Tens of thousands of businesses in North East with payroll should prepare for April 6 – R-Day

Julie Gunnell of Azets

From that date, businesses must keep accurate records of holiday entitlement, holiday pay calculations and annual leave processed through payroll for six years

It’s being called R-Day – and every business with payroll systems in and around Durham could face criminal prosecution if they fail to abide with strict new compliance rules.

From April 6, dubbed Records-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,” said Julie Gunnell, Associate Director of Payroll Growth at Azets, a regional accountancy and business advisory firm with offices in Durham, Newcastle and Teesside.

“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.”

Julie added: “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.

Julie said: “The legal risk is clear – failure to maintain records may now constitute a criminal offence, not just a civil violation.”

H-J Dobbie, Azets’ Head of HR Consultancy, said: “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 upon 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 latest annual business activity figures from the Office for National Statistics, as of March 2025, there were 2.73 million VAT and/or PAYE businesses in the UK, with 73,000 (2.7%) in the North East.

Azets’ recommended 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.

The compliance recommendations are the latest from Azets.

In the run-up to Christmas, the firm reminded firms in the hospitality and service industries to comply with tipping legislation - 100% of tips must be shared with staff.

Last summer Azets highlighted a government name-and-shame list of hundreds of employers in the UK which left workers £7.4m out of pocket by failing to pay the National Living and National Minimum

Wage - businesses faced financial penalties for underpaying staff on wages by as little as 3p a week.

Furthermore, the firm warned this January that businesses in the UK have just weeks left to prepare for the introduction of the FWA.