How to Cash Out Annual Leave by Agreement With Your Employer

Can you cash out annual leave instead of taking time off?

Yes, but only when the rules covering your employment allow it and you and your employer agree. Cashing out annual leave means receiving payment for part of your accrued paid annual leave instead of taking that part as paid time away from work.

The National Employment Standards set important safeguards. A cash-out must not leave you with less than 4 weeks of accrued paid annual leave, each cash-out must be covered by a separate written agreement, and you must receive at least the full amount you would have received if you had taken the leave.

An employer cannot force or pressure an employee to make, or not make, an agreement to cash out annual leave.

Check which workplace rules apply to you first

The procedure differs depending on whether you are covered by a modern award, an enterprise agreement, or neither.

If you are covered by a modern award

Most modern awards allow annual leave to be cashed out, but not every award does. Check the award that applies to your occupation or industry before making a request.

Under most awards, the employee must retain at least 4 weeks of accrued annual leave after the cash-out. Each cash-out requires a separate written agreement. The agreement generally records the amount of leave being cashed out, the amount to be paid and the date the payment will be made.

Most awards also impose a maximum of 2 weeks of accrued annual leave that can be cashed out in any 12-month period. Because the exact clause depends on your award, check the current award rather than assuming this limit applies identically in every workplace.

If you are covered by an enterprise agreement

Annual leave can be cashed out under an enterprise agreement only when that agreement allows it. Read the agreement's annual leave provisions before asking your employer to cash out leave.

The Fair Work Act requires any permitted cash-out term to protect a remaining balance of at least 4 weeks, require a separate written agreement for each cash-out, and ensure payment of at least the full amount that would have been payable if the employee had taken the leave.

If you are award and agreement-free

An award and agreement-free employee can agree directly with their employer to cash out a particular amount of accrued annual leave. The agreement must be in writing, the employee must retain at least 4 weeks of accrued annual leave, and the payment must be at least what the employee would have received if they had taken the leave.

How much annual leave must remain?

You must have at least 4 weeks of accrued paid annual leave remaining after the cash-out. This is a core safeguard under the Fair Work Act.

For example, if you have exactly 4 weeks of accrued annual leave, you cannot cash out any of it under these rules because doing so would reduce your balance below 4 weeks. If you have 6 weeks accrued and your applicable workplace instrument permits it, the maximum potentially available under the four-week rule is 2 weeks, although your award or enterprise agreement may impose an additional restriction.

Can you cash out more than two weeks?

Under most modern awards, no more than 2 weeks of accrued annual leave can be cashed out in any 12-month period. An award or registered agreement can set limits on both the amount of leave and the timeframe for cashing it out.

The two-week limit should not be treated as a universal rule for every employee. Check your specific award or enterprise agreement. Award and agreement-free employees are governed by the Fair Work Act requirements, including the requirement to retain at least 4 weeks, rather than automatically by the two-week limit found in most awards.

What must be in the written agreement?

Each particular amount of annual leave being cashed out must be covered by a separate written agreement. You cannot rely indefinitely on a single general agreement authorising future cash-outs.

Under most award cash-out clauses, the written agreement states:

• the amount of accrued annual leave being cashed out
• the payment to be made for that leave
• the date on which the payment will be made
• the employee's and employer's signatures
• the parent or guardian's signature if the employee is under 18.

The Fair Work Ombudsman provides an Agreement to cash out annual leave template. The employer must keep a copy of the agreement as an employee record and record the payment rate and when the payment was made.

How much must your employer pay?

The payment must be at least the full amount you would have received if you had taken the leave rather than cashing it out.

This rule prevents a cash-out agreement from being used to exchange annual leave for a reduced payment. The applicable award, enterprise agreement and your employment conditions should be checked when determining what would have been payable for the leave.

How do you request an annual leave cash-out?

Start by checking your leave balance and the award or enterprise agreement that applies to you. If cashing out is permitted, decide how much leave you want to cash out while preserving the required minimum balance and complying with any applicable annual limit.

You can then ask your employer whether they agree. Cashing out is based on agreement: an employee cannot unilaterally require the employer to cash out leave, and an employer cannot force or pressure the employee into doing it.

If both sides agree, put the arrangement in writing before the leave is cashed out. The Fair Work Ombudsman's template can be used where appropriate, or the applicable award may contain an example agreement.

Can your employer make you cash out annual leave?

No. The Fair Work Ombudsman states that it is unlawful for an employer to force or try to force an employee to make or not make an agreement to cash out annual leave. Modern award provisions also refer to the Fair Work Act protection against undue influence or undue pressure.

If pressure about cashing out leave is connected with adverse action or another workplace-rights issue, the rules may extend beyond annual leave. See how to make a general protections claim without being dismissed. If employment has already ended because of a prohibited reason, see the separate procedure for general protections after dismissal.

Is cashing out the same as receiving unused leave in final pay?

No. A voluntary cash-out while you remain employed is different from payment of unused annual leave when employment ends.

When employment ends, an employer must pay accumulated unused annual leave as part of the employee's entitlements. The payment must be the amount the employee would have received if they had taken the leave during employment, including annual leave loading where it would have applied. If you think final pay is missing after your employment ends, see how to check and recover missing final pay.

Keep the agreement and check your leave balance

Keep your copy of the written cash-out agreement and check the payment against what was agreed. Your leave balance should also reflect the amount of annual leave that was cashed out.

Employers have record-keeping obligations. Where annual leave can be cashed out, the employer must keep a copy of the agreement and a record of the payment rate and when the payment was made.

Annual leave does not accrue for a period of annual leave that has been cashed out, because the employee is receiving payment instead of taking that period of leave.