How to respond to a request to cash out annual leave

Commencing from the first pay period of on or after 29 July 2016, the Fair Work Commission has handed down a decision that now changes the rules relating to cashing out annual leave. In certain circumstances, an employer and employee can now agree to have excess leave paid out to the employee, in lieu of time-off.  This is called ‘cashing out’.

However, it is unlawful for an employer to force (or try to force) an employee to make (or not make) an agreement to cash out annual leave.

An employee is eligible to cash out annual leave if:

  • the business at which they are employed operates under an Enterprise Agreement (Agreement) that specifically has clauses that permits this arrangement;
  • there is provision for cashing out in a Modern Award (Award); or
  • the employee is award free and enters into an arrangement with their employer to cash out annual leave.

However, as an employer, you must comply with the below conditions in relation to any arrangement reached with your employees to cash out annual leave:

  • each cashing out of a particular amount of accrued paid annual leave is a separate agreement between you and the employee;
  • that agreement must be in writing and retained as an employee record;
  • the agreement must state the amount of accrued leave to be cashed out and the payment to be made to the employee, as well as the date on which the payment is to be made;
  • the agreement must be signed by you and the 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 that it is cashed out (including leave loading, if that would have been paid);
  • the employee must retain a minimum of at least 4 weeks accrued leave after cashing out, and;
  • employees may not cash out more than two weeks’ accrued annual leave in any 12-month period.

To find your employees’ registered agreements, visit the Fair Work Commission website at  If your employees are covered by a registered agreement, you can check it for information on whether leave can be cashed out.

If you have an employee seeking to cash out annual leave or would like to discuss the above, please contact McLaughlins Lawyers for friendly expert advice as to your options.

Author: Zion Saint

Partner: Ian Kennedy

Date: 15/09/2016