Q/ Can employees salary sacrifice their cashed in leave?
A/ This is quite complicated – and the practical answer is “possibly not”
This is a 2 step process
Step 1 – cashing in leave
For most employees, cashing in annual leave is only allowed in very limited circumstances:
- Where the employee is covered by an Award/EBA, then the Award/EBA must specifically allow annual leave to be cashed in
- When the employee is truly not covered by an Award/EBA, then they can cash in annual leave by agreement between themselves and the employer in writing
In both cases, when cashing in is allowed, the employee must have 4 weeks of annual leave remaining
Step 2 – salary sacrificing the cashed in leave
As with any other salary sacrifice arrangement, you can only sacrifice amounts that are not already earned (in the case of leave, not already accrued). As the leave in this situation is already accrued it too late to enter into a new salary sacrifice arrangement. It must be paid to the employee in cash and will be taxed in the same way as an annual bonus. The amount will be superable.
However, as a work around, the employee may be able to sacrifice the equivalent normal pay (It must be for days/weeks yet to be worked). They then take the leave cashed in as wages in the same pay period – making their gross pay the same for the period (though the tax for the period may be slightly different). Remember that this will only work for employees able to cash in annual leave.