Cashing-Out Leave

Marlin HR enables cashing out leave entitlements using an Adjustment Leave Entry and Adjustment Pay Run.

Under s.92 of the Fair Work Act, annual leave must not be cashed-out except:

• In accordance with the terms of a modern award or enterprise agreement (s.93)
• Or an agreement between an employer and an award/agreement free employee (s.94(1))

Cashing-Out Leave Requirements

Certain requirements apply when cashing-out different types of leave.

Annual Leave

These requirements apply when cashing-out annual leave:

• An employee needs to have at least 4 weeks annual leave left after cashing-out
• A separate written agreement needs to be made each time annual leave is cashed-out
• An employer can't force or pressure an employee to cash-out annual leave
• The payment for cashed-out annual leave has to be the same as what the employee would have been paid if they took the leave instead (inc. leave loading)

Personal and Carer's Leave

These requirements apply when cashing-out personal and carer's leave:

• A separate written agreement is made in writing each time leave is cashed-out
• The employee has a balance of at least 15 days of untaken paid personal and carer's leave left after cashing-out

Long Service Leave

Some Australian states prohibit the cashing-out of long service leave:

• make sure you are familiar with local legislation before proceeding

Superannuation

Unlike leave paid out on termination, which is not OTE and doesn't attract super:

• Leave cashed-out while an employee is still working counts as OTE (Ordinary Time Earnings), so superannuation must still be paid on it

Taking Time Off As Well

If an employee is cashing-out some leave as well as taking some time off, each component must be treated separately.

Leave taken as time off will affect working hours and should therefore be processed as a normal leave entry on their normal pay run.

Cashing-out leave does not affect working hours and should therefore be processed separately, as described below.

Cashing-Out Leave

Cashing-out leave can be processed using an Adjustment Leave Entry and an Adjustment Pay Run.

This can be performed at any time and does not need to align with a normal pay run.

Adjustment Leave Entry

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To add the cashing-out adjustment leave entry:

• Open the Leave Entry module (Main > Leave Entry)
• Open the relevant employee in Edit mode

• Click the Add drop-down at the top
• Select Adjustment Leave or Cash-In Leave

In the Add New Adjustment Leave pop-up that opens:

• Leave Type: Select the leave type being cashed-out
• Current Entitlement: Displays the employee's current balance for the selected leave type
• Cash-In Leave Hours: Tick
• First Day Of Leave and Last Day Of Leave: Adjusted automatically
• Reason For Leave: Optionally enter a reason for cashing-out the leave
• Pay Leave Loading: Tick if paying loading on the leave being cashed-out
• Pay Leave Up-Front: Leave unticked
• Hours To Be Taken: Enter the number of hours being cashed-out
• Reduce Balance / Increase Balance: Tick Reduce Balance to subtract the hours from the accrued leave
• Click Ok

If the selected hours entered exceed the employee's current balance, you will be asked whether reduce them to the current balance:

• Respond Yes to reduce the hours
• Or No to retain the entered hours and allow the balance to become negative

Adjustment Pay Run

To initialise the adjustment pay run:

• Open the Pay Run module (Payrun > Payrun Processing)
• Set Type of Payrun to Adjustment Pay
• Enter the Date Paid of the adjustment pay run
• Enter the same Super Paid By as the original pay run
• Select the employee(s) cashing-out leave
• Confirm a red Yes appears in the Leave Pending column for those employees
• Click Initialise

Adjustment Pay Details

To review the pay run details:

• Double-click on the employee
• Check the paid leave hours match the Adjustment Leave Entry
• Adjust tax if required by clicking the Tax field then Tax Adjustment
• Click Save

If the details are correct, click Finalise to process the pay run, as usual.

See the Adjustment Pay Runs help guide for help generating and sending Adjustment Pay Advices.

Tax Adjustments

If the cashed-out amount is small, the tax calculated on it may be small or even zero.

This happens because the adjustment pay run doesn't know the employee already received normal pay for that period, so it may apply some or all of the tax free threshold again.

To avoid the employee being undertaxed and facing a tax bill at year end, you may want to manually increase the tax deducted.

To adjust the tax:

• Click on Tax Amount in the This Pay column
• Click on Tax Adjustment on the right
• Click on the Edit button below

In the Employee Tax Adjustment pop-up that opens:

• Enter the Amount to increase the tax by
• Select Add Tax
• Click on Ok