What is cashing out annual leave?

Cashing Out Annual Leave (definition)

To encourage choosing rest over reward, employees can only exchange their annual leave for cash in these specific circumstances:

  • When an employee leaves their employment.

  • If the employee is genuinely casual or on a fixed-term agreement of less than 12 months.

  • Up to 1 week per year by agreement, in accordance with section 28 of the Holidays Act.

When an employee wants to cash out the one-week per year allowance, there are several steps that need to take place including a request made in writing and negotiation in good faith. Read more in the related resources below. 

PayHero has a specific ‘Annual Leave Cashed Up’ pay item which can be added to a draft pay in payroll. This income is then taxed as a Lump Sum Payment.


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