How to cash out annual leave in Australia

Updated: 8 December 2019

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 employee OR even for employee's that are agreement free: ​s. 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 agreements 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.