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When is cashing out of paid leave allowed?

What are the rules relating to cashing out of paid leave across Australia?
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When is cashing out of paid leave allowed?

When is cashing out of paid leave allowed?

6 April 2021

Cashing out of annual leave in modern awards has prompted questions about cashing out other forms of leave, such as paid personal/carer’s leave and long service.
 
So, what are the rules relating to cashing out of paid leave across Australia?


Annual leave

Cashing out of annual leave has been permitted for award/agreement free employees, and as a term in an enterprise agreement.

Award/agreement free employees

Under the Fair Work Act (s94), an employer and an award/agreement free employee may agree to cashing out a certain amount of the employee’s accrued annual leave. The employee must be left with an annual leave balance of at least four weeks after cashing out has occurred.
 
Each agreement to cash out an amount of annual leave must be a separate agreement in writing. The amount is equal to the employee’s base rate of pay payable had the employee taken the annual leave.

Enterprise agreements
 
The Fair Work Act (s93) allows an enterprise agreement to include terms that relate to cashing out annual leave. Section 93(2) provides that annual leave cannot be cashed out if the leave balance would be less than four weeks; each cashing out must be the subject of written agreement and there must be no discounting of the payment.
 
Provided the terms of an enterprise agreement meet the requirements of s93(2) these terms will pass the Better Off Overall Test.
 
Existing transitional instruments

Under Part 5 – Item 24 of the Fair Work (Transitional and Consequential Amendments) Act 2009, the terms of a cashing out of annual leave provision in an existing transitional instrument – for example an Australian workplace agreement, workplace agreement, pre-reform certified agreement – will continue to apply until the existing agreement is terminated or replaced, subject to the ‘no detriment test’.
 
This rule enables the continued operation of a term in a transitional instrument for the cashing out of annual leave, subject to the protections of the National Employment Standards.
 
Therefore, in order to cash out annual leave under the provision in the transitional instrument, the employee must retain a minimum balance of four weeks’ leave; the agreement to cash out must be a separate written agreement; and the cashed out leave must be paid at the full amount the employee would have received had the employee taken the leave foregone.

Modern awards
 
A Fair Work Commission full bench recently inserted cashing out of annual leave terms in modern awards, which provide different conditions to the provisions under the Fair Work Act.
 
The variation was operative from the first pay period which commenced on or after 29 July 2016.
 
Generally, each agreement to cash out annual leave must be in writing; must leave a remaining accrual balance of at least four weeks’ annual leave; payment is at the ordinary wage payable as if the annual leave had been taken by the employee, and the maximum amount of accrued annual leave which may be cashed out in any 12-month period is two weeks.


Personal/carer’s leave

The principle of accruing paid personal/carer’s leave is based on the condition being an ‘insurance’.
 
Generally, cashing out of personal/carer’s leave is not a term common in modern awards or enterprise agreements.

Modern awards and enterprise agreements

It is rare for modern awards or an enterprise agreement to contain terms which permit the cashing out (in specified circumstances) of an employee’s accrued paid personal/carer’s leave.
 
Only two modern awards permit cashing out of such leave – Timber Award and the Stevedoring Award.
 
The Fair Work Act (s101) provides that a modern award or enterprise agreement may contain terms providing for cashing out of paid personal/carer’s leave by an employee. The terms must require that:
  • leave must not be cashed out if it results in the employee’s remaining accrued entitlement being less than 15 days
  • each cashing out is a separate agreement and must be in writing, and
  • the employee must be paid the amount that would have been paid had the leave been taken.

Award/agreement free employees

The Fair Work Act (s100) states that cashing out of personal/carer’s leave can only be provided under the terms of the applicable modern award or enterprise agreement. Consequently award/agreement free employees cannot agree with their employer to cashing out any accrued paid personal/carer’s leave under the terms of their contract of employment.


Long service leave

Whether cashing out of long service leave is permitted is determined by the relevant Commonwealth, state or territory long service leave legislation. It is not a ‘standard’ term in such legislation. The following legislation permits cashing out of long service leave:
  • Industrial Relations Act 1999 [Queensland] – an employee may make application to the Queensland Industrial Relations Commission for an order to cash out their accrued long service leave, but it will only be granted on compassionate grounds or financial hardship.
  • Long Service Leave Act 1987 [South Australia] – by agreement, cashing out is permitted after 10 years' continuous service by the employee.
  • Long Service Leave Act 1976 [Tasmania] – by agreement, cashing out is permitted once an employee becomes entitled to long service leave.
  • Long Service Leave Act 1958 [Western Australia] – a written agreement can be made in which employees can trade off some, or all, of their long service leave for an adequate benefit in lieu.
 
The bottom line: Cashing out of annual leave is permitted in most modern awards and is permitted for award/agreement free employees under the Fair Work Act. Cashing out of personal/carer’s leave is generally not permitted unless allowed under the terms of the applicable award or agreement, while cashing out of long service leave is not a standard condition but is permitted in long service leave legislation in several states.

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