Cashing out annual leave is becoming a popular practice in many workplaces. Cashing out annual leave means an employee receives monetary payment instead of taking time off work.

Some employees choose this option because they have excessive leave accruals. 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.

Cashing out arrangements may be in your company’s internal annual leave policy. It aligns with your modern Award or registered Agreement.

Most modern Awards include a cashing out provision. These have specific rules around cashing out annual leave. These provisions include:

  • An employee needs to have at least 4 weeks’ annual leave left over after cashing out their annual leave entitlement.
  • A written agreement is required 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 must be the same as what the employee would have been paid if they took the leave. This includes any applicable leave loadings. Employers are also required to pay super contributions as normal.
  • Employees cannot cash out more than two weeks’ annual leave in a twelve month period.

As an employer, you should encourage your employees to enjoy a work life balance. Taking annual leave for some well-deserved R&R is an important way to achieve this. Research suggests that taking annual leave for a holiday can:

  • boost workplace productivity
  • improve mental health
  • extend a person’s life.

When you know all this who wouldn’t want to take their leave?

Taking annual leave benefits employee health. Even so, employees have the right to request to cash out their annual leave if they meet the requirements.

Everyone’s circumstances are different. Some employees may want to cash out their annual leave for various reasons. These include meeting financial commitments or reducing other stressors.

Managers and business owners must decide whether to appove an application. Factors to consider include:

  • What are the employee’s leave accrual entitlements?
  • Has the employee already cashed out annual leave in the past 12 months?
  • Is the employee run down and stressed and needing 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.

It is best practice to have an annual leave policy. All these items should be set out in it. Employees then know the rules and process for cashing out annual leave.

If you need advice about cashing out annual leave or creating an annual leave policy, give HR Gurus a call on 1300 959 560. One of our highly-experienced Gurus will be able to help.

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