Cashing Out Annual Leave in Australia: Complete Guide to Leave Buyback

Published: January 2026 | Reading time: 9 minutes

Sometimes circumstances arise where you'd prefer money in your pocket over additional time off work. Cashing out annual leave allows you to convert some of your accrued leave into a cash payment instead of taking time away from work. However, this option isn't available to everyone and comes with strict rules designed to protect employees from being pressured into giving up their valuable rest time.

This guide explains exactly how cashing out annual leave works in Australia, who can do it, what restrictions apply, and important factors to consider before deciding whether it's the right choice for your situation.

What Does Cashing Out Annual Leave Mean?

Cashing out annual leave means receiving a payment from your employer instead of taking time off work. Instead of using five days of annual leave for a holiday, for example, you might choose to receive payment for those five days and continue working. The payment you receive should be equivalent to what you would have been paid if you had taken the leave.

It's important to distinguish cashing out from having your leave paid out when employment ends. When you resign or are terminated, any accrued annual leave must be paid out regardless of any other rules. Cashing out refers specifically to the voluntary conversion of leave to cash during ongoing employment.

Not every employee has the option to cash out leave. The ability to do so depends on your award, enterprise agreement, or employment contract. If your applicable industrial instrument doesn't permit cashing out, or specifically prohibits it, you cannot cash out annual leave even if both you and your employer would prefer to do so.

Legal Requirements for Cashing Out Leave

The Fair Work Act 2009 establishes strict requirements that must be met for any cashing out arrangement to be valid. These rules exist to protect employees and ensure that cashing out is genuinely voluntary rather than a result of employer pressure. Understanding these requirements helps you know whether a proposed arrangement is legitimate.

First, your award or registered agreement must specifically allow cashing out of annual leave. Many modern awards do permit it, but some don't. Check your applicable award or contact Fair Work to confirm whether you're covered by an instrument that allows this practice.

Second, you must provide written agreement each time leave is cashed out. A general agreement to cash out leave in the future isn't sufficient. Each specific cashing out arrangement requires its own written agreement stating how much leave is being cashed out and the payment amount.

Third, and critically, you must retain at least four weeks of accrued annual leave after any cashing out. This requirement ensures that employees always have adequate leave available for rest and recreation. You cannot cash out leave if doing so would reduce your balance below four weeks.

How Much Can You Cash Out?

The amount of annual leave you can cash out depends on your current balance and how much you need to retain. Use our annual leave calculator to determine your accrued balance first, then subtract four weeks to find the maximum amount potentially available for cashing out.

Most modern awards limit cashing out to two weeks per twelve-month period. This restriction prevents employees from routinely converting all their leave to cash and never actually taking time off. The annual limit resets each year, so if you cashed out two weeks this year, you would need to wait until next year to cash out again under most awards.

Your enterprise agreement may have different limits, either more or less restrictive than the standard award provisions. Some agreements prohibit cashing out entirely, while others may allow more generous arrangements. Always check your specific agreement rather than assuming standard rules apply.

The Payment Calculation

When you cash out annual leave, you must receive at least the same amount you would have received if you had taken the leave. This includes your base rate of pay for the cashed out period. If your award or agreement provides for annual leave loading, this should also be included in the cashing out payment.

The payment is taxed as ordinary income in the pay period when you receive it. Because it's a lump sum on top of your regular wages, you may find that a higher tax rate applies to some of this additional income. Consider the tax implications when deciding whether cashing out makes financial sense for you.

Superannuation is generally payable on cashed out annual leave payments, just as it would be on regular wages. Your employer should calculate and pay the appropriate superannuation contributions on this amount.

Weighing the Pros and Cons

Cashing out annual leave can be attractive when you need extra money for a specific purpose, such as paying down debt, making a major purchase, or covering unexpected expenses. The immediate financial boost can be valuable when timed appropriately.

However, there are significant downsides to consider. Annual leave exists to provide rest and recovery from work. Taking time off is important for long-term health, wellbeing, and productivity. By cashing out leave instead of taking it, you lose this recovery opportunity. Research consistently shows that taking regular breaks from work improves both mental health and job performance.

There's also the financial consideration beyond immediate cash flow. Annual leave pay is guaranteed and typically increases with your salary over time. If you cash out leave now and receive a pay rise next year, you've effectively received less than if you had kept the leave and taken it at the higher rate later. This opportunity cost can be significant over time.

Consider too what happens if you need extended time off unexpectedly. Illness, family emergencies, or personal circumstances might require leave you no longer have because you cashed it out. Maintaining a healthy leave balance provides important insurance against life's uncertainties.

The Agreement Process

If you decide to proceed with cashing out annual leave, the process requires formal written agreement. Your employer should provide documentation that clearly states the amount of leave being cashed out, the payment amount, and the date the agreement takes effect. Both you and your employer need to sign this agreement.

Importantly, you cannot be required or pressured to cash out leave. If your employer is suggesting or insisting that you cash out leave, this may breach workplace laws. The decision must be genuinely voluntary on your part. If you feel pressured, seek advice from Fair Work or your union before signing anything.

Keep a copy of any cashing out agreement for your records. This documentation proves the arrangement was properly agreed upon and protects both you and your employer if questions arise later about leave balances or payments.

Alternatives to Consider

Before cashing out leave, consider whether alternative arrangements might better serve your needs. If you want extra income, could you work overtime or take on additional shifts instead? This earns extra money without reducing your leave balance.

If you have excessive leave accrued, your employer might be willing to allow you to take leave at half pay, effectively doubling your time off while receiving the same total payment. This gives you extended rest while managing the financial impact.

If you're concerned about a large leave balance, remember that this can be financially beneficial. Unused leave is essentially savings that are protected and will be paid out when your employment ends, often at a higher rate than when it was accrued.

Conclusion

Cashing out annual leave is a legitimate option for some employees in some circumstances, but it's governed by strict rules designed to protect workers. You can only cash out if your award or agreement permits it, you must agree in writing to each specific arrangement, and you must always retain at least four weeks of accrued leave.

Before deciding to cash out, carefully consider whether the immediate financial benefit outweighs the long-term value of having that leave available. Use our free annual leave calculator to understand your current balance and how cashing out would affect it.

Annual leave is a valuable workplace entitlement designed to support your health and wellbeing through regular rest from work. While cashing out can make sense in specific circumstances, taking your leave as actual time off usually provides greater overall benefit. Whatever you decide, ensure you understand your rights and that any cashing out arrangement complies with all legal requirements.