Cashing Up Leave

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Last Updated: Wednesday, 26 February 2025 14:26

The Cashing up of Annual Leave is now permitted under the latest amendments to the Holidays Act which came into force on April 1st 2011.

It is subject to a number of strict restrictions and requirements:-

  1. The employer can have a policy of not permitting the cashing up of leave.
  2. Both employee and employer must agree to the payment. It is a voluntary system and must not be part of an employee contract, although it may state if the policy is permitted and set out the process for making an application.
  3. The employee's request and employers approval (or not) must be in writing. No reason need be given.
  4. It applies only to available leave allocated after 1st April 2011. That is for leave made available on anniversaries occurring after this date. Any existing available leave cannot be cashed up.
  5. Only employees who have completed a whole year of employment are eligible. Early roll-overs due to factory close downs do not apply.
  6. It is limited to a maximum of 1 week in any particular leave year.
  7. Because the employee actually continues working, he gets paid for 53 weeks in that year. Therefore the cashed up amount must be paid and taxed as extra pay - previously known as a lump sum or extra emolument.
  8. The payment does not count towards the following years' holiday pay. Otherwise it would increase the yearly average rate over an employee who did not cash up leave (all other things being equal.)
  9. It does not have to be paid all at once. The employee could request and receive it in instalments up to the 1 week maximum.
  10. Leave cannot be cashed up as part of a termination because all available leave is paid out anyway and it's value must contribute to the accrued leave percentage. To do otherwise would short change the employee of 8% or more of the cashed up amount.

KeyPay will attempt to enforce the above cashing up rules and track the amount cashed in any one leave year. Provision for cashing up leave is through the lump sum payments option, but only if an employee is deemed eligible.

N.B. While nothing prevents the pay-out of leave via the usual system, the employment court has prosecuted employers and applied severe penalties when leave was paid out and the employee did not actually take the time off with the payment. The only exception is at termination of employment. If the employee was granted more leave that the four week minimum, different rules may apply and a legal interpretation should be sort.

If an employer exceeds the 1 week maximum, or cashes up leave without the employees permission, the employees right to that leave with pay remains in force. i.e It's treated as a bonus payment and the leave can still be taken later.