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Can you cash out your annual leave? Yes you can!

A recent reform via the Fair Work Commission has seen a major change to the way cashing out of annual leave is treated. For those who don’t know, “cashing-out” means an employee can receive their annual leave as a lump sum payment whilst still working i.e. instead of taking time off work. So how does this work and what does it mean for those affected?

What you need to know about cashing-out annual leave

  • Once you’ve agreed to allow your employee to cash-out annual leave, you must put this in writing. The agreement must include the amount to be paid, on which date and the number of hours to be taken.
  • Employers cannot force employees to cash-out leave, however, they will receive greater powers to enable them to “encourage” those employees who have large amounts of annual leave to use some of it.
  • Cashing-out is only allowed if it is part of the employee’s award or registered agreement. To find out if your award allows cashing-out, go this Fair Work page.
  • An employee must have 4 weeks of annual leave left after the cash-out to be eligible.
  • An employee cannot cash-out more than 2 weeks annual leave per 12 months.
  • These changes regarding cashing-out begin from the first pay period on or after 29th July 2016.

My thoughts on cashing-out

Well, depending on which side of the fence you’re on, cashing-out annual leave may or may not be a good idea.

First, let’s look at it from the employer’s point of view.

Employers are under enormous pressure financially in terms of payroll liabilities and as an employer myself, I know how difficult it can be. To add the cashing-out option into the mix can only add to this financial pressure. Not only would the lump sum payment need to be made upon request, but because the employee continues to work, he would also receive his normal pay on top of the cashed out sum – a double whamy for employers! Employers will need to be mindful of this and ensure they have enough funds available should employees request a cash-out. At the same time, this could be a positive thing for employers who have employees with many hour of annual leave accrued. Again, while employers cannot force employees to cash-out their leave, this new reform could open the door to better conversations between employer and employee regarding taking leave i.e. the cashing-out reform now provides more options regarding handling employee leave accruals.

Now let’s jump over to the other side of the fence and see what this could mean for employees (in my opinion, of course!)

If you’re an employee and you have to option to cash-out leave, this could be great financially. Imagine being able to receive 2 weeks cashed-out leave on top of your normal pay – win-win! This could be a real boon in times of need. On the other hand, I think employees need to be careful that they don’t swap all of their leave for the dollars just because they can. Why? Because everyone needs a break from work from time to time. It’s not healthy to keep on working non-stop – no amount of money is worth your sanity. I guess that’s why you can only cash-out leave if you have 4 weeks leave up your sleeve after the cash-out (smart thinking by Fair Work!).

So that’s my 2 cents worth. Only time will tell if this new reform will work. I’m sure we’ll hear all of the stories in future – the good, the bad and the ugly!

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