Cashing out of Annual Leave: strict rules apply

Posted On: Wednesday, December 14th, 2016  In: Blog

Cashing out of annual leave:  In August 2016 the Fair Work Commission made a number of important reforms to annual leave for employees covered under Modern Awards. Under the new reforms employees who fall within most of the 122 Modern Awards can now cash-out a portion of their accrued annual leave. There are strict rules which need to be followed for cashing out of accrued annual leave. These rules are as follows:

  • Employees can only cash out a maximum of two weeks’ annual leave every 12 months.
  • Employee must always have a remaining balance of 4 weeks after the cashing-out has been processed.
  • Each agreement to cash-out annual leave must be recorded in writing and signed by both parties.
  • The amount paid to the employee must be no less than the amount they would have received had the leave been taken.
  • If an employee is under 18 years old their parent/ guardian needs to sign the agreement.
  • Employers are strictly prohibited form coercing employees to cash-out their accrued annual leave.
  • Along with cashing–out of accrued annual leave employers now have greater power toforce employees to use excessive accrued annual leave, and the ability to grant leave in advance.

Employers have long struggled to manage excessive annual leave. These changes now mean that excess annual leave accruals (more than 8 weeks for most employees) can now be addressed.


Should you take the money instead of a holiday?

cashing out annual leave or take it and recharge on holiday

Leisure time is essential, improves health and productivity!








If an employee has an excessive leave accrual (over 8 weeks of leave), and has had this excessive balance for at least 6 months, then the employee and employer can come to an agreement to take some leave. If an agreement cannot be reached then the employer can direct the employee to take leave subject to the following conditions:

  • the remaining balance of accrued annual leave must be no less than 6 weeks, then the maximum the employer can direct the employee to take is 2 weeks. If the employee has 10 weeks of accrued annual leave then they can be directed to take 4 weeks.
  • the employer cannot direct the employee to take less than a week.
  • the employee must be given 8 – 52 weeks’ notice of when the leave is to be taken.

These new reforms help business better manage annual leave. For assistance with drawing up cashing out agreements, please contact Idana Katz.

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