Can an employee cash out annual leave at any time in Australia?

No. Cashing out annual leave is allowed only if permitted under your Award or Enterprise Agreement, or if you are award-free. The employee must retain at least 4 weeks of accrued leave.

What is the minimum leave balance required after cashing out annual leave?

You must maintain at least 4 weeks (152 hours for a standard 38 hr/wk employee) of accrued annual leave after any cash-out.

Is 17.5% leave loading included when annual leave is cashed out?

Yes. Under Fair Work rules, cashed-out leave must be paid at the full rate the employee would have received had they taken the leave, including any applicable leave loading.

How is cashed-out annual leave taxed by the ATO?

Cashed-out leave is treated as ordinary salary and taxed under standard PAYG marginal tax rates in the pay period it is processed.

Can an employer force an employee to cash out annual leave?

No. Employers cannot force or coerce employees to cash out annual leave. It must be mutually agreed upon in a written document.

Leave & Pay10 min read•Updated: 8 August 2026

Cashing Out Annual Leave: Fair Work Award Rules & Tax Withholding (2026–2027)

Comprehensive Fair Work Ombudsman guide on cashing out annual leave, 4-week minimum balance rules, written agreement templates, and ATO PAYG tax withholding.

Calcivo Workplace Rights Team

Fair Work & Payroll Specialists

ATO 2026-2027 Verified

Cashing Out Annual Leave: Fair Work Award Rules & Tax Withholding (2026–2027)

Key Financial Takeaways

✓Employees can only cash out annual leave if permitted under their Modern Award, Enterprise Agreement, or for award-free workers.
✓A minimum balance of 4 weeks (152 hours for full-time workers) MUST remain after the cash-out.
✓Each cash-out agreement must be in writing signed by employer and employee, specifying hours, rate, and payment date.
✓Cashing out annual leave must be paid at the full rate the employee would have received had they taken the leave (including leave loading if applicable).
✓Super Guarantee (12.0%) is payable when leave is taken as time off, but NOT payable when cashed out during active employment.

On This Page

In Australia, taking annual leave as time off for rest and recreation is the primary purpose of the National Employment Standards (NES). However, in certain financial or workplace situations, employees may request to cash out accrued annual leave instead of taking time off work.

Governed by the Fair Work Ombudsman and Modern Award clauses, cashing out annual leave is subject to strict statutory rules to protect employee wellbeing.

1. Fair Work Statutory Qualification Rules for Cashing Out Leave

Under Section 93 and Section 94 of the *Fair Work Act 2009*, cashing out annual leave requires satisfying four statutory conditions:

1
Award or EBA Authorization: Cashing out must be explicitly permitted by the relevant Modern Award or Enterprise Bargaining Agreement (EBA). Award-free employees can cash out by agreement with their employer.
2
4-Week Minimum Retained Balance: After cashing out, the employee MUST retain at least 4 weeks (152 hours) of accrued annual leave. You cannot cash out below this 4-week floor.
3
Formal Written Agreement: A separate written agreement must be signed by both the employer and employee for each cash-out transaction, stating the exact number of hours and payment amount.
4
Full Payment Guarantee: The cashed-out leave must be paid at the same rate the employee would have received had they taken the leave (including base hourly pay plus any award 17.5% leave loading).

2. ATO PAYG Income Tax & Super Guarantee Treatment

•
PAYG Income Tax Withholding: Cashed-out annual leave is added to the employee's gross income in the pay period processed and taxed at standard PAYG marginal withholding rates.
•
Super Guarantee Exemption: Under ATO Super Guarantee Ruling SGR 2009/2, payments for cashed-out annual leave made during active employment are exempt from mandatory 12.0% employer Super Guarantee (SG) contributions.