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When Can Employees Cash Out Their Annual Leave?

When Can Employees Cash Out Their Annual Leave?

Employees sometimes 'cash out' their annual leave. This is when an employee receives a payment instead of taking time off work.

14th January 2021
Reading Time: 2 minutes

What is Cashing Out?

Employees sometimes ‘cash out’ annual leave. This is when an employee receives a payment instead of taking time off work.┬áThis leave is paid out when employment ends, however employees may sometimes still be able to receive extra compensation for untaken leave during employment. Employment awards and registered agreements are documents which set many of the entitlements for employees in different industries. Cashing out annual leave will need to be an included term of these documents for employees to take up this option up. The Fair work commission website has a list of awards and agreements which have cashing out terms.

When cashing out annual leave there are certain rules that apply:

  1. An employee needs to have at least 4 weeks annual leave leftover
  2. Each time annual leave is cashed out there must be a written agreement.
  3. An employer can’t force or pressure an employee to cash out annual leave
  4. The payment for cashed out annual leave has to be the same as what the employee would have been paid if they took the leave.

The National Employment Standards (NES) outlines annual leave for employees. This system covers all employees, except casual workers. It entitles you to a minimum of four weeks paid annual leave each year and five weeks to certain shift workers. If you need help with Annual Leave for your company, check out our policy.

The Fair Work Commission has only recently allowed cashing out to occur. Before it’s current position cashing out was difficult to do because it was viewed as exploitive. Nowadays most modern awards include cashing out.

From the Employers Perspective

The employer will need to produce a written agreement for each time cashing out occurs. The agreement must include:

  1. The amount of annual leave paid.
  2. The date of payment.
  3. Have signatures from both parties.

If there is an employee under 18 years of age must have a signature by a parent or guardian.

The decision to cash out is the employees’ and an employer must ensure this is not influenced. To ensure compliance with NES, be vigilant when discussing this option with employees to ensure it is not received as pressure or coercion. 

Why Cash Out Annual Leave?

COVID-19 has thrown a spanner in the works of many workers holiday plans and ideas. The ability to travel overseas has become near impossible, firstly because of the international restrictions, secondly because flights have become scarce and expensive, and thirdly because the of high risk of getting infected.

Cashing out is an appealing option if COVID has had a negative impact on you financially. Cashing out may be the perfect option financially as it allows a lump sum payment to made. The payment can help with small debts and outstanding bills and because travel and holidays are difficult it is an opportunity to get on-top of things.

Cashing out all your leave at once may impact your mental health and wellbeing. It may be ideal to take a small amount of time off to recoup and regather and cash out the remaining leave. Taking time away from work and spending it on family, friends and yourself is often more important to your ability to perform in your role.

Author
Connor Barham

Connor is a legal intern at Lawpath. He has a double degree in Law and Business from UTS. Connor is interested in how technology can disrupt and change professional services to make them more accessible to small businesses.