Holiday pay is back in focus. We consider Littlewood v Nuffield Health, new duties for employers under the Employment Rights Act 2025 and the steps employers should take now.

Published: 10 June 2026
Authors: Darlia Williams

The recent Employment Tribunal decision in Littlewood v Nuffield Health, which resulted in an award of approximately £149,000, has brought holiday pay back into focus.

Although the decision turned on its own facts, it is a useful reminder of the risks employers face where holiday pay is calculated incorrectly, payroll records do not stand up to scrutiny, or annual leave decisions are not communicated effectively.

The Employment Rights Act 2025 also brought into force a new statutory duty on employers to keep detailed records of holiday entitlement and holiday pay. This means employers now face a dual risk: not only getting calculations wrong but also being unable to evidence compliance.

This article highlights the key legal issues and the practical steps employers should now take.

The legal position

Workers are entitled to 5.6 weeks of paid annual leave. The key principle is that holiday pay should reflect ‘normal remuneration’. In other words, a worker should get the same pay when they are on holiday as when they are at work.

For workers with fixed hours and pay, this is relatively straightforward. However, where normal pay varies because workers receive additional earnings such as commission or overtime, holiday pay calculations must reflect those elements. This issue often arises in sectors with variable hours or performance-based earnings, and Littlewood demonstrates that tribunals will scrutinise both the calculation itself and the employer’s ability to explain it.

Calculating holiday pay

For workers with variable earnings, employers should generally apply a 52-week reference period, averaging pay over the last 52 paid weeks. Government guidance makes clear that holiday pay should not be limited to basic salary and should include elements of normal remuneration such as:

• commission
• payments that are intrinsically linked to the performance of tasks under the contract
• regular payments linked to professional or personal status
• contractual overtime
• voluntary overtime worked on a regular basis

The aim is to reflect what the worker would ordinarily receive if they were working, by taking a genuine average of gross pay rather than applying a simplified or ‘top-up’ method that risks underpayment.

For contractual overtime, the position is relatively clear. However, voluntary overtime is more difficult. The guidance and case law suggest it should be included where it is sufficiently regular to form part of normal remuneration, but there is no definitive legal threshold for what counts as ‘regular’. That remains a question of fact in each case, which is why a clear and consistent methodology matters.

Although the tribunal in Littlewood did not provide further guidance on this point, it did underline the evidential risk for employers: if an employer cannot clearly demonstrate how holiday pay has been calculated, a tribunal may be prepared to accept a claimant’s own figures, as happened there. The case is also a reminder that unclear payslips, unexplained credits and debits, and inconsistent descriptions of payments can significantly weaken an employer’s position.

Recording holiday pay

From 6 April 2026, the Employment Rights Act 2025 requires employers to keep records of annual leave and holiday pay. Enforcement is expected to be overseen by the Fair Work Agency (FWA) and an employer that cannot prove compliance may commit a criminal offence. The maximum penalty is likely to be an unlimited fine.

Employers must now record:

• the amount of statutory annual leave taken by each worker
• clear evidence of how holiday pay is calculated, including exactly which pay elements (such as commission or overtime) are included or excluded
• details of any holiday carried over from previous years
• any payments made in lieu of holiday, such as pay for accrued but untaken holiday on termination

These records must be accurate, accessible and retained for at least 6 years from the date they were made. Although there is no prescribed format and employers can use digital systems or paper, the records must be detailed enough to justify 52-week average calculations for workers whose pay varies.

Without clear and accurate records of holiday entitlement, leave taken and holiday pay calculations, employers may struggle to defend claims and could also face penalties from the FWA.

What employers should do now

The practical lessons from Littlewood are clear. Employers should:

• review holiday pay policies and procedures to ensure compliance
• review holiday pay calculations to ensure all elements of normal remuneration are included; in some cases, the simplest and lowest-risk approach may be to include all voluntary overtime earned over the previous 52 weeks
• check that holiday pay is clearly identified on payslips and that payroll codes are intelligible
• audit existing systems against the new record-keeping requirements
• ensure holiday request decisions are consistent and communicated to workers in good time

A proactive review now will put employers in a stronger position to comply with the new record-keeping regime, reduce the risk of holiday pay claims and avoid the evidential problems highlighted in Littlewood.