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Automatic right to cash out annual leave and sick leave?

I have come across many businesses that cash out annual and sick leave to their employees when an employee asks for it - but is it legal under the Fair Work Act?

Can an employer Cash out Annual Leave at the employee's request?

The Fair Work Act says that annual leave can only be cashed out under certain circumstances. Those are:

  • Where the Modern Award allows the employee to, then in accordance with the Award;
  • Where the Enterprise Agreement allows the employee to, then in accordance with the Agreement; or
  • Where the employee is not covered by a Modern Award or Enterprise Agreement, then in accordance with the Fair Work Act.

For all employees entitled to cash out annual leave the following must be complied with:

  • The employee must have at least four weeks paid annual leave remaining after the cash out.
  • There needs to be a separate agreement in writing for each occasion that leave is cashed out.
  • The employer must not exert undue influence or pressure on an employee to agree to cash out annual leave.
  • The employee must be paid at least the amount that would have been payable had they taken leave i.e. including annual leave loading if applicable.

Can you Cash out Sick Leave?

The rules for cashing out personal/carer's leave (sick leave) are different to annual leave under the Fair Work Act.

Only employees covered by a Modern Award or Enterprise Agreement are permitted to cash out paid personal/carer's leave - as long as the Award or Agreement allows them to.

Like cashing out annual leave, to cash out personal/carer's leave there needs to be:

  • A separate agreement in writing on each occasion that leave is cashed out; and
  • The employee needs to retain a balance of at least 15 days personal/carer's leave; and
  • The employee must be paid the amount they would be received if they had taken the leave.

Other Considerations

Other than the potential fines an employer could receive from Fair Work for cashing out annual or sick leave without meeting the requirements under the Act, employers should also consider the health and safety implications of cashing out leave - should the employee really be taking the leave? This is particularly important in physically or mentally demanding roles - think general managers or production line staff.

For further information about cashing out annual leave and/or personal/carer's leave contact the experts at HR Business Solutions at tina@hrbs.com.au.

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