How do I cash out annual leave?

Question

How do I cash out annual holidays using annual holiday entitlement?

Answer

Employees can ask their employer to pay out or "cash out", up to one week of their four weeks' minimum entitlement to annual holidays per year for each entitlement year. They cannot use the previous year's entitlement; they also can not use the future year's yet to accrue. They can do this all at once, or can make multiple requests to cash-up until the entire one week is used. The request must be in writing. 

Conditions

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.

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.

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.

  1. Log into your payroll platform.
  2. Create a new pay run.
  3. Find the employee that wants to cash out their leave.
  4. Click on their name to expand the pay run record and
  5. Click on the Actions button. cashing out 1.jpg
  6. Select Add Lump Sum Payment. cashing out 2.jpg
  7. In the line that appears, choose the Annual Holidays Cash Out pay category, then enter the number of hours to be cashed out.
  8. Click Save. cashing out 3 (1).jpg

Helpful Hint

  • 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.

Explore related content

  • Entering Leave Taken Learn more about how you can add leave taken either during the pay run or via the Leave requests to your organisation's payroll platform.
  • Apply a Leave Request to a Pay Run Learn more about how to create a new pay run for your organisations and then add in‌ any required employee leave requests.
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