October 22, 2019   |   Tips

Cashing out annual leave

When an employee cashes out annual leave they receive a payment for the annual leave instead of taking it as time off work.

Rules for the cashing out of annual leave can differ depending on whether an employee is on an award, registered agreement or common law contract.

Minimum cashing out annual leave rules

To cash out annual leave for an employee, the following minimum rules apply:

  • The employee must have at least four weeks annual leave leftover after the cash out;
  • The payment for the cashed out annual leave must be the same amount as what the employee would have been paid if they took the leave;
  • A written agreement needs to be made each time annual leave is cashed out; and
  • An employer can’t force or pressure an employee to cash out their annual leave entitlements

If an employee is on a common law contract, only the above requirements apply. If an employee is on an award or registered agreement, additional steps are involved as stated in the following sections.

Cashing out annual leave for award-based employees

To cash out annual leave for employees under an award, all of the above minimum rules apply, along with the following;

  • A maximum of only two weeks can be cashed out in any 12 months; and
  • A signature must be obtained from parents or employees under the age of 18 years

Cashing out annual leave for agreement-based employees

If cashing out annual leave for employees under a registered agreement, you must take the following into consideration;

  • Whether or not the registered agreement allows for annual leave to be cashed out (to find your registered agreement, go to the Fair Work Commission website here);
  • The above minimum cash out rules; and
  • The maximum limit of how much annual leave can be cashed out as stated in the registered agreement

For more information on cashing out annual leave, visit the Fair Work website.

Definitiv makes the process of cashing out leave and other accruals simple and quick. Find out more about our payroll capabilities here.