Are your staff asking to cash out annual leave? There are some important rules to remember before paying out annual leave.
Firstly, you must review the employee’s modern award to check that cashing out leave is explicitly allowed.
Most awards do allow for excess annual leave to be paid out, and we give you the general rules here – but you need to check the relevant award for special regulations before agreeing to cash out leave.
Common Rules for Cashing Out Leave
- The leave must be paid at the same rate as if the employee takes the leave. That means you must pay leave loading if it applies, and super is always payable on cashed out annual leave.
- The employee must have at least four weeks of leave left available after paying out any excess amount.
- You can’t pay out more than two weeks of leave per year.
- While leave accrues as usual when an employee takes leave, you don’t need to accrue leave on cashed out leave.
- You need to have a written agreement with the employee, stating the number of hours being paid, the total amount and when you will pay it.
- Remember to check the employee’s award first and keep all records and calculations!
You Can Direct Employees to Take Excess Leave
You can’t force an employee to cash out leave, but you can ask an employee to take leave in some circumstances. If you have employees accruing a lot of leave, check the award for guidance. For example, some awards allow an employer to direct an employee to take one week or more of leave if they have more than eight weeks accrued, give at least six weeks’ notice, and leave at least six weeks of leave available.
Remember, annual leave is paid out when an employee leaves your business, so it’s good to keep an eye on how much is owing and not let too much accrue. Also, employees should be taking leave regularly for their health and wellbeing. For more information on cashing out annual leave, visit the Fair Work Ombudsman and Fair Work Commission.
If you need help, talk to us, and we can help you review your payroll and leave accruals to manage employees’ annual leave.
This information does not constitute financial or legal advice and is for general information purposes only. Please contact DLA Partners for specific advice relating to your particular circumstances.