Cashing-Out Leave

Updated on 13 Mar 2024
4 Minutes to read

Print
Share
Dark
Light
PDF

Article summary

Did you find this summary helpful?

Thank you for your feedback

Is it permissible to cash-out Annual Leave?

Please check your specific circumstances with your employer organisation.

NES

Under s.94 of the Fair Work Act, an employer and an award/agreement free employee may agree to the employee cashing out a particular amount of the employee’s accrued annual leave.

The employee must be left with an annual leave balance of at least four weeks after cashing out has occurred.

Each agreement to cash out an amount of annual leave must be a separate agreement in writing.

The amount is equal to the employee’s base rate of pay payable had the employee taken the annual leave.

Cashing-out of annual leave is permissible where provided for under the terms of a modern award or enterprise agreement.

Modern awards

Section 92 of the Fair Work Act states that annual leave must not be cashed out except in accordance with the terms of a modern award or enterprise agreement, or an agreement between an employer and an award/agreement free employee.

However, the Fair Work Authority has determined that cashing out of annual leave will not be included in the ‘standard’ annual leave clause in modern awards as it may undermine the ‘safety net’ nature of modern awards.

If a modern award (or enterprise agreement) that applies to an employee does not include a cashing out provision for annual leave, cashing out of paid annual leave is not permitted.

Is it permissable to cash-out Long Service Leave?

How do I process a leave cash-out in Marlin HR?

This is where an employer and employee agree to the employee being paid out for some accrued annual leave or long service leave, rather than taking the hours as time off.

As there is no period of leave being taken as time off, we don't want the hours being cashed-out to impact the employee's regular pay like a regular leave entry would.

For this reason, the leave entry is created slightly differently and it is processed on an Adjustment Pay instead of a Normal Pay.

A leave cash-out can be performed at any time as it does not impact the employee's Normal Pay.

Create an Adjustment Leave Entry

Click on Leave Entry on the Favourites bar and open the relevant employee.

Click on the black arrow and select Adjustment Leave or Cash-in Leave.

Enter the Leave Type and tick the Cash-in Leave Hours checkbox (this will grey out the leave dates as none apply).

Enter the number of hours to be cashed-in in the Hours To Be Taken field and select Reduce Balance then click on the OK button to save it.

Note: As there is no leave "period" as such, the system will automatically set the leave dates to the employee's current Paid To date.

Perform an Adjustment Pay

The Adjustment Pay will automatically pick up and pay the Adjustment Leave entry (you will see it in the Earnings section where you see normal leave entries and Standard Hours for example).

Adjust the Tax Amount if required.

If the amount being cashed-out is relatively small, the amount of tax calculated may be small or even zero (in the example below you can see that the Tax amount calculated is only $2).

This is because this Adjustment Pay does not take into account the fact that the employee has already had a Normal Pay for the period and some or all of the tax free threshold has already been taken up.

To prevent the employee being undertaxed on the leave cash-out and receiving a tax bill at the end of the year, you may wish to increase the amount of tax deducted.

To do this, click on the Tax Amount (i.e. $2 in the example below) then click on the Tax Adjustment cell and then on the Edit button.

In the pop-up that is displayed, enter the amount to increase the Tax amount by, select Add Tax and click on OK. The amount you enter will be added to the default amount already there (in the example below, $68 will be added to $2 to make it $70).

Note

If unsure how much tax to apply to the leave cash-out, a quick way of doing it is to multiply the cash-out amount ($368.42 in the example above) by the Factor A tax rate (0.1900 in the example above) to get an amount of $70. Because there is already $2 applied, you would enter $68 on the pop-up to adjust it up to $70.

Finalize the Adjustment Pay.

What if the employee is cashing out some leave AND taking some time off?

Each component must be treated separately.

Leave taken as time off will impact the employee's working hours and should therefore be processed as a Normal Leave Entry on the Normal Pay Run.

Cashing-out leave does not impact working hours and should therefore be created as an Adjustment Leave Entry and be processed on an Adjustment Pay Run (see above).