has taken place
• Access a real-time compliance dashboard to identify gaps before they become liabilities
• Reduce administrative burden by up to 70% through automated enrolment, reminders, and progress tracking

The platform is used by over 2,000 organisations across 149 countries, with more than 6 million annual course completions — so you are in good company.

---

Frequently Asked Questions

Do the new record-keeping rules apply to all employers? Yes. The Employment Rights Act 2025 applies to all UK employers regardless of size. There is no small employer exemption.

What counts as “adequate” records? The legislation does not prescribe a specific format, but records must be sufficient to demonstrate how leave entitlement operates in practice — including entitlement, usage, carry-over, and pay calculations. A six-year retention period applies.

What happens if records are incomplete? Inadequate record-keeping is now a criminal offence. In addition, incomplete records significantly weaken an employer’s position in any tribunal claim relating to holiday pay or untaken leave.

Can eLearning help with compliance in this area? Yes. Training managers and HR professionals on their obligations under the new rules — and keeping that training current as legislation evolves — is a key part of a robust compliance strategy. The Astute platform includes employment law and HR compliance courses that are regularly updated to reflect changes in the law.

Can YouManageHR generate the records required under the new legislation? Yes. YouManageHR automatically records leave entitlement, bookings, approvals, carry-over, and pay-related data for every employee. Records are stored securely in the cloud and are accessible for the six-year period required by the Employment Rights Act 2025. Reporting tools allow you to produce a complete audit trail at any time.

How quickly can we implement YouManageHR? Implementation is typically completed within 30 days. Data can usually be migrated from existing spreadsheets or legacy systems, and administrator training takes as little as two online sessions. A free 30-day trial is available so you can explore the platform before committing.

---

This article is intended for general information purposes and does not constitute legal advice. If you require specific legal guidance we can put you in touch with our partners WorkNest who would be happy to help.