What is an annual leave cash up?
An annual leave cash up allows employers to pay out some of an employee's annual leave entitlement as a payment, rather than the employee taking time off work.
Under the Holidays Act 2003, annual leave cash ups are permitted but come with strict rules:
The employee must request the cash up and it must be in some written format (e.g. via a leave request)
Employers cannot force or pressure employees to cash up their leave, the request must be genuine and voluntary
Employees can only cash up a maximum of one week of their annual leave entitlement per year (assuming they have a four week entitlement). This applies to each employment year (based on their anniversary), not calendar year.
Employees can only cash up leave that they are entitled to. They cannot cash up leave that is 'accruing' or not yet entitled.
You aren't required to approve cash ups and you may have a policy against them in your business.
Recording cash ups correctly
Cash up payments are processed a specific way, because different rules apply to them:
They are taxed differently than normal earnings
The payment value of an annual leave cash up is excluded from the calculations for employee leave rates later
You're required to keep records of the amount of leave that was 'cashed up' as opposed to being 'taken' to meet your legal obligations with regards to keeping accurate time and leave records.
Your employees can request annual leave cash ups as a specific leave type in PaySauce. Always ensure that they are requesting cash ups via the cash up type, and that you record it as such in the pay run.
For all of our detailed instructions on recording leave, check out our article here:
Common mistakes to avoid
Don't suggest or pressure employees to cash up their leave
Don't allow employees to cash up more than they are entitled to. That means:
not allowing employees to cash up more than one week per entitlement year
not permitting employees to cash up 'accrued' annual leave