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There will be situations where both employees and employers may be interested in having some large annual leave balances depleted without the employee taking a significant amount of time off, particularly if they are in the middle of a busy period of work. Usually, employees can ask to cash in up to one week per year of annual leave. An employer must formally consider their request, though they are allowed to turn down the request. This article will set out what cashing out annual leave involves, the legalities around cashing out annual leave, and the employer obligations in different circumstances.

What is Cashing Out Annual Leave?

Annual leave is a minimum entitlement for employees that accrues over time. Indeed, full-time employees are entitled to at least four weeks of annual holidays per year. The phrase ‘cashing out’ annual leave refers to an employee sacrificing part of their entitlement to holidays in return for an immediate cash payment of their employer, representing payment for the time they would have otherwise spent away from work on a holiday. 

Employees cannot automatically cash out their leave for cash. Indeed, they must ask their employer to do so. Employees can usually ask to cash out up to one week per year of annual leave. This can be across multiple requests (a day or two at a time) if necessary. Of course, many employees will want to take their annual leave in full as holidays, as intended by the entitlement.

Can an Employee Cash Out Their Annual Leave?

An employee must make a written request to their employer if they want to cash out their annual leave. The requirements around this request include:

  • that the employee has completed at least 12 months working for the business; 
  • it must be in writing and cannot just be an informal oral request; and
  • the request can only be for up to a maximum of one week per year.

If an employee requests to cash out their annual leave, an employer does not necessarily have to agree. There are plenty of reasons an employer may decide they do not want to pay out the employee. For example, they may want to encourage good practices around taking time off work. The legal obligations on an employer if they receive a request for cashing out leave include responding:

  • to the employee’s request within a reasonable amount of time (whatever is ‘reasonable’ in the business circumstances); and 
  • in writing. 

Note that if the employer decides to reject the employee’s request to cash out annual leave, they do not need to give a reason for the decision. However, they must let the employee know they made that decision.

Some other circumstances can be relevant depending on the business. An employer can have a workplace policy that sets out that the business will not consider requests for cashing in annual leave. If this policy is in place, the employer does not have to consider any requests that do come in from staff. 

Can an Employer Ask an Employee to Cash Out Their Annual Leave?

No, employers should stay clear of situations that encourage or request employees to cash out their annual leave. Taking holidays is a minimum entitlement for New Zealand employees, and employers must be careful about hinting that an employee should not feel free to take advantage of that entitlement.

Specifically, employers cannot pressure employees into making a request to cash in annual leave in any way. Employers should not raise this as an option, particularly in negotiations around salary or a promotion, and cannot make it a requirement or condition of a particular role. 

If an employer pays an employee cash for their annual leave, and the employee did not want this to happen, then the employee does not have to give back the money. The employee continues to be entitled to their annual leave in these circumstances. 

Key Takeaways

Employees can ask to cash out their annual leave in New Zealand. This can be a good option for employees and employers alike in certain situations, but there are restrictions. Employees can only ask to cash out up to one week per year, must make their request in writing, and employers do not necessarily have to agree. For their part, employers must respond in writing in a reasonable period of time and cannot force or pressure employees in any situation to exchange annual leave for money. Holidays are a minimum entitlement in New Zealand, so there are strict rules about limiting that entitlement. If you would like more information about cashing out annual leave, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is cashing out annual leave?

The phrase ‘cashing out’ annual leave refers to when an employee sacrifices part of their entitlement to those holidays in return for an immediate cash payment of their employer.  

Can an employee ask to cash out their annual leave?

Yes, employees can make a written request to their employer to cash out their annual leave. This request can be for up to one week of annual leave per year. 

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