Under Section 61 of the Holidays Act 2003 an employee may request the employer to cash out an alternative holiday. This request may be made only if 12 months have passed since the employee’s entitlement to the alternative holiday arose and they haven’t taken the alternative holiday.
You must pay the alternative holiday out at the rate of relevant daily pay (RDP) or if that cannot be determined you can use the average daily pay (ADP) method.
How to cash out Alternative Holidays
Cashed up alternative holiday is a lump sum payment and is treated as an extra pay with Pay as You Earn (PAYE) tax deducted accordingly. You would first create a new pay run, then find the employee that wants to cash out their leave. Next, click on their name to expand the pay run record and click on the Actions button and click the Add Lump Sum Payment button.
In the line that appears, choose the Alternative Holidays Cash Out pay category, then enter the number of hours to be cashed out, and click the Save button. It will automatically create the leave adjustment entry to reduce the employee’s balance and it will calculate the rate of RDP or ADP whichever the employee is set to on their Pay Rates screen, for paying the leave cash out.
A validation to make sure the employee has enough alternative leave entitlement that is 12 months or older will occur, as they cannot cash out leave that has been accrued less than 12 months ago. If you enter more hours for the cash out than the employee has in their entitlement, a warning will pop up indicating how many hours the employee has available to cash out. You will need to reduce the hours accordingly before you can save the entry.
Note that any alternative holiday balance entered as an opening balance will need to be checked manually to determine if it is older than 12 months as the system has no way of knowing when that alternative holidays was accrued.