Can an employer Cash out Annual Leave at the employee’s request?

The Fair Work Act says that annual leave can only be cashed out under certain circumstances. Those are:

• Where an Award allows for it (note that most Modern Awards now allow for cashing out of annual leave);
• Where an Enterprise Agreement allows for it

For all employees entitled to cash out annual leave the following rules apply:

• Employees can’t cash out more than 2 weeks annual leave in each 12-month period.
• The employee must have at least four weeks annual leave remaining after the cash out.
• The payment for cashed out annual leave must be the same as what the employee would have been paid if they took the leave i.e. including annual leave loading if applicable.
• An employer can’t force or coerce an employee to cash out annual leave
• There needs to be a separate agreement in writing for each occasion that leave is cashed out.       The agreement must be:
  • signed by both the employee and the employer
  • state the amount of leave being cashed out
  • state the amount that will be paid for the leave
  • state the date that the payment will be made; and
  • if the employee is under 18, it must be signed by their parent or guardian.

Employers must keep a copy of this agreement with the employee’s records.

Can you Cash out Sick Leave?

The rules for cashing out personal/carer’s leave (sick leave) are different to annual leave under the Fair Work Act.

Most awards don’t allow sick and carer’s leave to be cashed out. The only 2 awards that allow for it are:

• Timber Award
• Stevedoring Award

Employees covered by a registered agreement can cash out sick leave if the agreement allows it.

Like cashing out annual leave, to cash out personal/carer’s leave there needs to be:

• A separate agreement in writing on each occasion that leave is cashed out; and
• The employee needs to retain a balance of at least 15 days of untaken paid personal/carer’s leave; and
• The employee must be paid the amount that would be received if they had taken the leave.

An employee can’t cash out their built up sick and carer’s leave if these conditions aren’t met.

Other Considerations

Other than the potential fines an employer could receive from Fair Work for cashing out annual or sick leave without meeting the requirements under the Act, employers should also consider the health and safety implications of cashing out leave – should the employee really be taking the leave? This is particularly important in physically or mentally demanding roles – think general managers or production line staff.

For further information about cashing out annual leave and/or personal/carer’s leave, please contact us.