Under certain circumstances, employees may wish to “cash out” annual leave. In these scenarios, the law is very clear that employees are required to be paid the full amount that they would otherwise have been paid.
When “cashing out” annual leave, you are required to pay super contributions as normal.
It's really easy to cash out annual leave and ensure you’re meeting your obligations. To cash out annual leave for an employee follow these simple steps:
- You will need to create a Pay Category and call it "Leave Cash Out". Set the "Units" field to Fixed. This way when you include the pay category (Leave Cash Out), in the pay run, it will not adjust the normal hours that were worked by the employee who is "cashing out".
Also, "cashing out" generally does not accrue leave so by setting the "Units" to Fixed does not allow this pay category to accrue leave. See image below;
- Once the pay category is set up, you will need to create a new pay run and find the employee that wants to cash out their leave.
- Next you need to make sure you apply the leave to the employee’s leave balance, (i.e. deduct the hours cashed out). To do this, click the “Actions –> Adjust Leave”.
- This will create a "Leave Adjustment" line. You will then need to fill out the relevant fields, (see image below). You will need to select "Annual Leave" as the leave category, and in the "Hours" field your will need to put in a minus figure to correspond to the amount of hours being "Cashed Out", (see in the image below we are cashing out 20 hours) and make sure you untick the Apply Earnings Rules box, (if you DO NOT need to pay leave loading), where indicated. Then save.
Once the Leave Adjustment has been created we now need to insert an earnings line to pay the employee. Using the "Actions" button again, select "Add Lump Sum", (see image below).
This will create an earnings line that you will need to fill in according to the amount of leave that is being "cashed out". Firstly, you will see that an "Other Earnings" line has been created. You will then need to select the "Leave Cash Out" pay category, the one we created in step 1.
Then, insert the number of pay periods you want this payment to be spread over. This will adjust the PAYG accordingly.
Enter the the corresponding hours that you entered in as a minus in the "Leave Adjustment" row. Then press save.
More information on Cashing out Annual Leave can be found here
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