• A Cash-Out Annual Leave written agreement must be made each time Annual Leave is cashed out
  Note: Parents approval must be obtained for employees under 18 years old

• The employee needs to have at least 4 weeks of annual leave left after the Cash-out
• The payment for the Cashed out annual leave must be the same as what the employee would be paid if they took leave
• Employees can only cash out a maximum of 2 weeks per calendar year.

Cashing Out Leave Under a Registered Agreement

Not all Modern Awards allow cashing out of Annual Leave, Employers should first check their specific Industry Agreement and assess whether Annual Leave can be cashed out or not. Some Awards may also state a different number of weeks of Annual Leave to be cashed out per year. 

Review the Employee's Annual Leave Balances

Employees can only cash out a maximum of 2 weeks per calendar year, after the Cash Out payment at least 4 weeks of accrued leave must be left in the Employee's Annual Leave Balance. Therefore once you subtract the Leave Cash Our hours, the remaining balance should be set to 152 Hours.

1. Go to Accounting > Reports
2. Under the Payroll Heading run the report: Leave Balances
   
   è  The Leave Balances Report
   
   
   
   
3. Select the following details:
   • Employees > Select: Individual and select the Employee from the list
   • Effective Date > Confirm the current date
   • Leave Type > Select: Annual Leave
4. Click on [Update]

Process the Cash Out Leave Request

1. Go to Payroll > Leave
2. Click on [New] > Cash Out Leave
3. Select the employee requesting the Leave Cash Out
   
   è  The New Cash Out Leave Request screen opens
   
   
   
   
4. Select/Enter the following details: 
   • Leave Type > Select: Annual Leave
     Note: Xero will allow you to choose any of the Paid Leave types that are assigned to the Employee's Leave Tab. Please be mindful that other types of Leave have different rulings applied. Personal Leave is only Cashed Out under specific circumstances, as stipulated in certain Awards or Enterprise Agreements. Long Service Leave can only be cashed out in South Australia and Tasmania. Occasionally, depending on the specific Employment Agreement, Long Service Leave Cash Out may also be allowed in Queensland and Western Australia.
   • Description > Type: Cash Out Annual Leave
   • Number of hours to cash out > Type the total number of hours the employee has agreed to have cash out
     Note: this number should never exceed 76 hours. The remaining leave balance, after the cashed-out hours, should always be 152 or more.
   • Date > The date you enter in this field will represent the date of the pay period in which the leave will be cashed out
     Note: Xero will display the calendar pay period in which the leave will be cashed out
5. Click on [Approve]

Pay the Annual Leave Cash Out through Payroll

1. Go to Payroll > Pay employees
2. Click on [Add Pay Run]
   
   è  The Pay Run screen opens
   
   
3. Open the Employee's Pay
   
   è  The Employee's Pay
   
   
   
   
4. The Annual Leave Cash Out Line is displayed on the employee's pay screen, and a separate Leave Loading line may also be displayed, if applicable.
5. In the Tax Line section, a separate Tax Type line is displayed showing the tax calculation applicable to the Cashed Out Leave. This is based on Schedule 5 Method A tax calculation. 
6. Finalise the Pay Run as per normal

Training Video - How to process Cash Out Leave in Xero