Holiday-pay penalty calculator: the proposed regime, worked for 10, 25 and 50 workers

By Patrick Roper ACA, ICAEW chartered accountant. Last reviewed 1 November 2026. Figures next checked by 1 December 2026.

Under the proposals the government consulted on from 30 June to 22 September 2026, an employer served with a notice of underpayment would pay the arrears plus a penalty of 200% of those arrears, capped at £20,000 per worker and never less than £100. Pay all the arrears and half the penalty within 14 days and the penalty is treated as paid. At £600 of arrears per worker, ten workers cost £18,000 in full or £12,000 within 14 days. No government response had been published at 1 November 2026, so every figure here is a proposal.

The proposed settings

The government proposes that holiday-pay penalties copy the minimum-wage regime the agency already runs. From the consultation document, published 30 June 2026:

• A penalty of 200% of the arrears owed to workers.
• A maximum of £20,000 per worker.
• A minimum of £100.
• The penalty is treated as paid if all unpaid arrears and half the penalty are paid within 14 days.
• Civil penalties only, issued with a notice of underpayment under sections 103 to 115 of the Act, disputable at a tribunal.

The consultation closed on 22 September 2026. At 1 November 2026 the page still reads "We are analysing your feedback". Until the response is published, treat every number on this page as proposed.

Worked examples

Assumptions, stated so you can swap in your own: the average underpayment is £600 per affected worker, every worker in the count is affected, and all the arrears fall inside the window the agency can enforce (nothing before 18 December 2025). £600 is an illustration, not a sector figure. Irregular-hours staff paid every type of leave at basic rate, with regular overtime left out, can be well above it over a year; salaried staff with no variable pay can be at zero.

At £600 per worker the £20,000 cap never bites: the penalty per worker is £1,200. The cap matters only when arrears per worker pass £10,000, which takes several years of a large shortfall. The £100 minimum matters at the other end: a notice for a single £30 underpayment carries a £100 penalty, not £60.

Three things the table leaves out

1. The window. The agency cannot enforce anything before 18 December 2025, so in the first year of enforcement the arrears column covers roughly sixteen months, not six years. The look-back page works that through.
2. Enforcement costs. The Act lets the government make regulations allowing the agency to charge an employer for the cost of enforcement. The consultation flags this for a later consultation; no figure exists.
3. Tribunal claims. A worker can still claim at a tribunal, limited to two years of deductions unless the January 2025 decision on that limit is followed. A notice of underpayment does not switch that route off.

Getting your own arrears figure

The penalty is arithmetic once the arrears are known. The arrears are the hard part, because they depend on which staff are irregular-hours or part-year workers, what their normal pay includes, and whether the 52-week average or the 12.07% method was used. The £295 snapshot recomputes a sample and gives the range; the £2,950 audit recomputes every affected worker and produces the correction schedule. Both are calculations by a chartered accountant, not legal advice, and neither is a finding by any agency.