As part of the Holidays Amendment 2010, there is a provision to allow an employee to have up to one week of current annual holiday entitlement paid out. We have broken this article down into the following sections:
Main points
An employee has the right to request their employer to pay out a part of the employee's entitlement to annual holidays. They must put the request in writing and may only make it on one or more separate occasions until you pay out a maximum of one week of an employee's annual entitlemen in each entitlement year.
You must pay for the leave at the higher of AWE vs OWP just as if the employee were taking the leave. The paid out annual holiday must come from the entitlement year defined as:
- A period of 12 months continuous employment beginning on the anniversary of the employee's employment; and
- Includes a period of 12 months continuous employment.
When cashing out annual holidays, we base it on the current entitlement for the current entitlement year; i.e., available annual holidays entitlements for the current entitlement year. You cannot take it out previous years, annual entitlements, or future entitlements/accrual amounts.
For example, an employee's anniversary date is 1st September. Four weeks, annual holidays kick in on 1st of September; they can ask for annual holidays, cash out up to 1 week using the 1st of September entitlement. They cannot use the previous year entitlement; they also can not use the future years yet to accrue
How to cash out annual holidays using annual holiday entitlement
Cashed up annual 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 Annual 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 higher of AWE vs OWP for paying the leave cash out.
A validation to make sure the employee has enough positive leave entitlement will occur, as they cannot cash out leave; that is only an accrual. 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 save the entry.
A pay run warning will appear in the warning section to show how many days/hours an employee has already cashed out during their anniversary year. The pay run audit report will also display a warning showing the number of days/hours the employee has already cashed out.