Cashing out of annual leave – What are the Rules?

Public news

An employee may occasionally, for whatever reason, wish to have some or all of their annual leave cashed out rather than keeping it banked up or physically using it.

From the first full pay period after the 29 July 2016, award employees under the Vehicle Manufacturing, Repair, Services and Retail Award 2010, Clerks Private Sector Award 2010, Road Transport Distribution Award 2010 and others (the Awards) have been allowed to cash out some of their annual leave entitlements.

There are however very strict rules that govern how much leave can be cashed out within a period and also how this agreement must be conducted.

Beginning with how much leave can be cashed out, the Awards allow for:

  • A maximum of two weeks in any period of 12 months;
  • An employee must maintain a minimum of at least 4 weeks accrued annual leave after the cash out has taken place;
  • The payout amount cannot be less then what the employee would have received had they physically taken the leave e.g. if when an employee takes leave they receive the 17.5% leave loading then they must receive this on the payout amount; and
  • Each payout must be encompassed in a separate agreement.
  • A maximum of two weeks in any period of 12 months;
  • An employee must maintain a minimum of at least 4 weeks accrued annual leave after the cash out has taken place;
  • Every agreement must be in a written agreement between the employer and employee; and
  • The employee can’t be paid less than the amount they would have receive had they physically take the leave.

In regards to what an agreement for cashing out annual leave should have contained within it, it should always be in writing and should state:

  • The amount of leave that is being cashed out;
  • The value of this cashed out amount of leave;
  • The date that this agreement is taking place; and
  • Be signed by the employer and employee (where an employee is under the age of 18 they require their parent or guardian to sign instead).

It is very important that a copy of this agreement is kept on the employee’s record.

For non-award employees they can still have agreements for the cashing out of annual leave, however the rules on this are governed by the National employment Standards (NES). The rules surrounding the cashing out of annual leave under the NES are not as descriptive as that found in the awards but it does state the following conditions:

Along with all the above it is important to note that any agreement must be made voluntarily by the employee and an employer is strictly prohibited from exerting any undue influence or duress on the employee to make them agree to cash out.

Employers are also prohibited from knowingly or recklessly, make false or misleading representations to an employee about a workplace right.

Should an employer fail to comply with any of the above safeguards then the Fair Work Act 2009 (Cth) gives power for a penalty to be imposed.

A template for an agreement to cash out Annual Leave is available in the members section of the MTA SA website, or if you have any further enquiries relating to cashing out annual leave then please contact the MTA IR Team on (08) 8291 2000 or email us by clicking here.