Cashing out annual leave may be desirable for some employees. This could be for various reasons, including cash flow problems or personal commitments preventing employees from taking annual leave. On the other hand, Covid-related border and travel restrictions have limited the ability to travel, resulting in accrued but unused annual leave balances for many employees. The Fair Work Act 2009 (Cth) (the Fair Work Act) allows some employees to cash out their annual leave in certain circumstances. This article examines these circumstances by providing an overview of the legal position. It will also assess how cashing out annual leave may affect employees and employers.
Legal Position on Cashing Out Annual Leave
Cashing out annual leave refers to the process of an employee receiving a lump sum payment from their employer in lieu of the time they would have taken off work.
Some modern awards and registered agreements contain provisions allowing employees to cash out annual leave. However, these modern awards and registered agreements may also place limitations on the amount of annual leave an employee may cash out and the timeframes for doing so.
The Fair Work Act
The Fair Work Act allows for the cashing out of annual leave. Relevant employees may come to an agreement with their employer to cash out their annual leave.
If your employee is permitted to cash out their annual leave, the following terms will apply:
- the employee’s annual leave balance cannot drop below four weeks;
- any payment for the cashed-out annual leave must be the same amount the employee would have received if they took the annual leave normally;
- an employer cannot force or place any pressure on an employee to cash out their annual leave;
- there must be a written agreement covering the cashing out of annual leave between the employer and employee; and
- the employer and employee must agree to the amount of cashed-out leave on each separate occasion.
The following additional terms apply for most employees under an award:
- a maximum of 2 weeks’ paid annual leave can be cashed out in any 12-month period;
- the written agreement between the employer and employee must:
- be signed by both parties;
- specify the amount of leave being cashed out and the payment for this leave;
- confirm the date payment will be made; and
- be signed by a parent or guardian if the employee is under 18 years of age.
Impact on Employees
If your employee is considering cashing out an accrued annual leave balance, they must fall under a modern award. If your employee is unsure about this, you can direct them to the Fair Work Ombudsman’s (FWO) find my award tool. The FWO has useful information on the relevant provisions in modern awards that allow for the cashing out of annual leave.
Continue reading this article below the formImpact on Employers
As an employer, be aware of any awards that may apply to your employees. Likewise, determine whether those awards contain the relevant cashing out provisions.
Employers should also understand their rights and obligations when cashing out an employee’s annual leave, including maintaining records of any cashing out arrangements. It is important for employers to keep a copy of any agreements made with employees.
Additionally, it is unlawful for an employer to force or pressure an employee to cash out their accrued annual leave. In particular, the Fair Work Act contains general protections which prevent employers from exercising undue influence and misrepresentations.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
The Fair Work Act and any relevant awards allow for the cashing out of annual leave. Having a firm understanding of your rights and obligations will ensure you can meet your legal obligations. Employees need to understand their rights under the Fair Work Act and any relevant award, and employers need to be mindful of their interactions with employees about this issue.
If you require further assistance with the cashing out of annual leave, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
The Fair Work Act allows for the cashing out of annual leave. Employees under an award and agreement-free employees may come to an agreement with their employer to cash out their annual leave.
Employees can cash out a maximum of 2 weeks’ paid annual leave in any 12 month period. However, the employee’s annual leave balance cannot drop below four weeks.
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