In 2016 the Meat Industry Award 2010 was varied to allow for cashing out, which is contained in subclause 37.9.
Prior to this decision cashing out was only allowed if the person was award free (such as persons engaged to undertake managerial duties and responsibilities at the level of foreman and above) or were covered under a registered enterprise agreement that provided for cashing out.
Although cashing out applies to award employees it still has conditions attached to it. This includes:
- Only a maximum of 2 weeks’ paid annual leave can be cashed out in any 12 month period (pro-rata for part-time employees), with additional safeguards for those under 18 years old; and
- The employee must retain at least four weeks of accrued annual leave after the cashing out has occurred.
It is compulsory for the employer and the employee have a written agreement specifying the amount of leave to be cashed out as well as the date on which the payment is made. This must occur on each occasion. If the employee is under 18 years of age, such agreement must be signed by the employee’s parent or guardian.
Some Frequently Asked Questions and Answers regarding the cashing out of annual leave are as follows:
Q1. At what rate do I have pay it?
A1. The payment for cashed out annual leave has to be the same as what the employee would have been paid if they took the leave. This would include 17.5% leave loading.
Q2. Do I have to pay the compulsory superannuation on it?
A2. Yes. This is because cashed out annual leave is considered as ordinary time earnings for the purpose of calculating the Superannuation Guarantee employer contribution.
The Australian Taxation Office issued a Ruling in 2009 which states that lump sum arrears payments of unused leave otherwise than on termination are OTE. Unused leave paid out on termination of employment however is not included in an employee’s OTE for Superannuation Guarantee purposes.
Q3. Does the cashed out payment have to be paid all at the same time?
A3. This can depend upon how the employee wants to be paid. However, the employee has to be careful when cashing out annual leave. Because in that one week you cash it all out they will get hit with a high tax amount because it is added on the weekly wage paid for the work performed in that same week. The best way to cash out annual leave is for it to be in instalments. For example, if they wanted to cash out two weeks, recommend to them to average our over two weeks worked.