Cash out leave entitlements (non-termination)

You may need to process a payment for an employee’s accrued leave while they are still working. This enables eligible leave entitlements to be paid out, either fully or partially, rather than taken as time off.

For example, an employee may request to cash out a portion of their accrued annual leave balance and receive payment instead of using the leave.

  Please note: According to Fair Work, Long Service Leave requirements vary by state or territory and generally cannot be cashed out while an employee remains employed unless specific conditions are met. Ensure you follow the relevant legislation, award or employment conditions before processing any Long Service Leave payments.

Processing a leave cash out

Employees cannot submit leave cash out requests through foundU, even when submitting a leave application. Leave applications are intended to request leave, not to request cashing out unused leave balances.

You can manage leave cash out requests through your existing business processes, such as:

• Submitting a request through an internal process (such as a Google form)
• Sending documents for employees to sign and confirm the payment
• Communicating the request to your payroll team for processing

With this in mind, leave cash outs are processed manually either by editing draft payslips to include them or by creating an adjustment for a generated payslip. 
 

To cash out leave:

1. From the Payroll > Pay page, locate the payslip that requires the leave cash out. 
   
     Please note: Employees can't redeem and cash out the same leave type on the same payslip; if both are needed, process them separately: redeem first, then create a manual payslip for cash out.
2. From the payslip dropdown menu, select the relevant option depending on the payslip:
   • Draft payslip - Select Edit to update the payslip.
   • Generated payslip - Select Create Adjustment to add the leave cash out.
3. On the Adjust/ Edit Payslip page, locate the Pay Items section, then select + Add > Entitlement and complete the following fields:
   • Type - Select the relevant leave entitlement (e.g., Annual Leave)

   • Method - Select Cash out. This will automatically populate the hours field with the remaining leave balance, including any hours accrued in the current pay period. 

     
      

   • Quantity – For a partial cash-out, update the quantity by entering the number of hours to be paid. 
   • Rate – Automatically populates based on the selected entitlement type. If applicable, leave loading will display separately based on the loading percentage. Rates can be overridden if required.
   • Amount – Displays the calculated total based on the entered quantity and rate. This field cannot be edited directly.
   • Cost code / Purchase order – Select the required cost code or purchase order for the leave entitlement. 
4. Upon finalising any further edits, select Preview Payslip. You will see the entitlement hours, along with any relevant loadings, in the Entitlements Paid section. 
5. Once you’ve reviewed the payslip, select Save/ Adjust and add a comment. Then, Save Payslip/ Create Adjustment when you’re ready to generate the payslip.

  Hot tip: Once the payslip has been updated, the balances will be reflected in the Leave History and updated accordingly in the Employee Profile and your leave reports. 

When an employee changes from permanent employment (full-time or part-time) to casual employment, their existing leave balances may need to be paid out as part of the transition. 

This is because certain permanent employee entitlements, such as annual leave, do not continue to accrue under casual employment, and the existing balance cannot be carried forward.

There are two parts to managing a permanent to casual employment change:

• Updating the employee’s position
• Processing the leave payout

Updating the employee’s position

Unlike a standard leave cash out, the leave payout for a permanent to casual transition can be automatically managed when updating the employee’s position.

This is done by creating a new casual position on the employee’s profile. During the position setup workflow, you will be presented with options for how to manage each existing leave entitlement assigned to the employee:

• Pay out - The remaining leave balance will be automatically added to the employee’s final payslip under their permanent position.
• Carry over - The entitlement will continue to apply and accrue under the employee’s new casual position.
• Delete - The entitlement will be removed from the employee’s profile.

Processing the leave payout

The employee’s position change can be completed either before or after processing their final pay under their permanent position.

• If the position change is completed after the final permanent payslip has been processed, a separate payslip will be created to process the leave payout.
• If the position change is completed before the final permanent payslip is processed, the leave payout will be added to the existing draft payslip.

In either case, the payslip containing the leave payout must be the final payslip processed for the employee’s permanent position. This ensures leave balances and accruals are calculated correctly.

Final payslips before a position change will be highlighted with the person icon.

To ensure the leave payout is processed correctly, the system will block the payslip from being generated if either of the following applies:

• The employee has draft payslips remaining from other pay periods
• The employee is both redeeming and cashing out the same leave type within the same pay period

  The same payslip blocking process also applies when terminating an employee and processing unused leave payments. If you encounter this issue, the steps to resolve it are covered in our termination payment article.

Manually cashing out leave

You can manually process the leave payout using the steps outlined in the previous section. However, this method is not recommended for permanent to casual transitions.

This is because the employee’s position still needs to be updated to reflect their new employment type. When the position change is completed, foundU will create an additional $0 payslip to ensure the updated employment details are reported to the ATO through STP.

Using the automated transition process helps ensure that the leave payout, employee position update, and required payroll reporting are processed correctly together.