Cashing out of annual leave

Travel restrictions due to COVID-19 meant that many Australians couldn’t take their usual annual overseas/interstate trips. This resulted in high leave accruals and some employees have wondered whether they can cash out some of that leave.

Cashing out under an award

Awards allow an employee and an employer to agree to a particular amount of accrued annual leave to be cashed out by the employee.

The requirements to cash out under an award are:

• the agreement must be in writing;
• each amount of leave which is cashed out must be agreed to separately;
• the agreement must state the amount of leave to be cashed out and the payment to be made to the employee;
• the payment must be equal to the amount that would have been payable had the employee taken the leave at the time the payment is made;
• an agreement must not result in the employee’s remaining entitlement to annual leave being less than 4 weeks;
• the maximum amount of accrued annual leave that may be cashed out in any 12-month period is 2 weeks.

The employer must keep a copy of any agreement to cash out. If the employee is under 18 years of age, the agreement must be signed by a parent or guardian.

An example of the type of agreement that can be reached is available at this link.

Cashing out under the Fair Work Act

The rules for the cashing out of annual leave under the Fair Work Act are similar to the rules under awards, except there is no limit to how much annual leave can be cashed out by agreement. This means that employees who are not covered by an award which contains cashing out provisions, can cash out more than 2 weeks in a 12-month period. However, an employee must keep 4 weeks of remaining annual leave in their accruals.