Holiday Records Are Now a Legal Duty. Are Yours Ready?

The spreadsheet on Sharon's old laptop

Someone's leaving. She thinks she has eleven days' holiday left.

You go to your tracker. Your tracker is a spreadsheet on Sharon's old laptop. Sharon left in 2024.

You go to your emails. You find seventy-three of them. None of them quite tell you what you need.

You stare at the screen. You have, by your honest count, no idea.

If that scene made you wince, you are not unusual. After two decades doing HR for small businesses, I can tell you that holiday records are the single most common mess I find when I open the bonnet on an SME. They live in three different places, half of them contradict each other, and the person who understood the system left eighteen months ago.

Up to now, that has been a nuisance. From 6 April 2026, it is a legal exposure.

Kettle on. This one is more important than it sounds.

What actually changed in April 2026

For years, the duty to keep "adequate" working time records sat quietly in the Working Time Regulations and most small employers never thought about it. The detail was vague, enforcement was rare, and a wobbly spreadsheet got you by.

That has now tightened. From 6 April 2026, as the Employment Rights Act 2025 measures roll in alongside the new Fair Work Agency, employers are expected to keep clear, retrievable records of:

• annual leave accrued for each worker
• annual leave taken
• holiday pay paid, and how it was calculated
• any carry-over from one leave year to the next
• any payment in lieu on termination

And you need to be able to produce them. Going back six years.

This is the bit people miss. It is not enough to be paying holiday correctly. You have to be able to show you are, for every worker, in one place, on request. The Fair Work Agency, live since 7 April 2026, can open a proactive inspection with no complaint and no warning, and holiday records are squarely on the list of things an inspector can ask to see.

"Good faith" is the phrase that decides how an inspection goes. Good faith is very easy to demonstrate when your records are tidy and your maths is written down. It is very hard to demonstrate when the answer to "show me Aisha's leave balance" is "give me a couple of days and I'll try to rebuild it".

Why this matters more in a small business, not less

A larger employer has an HR system, a payroll team and a leave-approval workflow that records everything automatically. The record-keeping happens whether anyone thinks about it or not.

In a small business, the record is whatever you remember to write down. There is no system catching it for you. Which means the gap between "compliant" and "exposed" is one departed employee, one corrupted spreadsheet, or one WhatsApp approval that never made it into the tracker.

And the cost of getting it wrong is not abstract. Get holiday pay wrong, not just the record, and you are looking at arrears going back years, potentially for every affected worker, plus the Fair Work Agency's power to require payment within 28 days and to add a penalty on top. The record-keeping failure is what turns a small, fixable error into one you cannot prove you have under control.

A messy tracker is a week's irritation. A holiday-pay underpayment you cannot evidence is a problem that compounds quietly for years.

The five places small businesses trip up

After every audit I do, the same five things come up. None of them are exotic. All of them are fixable.

• One, pro-rata calculations for part-timers and irregular hours.

Part-time and variable-hours staff are where most holiday errors hide. Since 2024, leave and pay for irregular-hours and part-year workers should use the 52-week reference period, you look back over the last 52 paid weeks, skipping unpaid weeks and going back up to 104 weeks to find them. Plenty of SMEs are still using the old 12-week method, or a flat percentage bunged on a payslip. Both create underpayments. Both compound.

• Two, bank holidays muddled into the entitlement.

"We give 20 days plus bank holidays" sounds clear until someone works a four-day week, or a shift pattern that sometimes lands on a Monday and sometimes doesn't. Bank holidays are not a separate legal entitlement: they come out of the 5.6-week statutory minimum unless your contract says otherwise. If your records don't show how bank holidays are being counted for each working pattern, you have a gap.

• Three, carry-over nobody tracked.

Some carry-over is allowed, some is required (for example where someone couldn't take leave because of sick leave or family leave), and some is purely your policy. If a worker carried five days from last year and nobody logged it, your current balance is wrong, and from April 2026 the carry-over itself is something you are expected to have recorded.

