Time off records will be kept for six years
Firms need to abide by strict new compliance rules on employees’ time off, write JULIE GUNNELL and H-J DOBBIE
It’s being called R-Day or Records-Day – and any business with payroll systems in Scotland could face criminal prosecution if they fail to abide with strict new compliance rules. From R-Day, they must centrally retain accurate records of holiday entitlement, holiday pay calculations and annual leave processed through payroll for six years.
Robust systems must be implemented so that records are securely stored and easily accessible to authorised staff, whether digitally or physically.
Many businesses won’t see this coming – it’s a bolt out of the blue.
R-Day is a wake-up call. Employers need clear protocols for record access and ownership. If the Fair Work Agency (FWA) comes knocking and records are fragmented across HR and payroll, it becomes an admin emergency.
This legislation is a game-changer – it ensures HR and payroll teams work collaboratively, rather than maintaining separate records, to create a single source of truth. Without this alignment, businesses risk compliance failures and potential criminal prosecution for worker exploitation.
The FWA launches in April with enforcement powers to inspect premises, demand records, and impose unlimited fines or criminal sanctions for non-compliance.
Government research highlights the scale of the issue: 900,000 UK workers annually have holiday pay withheld, worth £2.1 billion, and nearly 20% of minimum wage workers are underpaid.
With enforcement powers, the FWA can inspect business premises, demand production of records and impose criminal sanctions and unlimited fines for non-compliance.
The legal risk is clear – failure to maintain records may now constitute a criminal offence, not just a civil violation.
Records must show the amount of leave taken and how holiday pay was calculated, especially including variable pay components like overtime and commission and holiday paid in lieu on termination of employment.
HR and payroll will need to work together to ensure adequate records are maintained and not assume that one or either is doing so – HR typically manage holiday entitlement, while payroll will manage the pay element.
Employers must have defensible, documented evidence of holiday pay compliance – even after employees leave – to withstand FWA or employment tribunal scrutiny.
According to the annual business activity figures as of March 2025 from the Office for National Statistics there were 2.73 million VAT and/or PAYE businesses in the UK, with 173,000 (6.3%) in Scotland.
Rcommended actions for employers:
- Audit existing records – ensure holiday entitlement and pay records comprehensively track leave taken, pay calculations, and all variable pay elements.
- Implement or update systems – use electronic systems to securely store these records for six years, whether created before or after 6 April 2026.
- Train HR and payroll teams – clarify what’s adequate; they need to know the FWA may request leave logs, payslips with holiday pay breakdowns and the basis for variable pay calculations.
- Review compliance policies – update internal record-retention policies to reflect the six-year statutory requirement and establish record destruction schedules thereafter.
Julie Gunnell is associate director of payroll growth and H-J Dobbie is head of HR consultancy at Azets
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