How to cash out annual leave in Australia

By Vivian Michael | Employment

How to cash out annual leave in Australia

Photo credit: Raw Pixel, Unsplash

Cashing out annual leave simply means that instead of taking the annual leave, you are paid it.

Now, annual leave cash outs are possible either because of terms included in a modern award or enterprise agreement OR a written agreement between an employer and award or agreement free employee per section 94(1) of the Fair Work Act 2009 (Cth).

Firstly, let's go through the modern award and enterprise agreement terms. 

Award or enterprise agreement

Whenever your employees request to cash out annual leave, they will need to follow the rules in any award or enterprise agreement that applies.

So, what are the rules for an annual leave cash-out?

  • no cash out if it means paid left over annual leave will be less than 4 weeks for the employee; and 
  • write up a separate written agreement for each cash out; and
  • pay the employee the full amount as if they took leave.

Now, let's consider our second group of employees - the award and enterprise agreement free employees, you'll need written agreements for these workers. 

Written agreements

So, we know the written agreement to cash out annual leave are for award and enterprise agreement-free employees. 

And, the annual leave cash out agreement with your workers should include these items:

  • amount of leave to cash out; and
  • payment to the employee; and
  • date of payment; and 
  • signatures of the employer and employee, and, if the employee is under 18, their parent or guardian’s signature.

Template agreement

Finally, do you need some help with preparing an agreement? here's some guidance from the Fair Work Commission for what should go into the agreement.


About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to entrepreneurs launching in Australia that would otherwise DIY, rely on legacy contracts or go without.

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