• Four, payment in lieu on leavers, done by guesswork.

When someone leaves mid-year, you owe them pay for accrued-but-untaken leave. Get the accrual fraction wrong, or forget a carried-over day, and the final payslip is wrong. This is one of the most common triggers for an ex-employee complaint, and a complaint is one of the ways an inspection starts.

• Five, multiple sources of truth.

The single biggest one. Leave lives in a spreadsheet, and in Outlook, and in the team WhatsApp, and in your head. When three sources disagree, you have no record at all, you have an argument waiting to happen.

The three-week tidy-up plan

You do not need new software and you do not need to panic. You need one focused hour a week for three weeks.

Week one, pick one home and move everything into it

Decide where the truth lives. A single, well-built spreadsheet is fine to start. A proper tool like Breathe HR is better because it makes balances and pay audit-ready without faff. I'm not paid to say that, I just like tools that save you time and tribunal stress. Either way, pick one, and move every worker's leave into it. The act of consolidating will surface the contradictions on its own.

Week two, rebuild each balance and write down the method

For every current worker, establish: entitlement for the year, leave taken so far, carry-over in, and the running balance. For anyone on irregular or part-year hours, confirm you are using the 52-week reference period, and write a one-line note saying so. The note matters as much as the number. It is the difference between "I think it's right" and "here is how I worked it out".

Week three, fix the process so it stays fixed

A tidy record that immediately drifts is worthless. Decide three things and tell the team: how leave is requested (one route, not four), who approves it, and where it gets logged the moment it's approved. Kill the WhatsApp approvals. Diarise a fifteen-minute monthly check so small errors never become big ones.

Mythbuster corner

• "My accountant's payroll software handles all this." It handles payroll mechanics. It does not, usually, hold your leave accruals, your carry-over decisions, or the reasoning behind a variable-hours calculation. Those sit with you.

• "We're too small for anyone to check." There is no minimum business size for the Fair Work Agency, and the data suggests gaps are more common in smaller firms, not less. Small is not a hiding place.

• "We've always done it this way and never had a problem." "Never had a problem" usually means "never been asked". The record-keeping duty changes what happens when you are asked.

• "If the balance is roughly right, that's fine." Roughly right is fine until someone leaves, disputes their final pay, and you can't show your working. Then roughly right is a claim.

The seven-minute action list for this week

If you do nothing else, do these.

1. Open your current holiday tracker, wherever it lives, and confirm it covers every current worker.

2. Pick your most awkward case (a part-timer or irregular-hours worker) and check the method against the 52-week reference period.

3. Find one leaver from the last year and confirm their payment in lieu was calculated correctly.

4. Write down, in one place, where holiday is requested, who approves it, and where it's logged.

5. Note any worker whose balance you genuinely can't reconcile, that's your priority to rebuild.

6. Diarise a recurring fifteen-minute monthly leave check.

7. Listen to Episode 22 of Buzzing About HR for the human version of all this.

You don't need perfect. You need provable.

The point of the new duty is not to catch good employers out. It is to make sure that when someone's leave is questioned, by the worker, by a tribunal, or by an inspector, you can answer with a record instead of a shrug.

That is a low bar, and it is entirely within reach for any small business willing to spend three quiet hours getting tidy. The firms that get hurt won't be the ones who made an honest pro-rata error. They'll be the ones who couldn't show how anything was worked out, for anyone, going back years.

Pick one home. Move everything into it. Write down your method. That's the whole job.

Kettle on. Records up.

Need a hand getting tidy?

If your holiday records live in three places and you'd like them in one, properly, before anyone asks, that's exactly the kind of thing I sort for small businesses.

• Book a free HR Health Check for a quick, jargon-free read on where your people processes are tidy and where they aren't
• Read the Holiday Entitlement guide for the part-time leave maths, step by step
• See HR Software if you're ready to move leave somewhere that records itself
• Listen to Buzzing About HR, new episodes every Tuesday