Certain rules apply when cashing out annual leave. Follow these HR Expert tips when handling any requests for cashing out annual leave in your company.
How much annual leave do employees accrue?
Annual leave (also known as holiday pay) allows an employee to be paid while having time off from work.
Under the federal workplace laws (National Employment Standards) all employees covered by the national workplace relations system (other than casual employees that do not receive paid annual leave) are entitled to a minimum of four weeks’ paid annual leave each year, or five weeks’ for certain shiftworkers. Annual leave accrues progressively during the year according to an employee’s ordinary hours of work.
Employees covered by federal workplace laws, and most modern awards, allow employees to whom they apply to cash out annual leave in certain circumstances.
What are the rules to cash out annual leave?
- the employer and employee agree in writing to cashing out annual leave;
- the payment made to the employee must not be less than the amount that would have been payable had the employee taken the annual leave at the time the payment is made;
- the agreement to cashing 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.
How do I cash out an employee’s request of annual leave?
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 annual 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. HR Expert has developed a template agreement to record the amount of annual leave cashed out to assist employers and employees. There is no requirement to use HR Expert’s template, but by using this template the employer will meet the requirements under the award for the written agreement.
What is the definition of excessive annual leave?
While the Fair Work Act does not specifically define the meaning of what constitutes an ‘excessive amount of annual leave’, most modern awards provide for a minimum balance of eight weeks’ leave. This may give an indication to an employer in determining a ‘reasonable’ minimum annual leave balance for award/agreement free employees in this circumstance.
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