So your Employee Wants to Cash Out Annual Leave. What now?

Are your team requesting to cash out their annual leave? Before proceeding, it’s crucial to keep in mind some important rules regarding paying out annual leave.

First and foremost, you must review the employee’s modern award to ensure that cashing out leave is explicitly permitted.

While most awards do allow for the payment of excess annual leave, it’s essential to refer to the relevant award for any special regulations that may apply before agreeing to cash out leave.

Here are some common rules to consider when cashing out leave:

  1. The payment for leave must be made at the same rate as if the employee had taken the leave. This means that if leave loading applies, it must be included, and superannuation contributions are always payable on cashed out annual leave.
  2. The employee must still have at least four weeks of leave remaining after the excess amount has been paid out.
  3. You cannot pay out more than two weeks of leave per year.
  4. While leave continues to accrue as usual when an employee takes leave, there is no need to accrue leave on cashed out leave.
  5. It is necessary to have a written agreement with the employee, specifying the number of hours being paid, the total amount, and the date of payment.

Remember to consult the employee’s award first and keep meticulous records of all agreements and calculations made.

How about if you were t direct Employees to Take Excess Leave?

Although you cannot compel an employee to cash out their leave, there are circumstances where you can request that they take leave. Refer to the award for guidance if you have employees who have accrued a significant amount of leave. Some awards permit employers to direct employees to take one week or more of leave if they have accumulated more than eight weeks, provided that you give at least six weeks’ notice and leave at least six weeks of leave remaining.

If you require assistance, we’re here to help. We can review your payroll, leave accruals, and modern awards to ensure effective management of your employees’ annual leave. It’s important to keep track of the leave owing and encourage your employees to take regular breaks for their overall health and well-being.

Feel free to reach out to us if you need any support.

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