Can annual leave be paid out?
This is a question we’re often asked, and until recently, we said “no” because it wasn’t allowed in Australian Legislation….
But something magic occurred on the 29th July 2016.
Fair Work Commission passed down a decision to allow annual leave to be paid out from the first pay period after the 29th July 2016.
But before you start paying out annual leave, there’s three essential rules you should understand:
- Maximum of 2 weeks paid out per financial year
- Employees keep 4 weeks minimum after payout
- Signed, written agreement each time cashed out
Although this is an exciting opportunity for your employees, as an employer, you can get into some hot water if you don’t follow these rules.
Maximum of 2 weeks paid out per financial year…
If you have an employee who requests their annual leave to be paid out instead of taking it, you can only agree to “cash out” a maximum of 2 weeks per financial year of annual leave to each individual employee who makes the request.
The payment is subject to Superannuation, and where applicable, leave loading and tax the payment at marginal tax rates.
Basically, you should pay the annual leave in the same way as if the employee took the annual leave.
Employees must keep 4 weeks minimum after payout…
You cannot agree to pay out annual leave if, after cashing it out, the employee won’t have a minimum of 4 weeks accrued.
This provision is really there to allow employees with excessive leave the option to “cash out” their balance and also, protect employees with low annual leave balances.
In practice, this will be a benefit for long term employees, and those who tend not to take their full 4 weeks per year as leave.
Signed, Written agreement
You must also give your employees a signed agreement saying that you agree to “cash out” their leave.
In practice, this could be a signed letter on your letterhead. By default, emails therefore aren’t acceptible (unless you attach the signed letter).
Remember also, that you cannot force your employees or lead them to believe they’re being forced to take the cash out option (eg a blanket ‘newletter’ email telling staff to take up the option).
Remember the rules
This new provision provides a valuable opportunity for your staff, and is available in most Awards and is effective from the first period after 29th July 2016.
In the immediate term, it is only applicable to employees with more than 4 weeks annual leave at the time of thier request, and is something to look out for coming into the Christmas period as more requests will inevitably begin to occur!