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Cashing out annual leave

Cashing out annual leave is becoming a popular practice in many workplaces.  Some employees choose this option because they have excessive leave accruals while others choose to cash out annual leave to help pay for a tropical getaway.  Whatever the reason here are some tips on how to manage cashing out annual leave in your workplace.

You may have this as part of your internal annual leave policy aligned with your modern Award or registered Agreement.  Cashing out annual leave means an employee receives monetary payment instead of taking time off work.

Most modern Awards include a cashing out provision with specific rules around cashing out annual leave.

  • An employee needs to have at least 4 weeks annual leave leftover once they have cashed out their annual leave entitlement.
  • A written agreement needs to be created each time annual leave is cashed out. The agreement must state the amount of leave to be cashed out and be signed by both the employer and employee.
  • The payments for cashed out annual leave has to be the same as what the employee would have been paid if they took the leave, this includes any applicable leave loadings. You are also required to pay super contributions as normal.
  • Employees cannot cash out more than two week’s annual leave in a twelve month period.

As an employer, you should encourage your employees to enjoy a work life balance, one important way is through taking annual leave for some well-deserved R&R.  Research suggests that taking annual leave for a holiday can boost workplace productivity, improve your mental health and extend your life.  When you know this who wouldn’t want to take their leave?

Despite the health benefits of taking annual leave, employees have the right to request to cash out annual leave if they meet the above criteria, as outlined in their Award. Everyone’s circumstances are different and some of your employees may have financial commitments or other stresses that require them to apply to cash out their annual leave. As a manager or business owner you need to consider a number of factors when considering cashing out annual leave applications:

  • What are the employees leave accrual entitlements?
  • Has the employee already cashed out annual leave in the past 12 months?
  • Is the employee run down and stressed and need some time away from the workplace?
  • What is the current workload for the employee and business?
  • Manage employee leave accruals to avoid excessive leave entitlements.

If you have an annual leave policy in your workplace best practice would suggest have the above outlined in this policy.  Employees then know the rules and process for cashing out annual leave.

If you need advice in regards to cashing out annual leave or creating an annual leave policy give HR Gurus a call on 1300 959 560 and one of our highly experienced Gurus will be able to help.

Written by resident Guru Natalie Bol.

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