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Cashing out annual leave

Cashing out annual leave is where an employee is paid the value of annual leave instead of taking the time off work.

First, you'll need to set up a new pay item to include cashed out annual leave in an employee's pay. This ensures the cashed out annual leave is clearly displayed on the employee's pay slip and it'll be reported correctly to the ATO. It also ensures the employee's annual leave balance is reduced accordingly.

You can then pay the employee for the leave they're cashing out. To keep things simple, we recommend paying the cashed out annual leave in a separate pay (instead of adding it to their regular pay).

Check the rules

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    Superannuation Guarantee contributions are typically paid on cashed out annual leave.

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    Leave entitlements are typically not accrued on cashed out annual leave.

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    Check with the appropriate regulatory body about the cashing out leave rules that affect your business. A good place to start is the Fair Work Ombudsman or your accounting advisor.