Cash out annual or long service leave
Cashing out Annual or Long Service Leave means an employee receives payment instead of taking time off work. Annual leave can only be cashed out when an award or registered agreement allows it. For further details, please click on the link:
http://www.fairwork.gov.au/leave/annual-leave/cashing-out-annual-leave
If your company allows employees to cash out their Leave, there are several different ways to do this. The method below allows you to take advantage of the Bonus Tax function, which calculates the tax across the year.
Set up an Addition Before Tax in Payroll, Maintenance, General, Addition and Deductions.
Use Amount as the Type.
Enter an appropriate description that will appear on your Employees' Pay Advice and your reports. If you cash out Annual and Long Service Leave, set up two additions with different descriptions to make it easier to identify the leave type on reports.
On the STP Reporting tab, select the STP Phase 2 Reporting Group and Reporting Subgroup according to the ATO.
Create a Rate in Payroll, Maintenance, Rates, Leave Rates.
Select Fixed as the Rate Type.
Leave the Fixed Rate blank.
Set up a Leave Reason in Payroll, Maintenance, Leave, Leave Reasons.
Enter an appropriate description.
Attach to the Leave Type (e.g. Annual Leave) and the Rate created in the previous step.
Confirm if you need to pay Superannuation on the Cashed Out Leave. If you do, go to Payroll, Maintenance, Superannuation, Employer Contribution.
Edit the Contribution.
Select the Calculation Parameters tab and then the Addition & Deduction Codes tab.
If you have All Additions Before Tax ticked, then your new addition code will already be included in the calculation and there is nothing to do.
If it is not, click Select, highlight your new Addition, select OK to update and then OK to save.
When you are ready to process the payment, go to Payroll, Transactions, Processing, Manual Calculation.
Select the Employee.
In Pay Calculation, tick Superannuation and Standard Adds/Deds if applicable.
To process the pay via EFT, tick Generate Payment. If the payment has already been paid to the employee and you are updating the details, untick Generate Payment.
Select Annual Leave or Long Service Leave and click Add.
Select the Reason that you created in step 3 and enter the hours the employee is cashing out.
No Start Date or End Date is required as the employee is not taking leave.
The value is 0.00.
Next, select Adds Before Tax, click Add and select the Addition created in Step 1.
Enter the amount of the cashed-out leave in Value. You will need to work this out manually.
Click Bonus Calc in the bottom right.
A screen will pop up. The Average Normal Earnings is based on the Gross Income of the Employee, divided the number pays the employee has received. Bonus Amount will be pre-filled from the Value you entered. The Number of Periods is based on the Pay Frequency attached to the employee. Once you have reviewed these details, click Calculate Tax.
The Tax Withheld value will appear, select OK to save it, this will add the Tax Withheld into Tax (Incl Adjust). Then, Process to complete the transaction.
Note: If you are entering cash-out leave for multiple leave types, the Bonus Calc will replace the tax value it calculated the first time with the value of the second.
To calculate the tax, enter the total for all leave in the Bonus Calc screen and click Calculate Tax, take note of the Tax Withheld value. Click Cancel. Add each line of cashed out leave with it's value. Then enter Tax Withheld value manually in Tax (Incl Adjust). Alternatively, two transactions could be processed so that the tax calculated using the Bonus Calc feature is for each one.
It is advisable to check if you can cash out Long Service Leave, as some awards do not allow this.
This transaction will produce a Pay Advice. After the End of Pay process, the employee’s records will be updated with the reduced leave balance.
Annual, Long Service and Sick Leave classes based on Hours Worked will still accrue on these hours when they are processed. If you do not want to accrue on these cashed-out hours, you will need to process a Leave Adjustment to reduce the accrual in the Employee's Leave after the transaction has been processed. Please see Leave Adjustment for further information.
Cash out RDO
You can cash out RDO using extended timesheets.
Go to Payroll, Transactions, Processing, Extended Time Sheet.
At the top, in RDO choose Pay from the dropdown.
Click RDO in the Pay Summary.
Tick both Cash Out RDO and Override RDO.
Enter the number of hours to cash-out in Hours.
Complete entering components for the pay and click Process.
The STP2 reporting code will automatically change to Cashed out RDO