Employees are encouraged to cash out annual leave in order to rest and create a better work-life balance. To support this, research has indicated that people who do not cash out annual leave experience higher levels of work-related stress, are more dissatisfied in their job, and are more fatigued causing lower performance levels and less productivity. It is advised that employers encourage their employees to utilise their annual leave for a happier and more productive workplace.
However, employees have the right to apply to cash out their annual leave, as per the Industrial Relations Act 1999 (Qld) (IR Act). If an employee wishes to cash out a portion of their annual leave, the employers must discuss with the employee a number of relevant factors with the employee’s preferences for cashing out.
What is “cashing out”?
The term “cashing out” is where an employee is able to receive payment instead of using their paid time off, or receive payment for unused annual leave. For some awards and agreements, there is a general agreement to cash out annual leave and it is therefore recommended that you check your award or agreement to see if you are covered.
Cashing out annual leave means an employee receives payment instead of taking time off work. Some awards and registered agreements allow annual leave to be cashed out, so check the award or registered agreement that covers your employee. Recognition and agreement-free employees may agree with their employer to cash out annual leave at any time.
The Fair Work website provides more information about whether your leave can be cashed out.
What are the Fair Work rules surrounding cashing out?
According to the Fair Work Act, the below rules apply when an employee is requesting to cash out their annual leave:
- The agreement must be in writing each time the employee cashes out annual leave.
- The employer must pay the employee the same amount if the employee had taken leave.
- The employee must have at least 4 weeks left in their leave balance after cashing out.
- The employer must not force or place any pressure on the employee to cash out annual leave.
To find out more information about an employee’s eligibility to cash out, click this link to be sent to the award and agreement-free wages and conditions page on the Fair Work website.
The below will also apply to those employees who are under an award:
- There must be a maximum of 2 weeks of paid annual leave cashed out within any 12-month period; and
- The written agreement from the employer to the employee must also:
- be signed by both parties;
- specify the amount of leaving being cashed out and also the payment for this leave,
- identify the date the payment will be made; and
- (if the employee is under the age of 18) be signed by a parent or guardian.
Legal advice
Having a strong understanding of your rights under the Fair Work Act and other legal awards is advised for every employee. This ensures that you and your employer are meeting employment legal obligations. If you would more information to consider cash out annual leave tax implications or would like to speak to one of our friendly staff here at Legal Kitz, we offer a FREE 30-minute initial consultation with one of our experienced business specialists. You can also get in contact at [email protected] or at 1300 988 954.
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