Your policy might allow some employees to cash out leave, but what about those covered by awards? Here is what has changed and what is now required.


Q. Our company is currently doing its annual review of our policies and procedures. Our question relates to the company’s leave policy. Currently, the policy permits management and professional staff to cash out their annual leave, subject to specific conditions. We understand that this is due to the provisions of the Fair Work Act, which only permit cashing out for specific categories of employees.

Our payroll team receives many enquiries from other employees throughout the year, requesting the cashing out of some of their annual leave balance. Management views this policy as unfair. As an award covers most of our workforce, is it permissible for award-covered employees to cash out a portion of their annual leave? 


A. To cash out annual leave for an award-covered employee in Australia, the employee's specific award must permit it. The employee receives the pay they would have earned if they had taken the leave, and the employer must maintain records of these agreements.

The ‘model’ clause contains the following conditions relating to cashing out of annual leave: 

  • each cashing out of a particular amount of annual leave must be by separate agreement between the employee and the employer. 

  • must be in writing and retained as an employment record.

  • state the amount of accrued leave cashed out and the payment to be made to the employee. 

  • state the date on which the payment is to be made. 

  • be signed by the employer and employee and, if the employee is under 18 years of age, the employee’s parent or guardian. 

  • the employee must be paid at least the full amount that would have been payable to the employee had the employee taken the leave at the time it is cashed out. 

  • cashing out cannot occur if it would result in the employee’s remaining annual leave balance being less than 4 weeks; and 

  • employees may not cash out more than 2 weeks’ accrued leave in any 12 months (this is different to the requirement under the Fair Work Act with respect to award/agreement-free employees). 

 

Award/agreement-free employees 

The Fair Work Act (s.94) provides that 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 a portion of annual leave must be in writing and a separate agreement. The amount is equal to the employee’s base rate of pay that would have been payable had the employee taken the annual leave. 
 

Bottom line 

Cashing out annual leave for an award-covered employee is permitted, subject to the terms of the applicable award. The employer and an award/agreement-free employee can agree to cash out annual leave, subject to the restrictions imposed by the Fair Work Act.