Holiday Pay Enforcement for Recruitment Agencies | UK Guide

Holiday Pay Enforcement for Recruitment Agencies is changing. If your agency places people into shift work, temp roles or anything with variable hours, this is worth ten minutes of your time. We often tell our recruitment and staffing clients the same thing. Somewhere in your payroll system, someone probably built a holiday pay calculation around basic salary years ago. Nobody has reviewed it since. Holiday pay often sits untouched because everyone assumes it’s “probably fine” until someone reviews it. That’s not carelessness on anyone’s part. It’s just how agencies grow — you deal with whatever’s loudest, and holiday pay is never loud. Until now.

The Government has launched a consultation on how the Fair Work Agency will enforce statutory holiday pay from 2027. Recruitment and staffing agencies are among the businesses most affected by these changes. Temporary and agency workers get hit by holiday pay errors more than most, purely because their hours and pay move around week to week. This isn’t just another policy update. It changes who checks your payroll records and how far back the Fair Work Agency can investigate.

How Holiday Pay Enforcement Is Changing for Recruitment Agencies

At the moment, workers who believe they’ve been underpaid holiday pay must take their claim to an employment tribunal. Most don’t bother. It’s slow, it’s stressful, and for what might only be a modest shortfall, it rarely feels worth the fight — especially if that worker has already moved on to their next placement by the time they’d even notice. That’s a big part of why the Government thinks so much of this goes unreported.

The Fair Work Agency will investigate employers without waiting for complaints. It can look at an entire workforce in one sweep, go back as far as six years, and issue formal notices where it finds a shortfall. Ignore that notice, and the penalties start: up to 200% of the arrears owed, capped at £20,000 per worker. There’s some leeway. If you settle the arrears and pay half the penalty within 14 days, HMRC will cancel the remaining penalty — but the direction of travel is pretty clear. This is a shift from “wait for a complaint” to “go and look.” And if your agency has dozens, or hundreds, of temporary workers on the books, that scale starts to matter quite a lot.

One thing is clear: these changes do not affect how employers calculate holiday pay. The Working Time Regulations are the same as they’ve always been. What’s different is who’s checking, and how far back they can reach. Read more about the proposed Holiday Pay Enforcement consultation and the Fair Work Agency.

Holiday Pay Enforcement Example for Recruitment Agencies

Say you’re running a mid-sized agency, supplying temp workers into warehouses and logistics sites, placements lasting anywhere from a few weeks to several months. The agency has always calculated holiday pay using the basic hourly rate because it set up payroll that way years ago. Nobody has reviewed the calculation since. Overtime and shift premiums — which a lot of these workers pick up regularly — never made it into the sum. On paper, the shortfall per worker per week doesn’t look like much. Spread it across a rotating pool of temp staff over six years, though, and it adds up fast. The Fair Work Agency looks for exactly this type of gap. In most cases, employers don’t deliberately cut corners. The business simply never questioned the calculation as it grew.

How Recruitment Agencies Can Prepare for Holiday Pay Enforcement

Start by reviewing employees whose pay changes from week to week. This includes variable shifts, overtime, commission-based recruiters and short-term placements. These are where errors tend to hide, because the maths is genuinely trickier than it is for someone on a flat salary. Since April 2026, you’ve also had to keep holiday pay and annual leave records for six years, so it’s worth double-checking those records actually exist somewhere usable, rather than just assuming they’re there — particularly given how often workers rotate between placements. If a review does turn something up, sorting it and repaying staff yourselves is a far better place to be than having it uncovered during an investigation. And if you’ve got views on how the new system should work in practice, the consultation’s open until 22 September 2026, and it’s not just for lawyers — employers are welcome to respond too.

Prepare Your Recruitment Agency Before 2027

Enforcement itself doesn’t kick in until 2027, but with a six-year lookback, decisions being made in payroll right now could still be scrutinised well into the next decade. For agencies placing large numbers of temporary or variable-hours workers, that risk builds up quicker than you’d think. A short review now really does beat an unexpected letter later.

Here’s the key message, in short: if your agency places variable-hours or temporary staff, there’s a genuine chance your holiday pay has been calculated wrong for years — and from 2027, how that gets found out is changing from reactive to proactive.

If you’d like someone to sit down and look over your holiday pay calculations with you, Magnum Accountancy offers a free call to talk through where the risks might be and what a sensible next step looks like. Book yours today.