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Cashing out annual leave

One of my employees has approached me about cashing out annual leave. Can I do this?

In response to business groups calling for more flexible working arrangements, the Fair Work Commission has recently inserted changes into most Modern Awards allowing workers the right to convert an excess annual leave balance to cash.

Under the new cashing out of annual leave clause now included in 119 Modern Awards, an employee may cash out a particular amount of accrued paid annual leave if the following conditions are met:

  • the employer and employee agree in writing to the cashing out
  • the payment made to the employee must not be less than the amount that would have been payable had the employee taken the leave at the time the payment is made
  • the agreement to cash out annual leave must not result in the employee’s remaining paid annual leave balance being less than four weeks, and
  • the maximum amount of annual leave that may be cashed out in any period of 12 months is two weeks.

Each cashing out of a particular amount of paid annual leave must be the subject of a separate written agreement. The written agreement must:

  • state the amount of leave to be cashed out and the payment to be made to the employee for it
  • state the date on which the payment is to be made, and
  • be signed by the employer and employee and, if the employee is under 18 years of age, by the employee’s parent or guardian.

The employer must keep a copy of the written agreement as an employee record.

The Fair Work Commission has developed a template agreement to cash out annual leave to assist employers and employees:

When discussing requests for cashing out annual leave with employees, employers should remind team members of the value of work/life balance. There’s increasing awareness of the link between overwork and mental health issues in the workplace so annual leave should be utilised for the purposes it is intended…to take a break from work and recharge!

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Note: Bare Bones Consulting provides HR services for employers. Employees seeking advice on workplace concerns should contact the Fair Work Infoline on 13 13 94.