Cashing up annual leave

Here in little ol’ New Zealand we are lucky to have four weeks of annual holidays enshrined in legislation (at least if you’re a permanent employee). But one thing I didn’t know until a couple of years ago is that under the law you can cash in up to one week’s annual leave each year. There are a few provisos:

  • Your employer has to be on board. It’s not a legal requirement that they allow you to cash in the leave, they can decline. My previous employer was like this and some well-meaning employers refuse to cash in leave on the basis of wanting their employees to take the holidays and get a break. It’s all about health and safety these days after all 🙂 I wouldn’t be surprised if the current economic environment becomes a factor for some companies, though for employers who incur further costs when someone takes time off due to having to bring on casual or temporary staff, allowing someone to cash in leave could be a less-expensive alternative.
  • It has to be what’s known as “Entitled” leave, i.e. you can’t do this before you’ve been at your employer for 12 months. Although annual leave in NZ starts to accumulate from day one of your job and many employers allow staff to use whatever leave balances they have, technically you’re not actually entitled to the leave until your first anniversary with your employer. Before this time it’s known as accrued leave. Leave that accumulates each subsequent year is also accrued leave and becomes available after your next anniversary at that employer. A strict employer could refuse you any annual leave in your first year, and if you used your entire four weeks once it became Entitled leave, they could then refuse you any further leave until your second anniversary.
  • Five days is the maximum amount you can cash in within any employment year (i.e. between anniversaries).

Still, despite the limitations, it’s still potential for a pretty penny. Even on minimum wage, a person cashing in a whole week of leave would get several hundred dollars. I’m not entirely clear on the tax implications. Normally being paid annual leave doesn’t change your income and therefore the amount of tax you pay, but when you cash it in you’ll be receiving more income than expected for the year so that’s potentially something to watch out for. Even after looking at the IRD site I’m not entirely sure what it means, but it’s here if you want to look.

One thing I would say is don’t rely on this for your regular budget. Ideally put your cashed in annual leave towards savings or investments. If you really need a break, put it towards a holiday (if you have enough leave left to take the holiday). But once you start relying on cashing in leave to pay for emergency car repairs or water leaks, you’re in troubled waters. Do it if you have to, but you can’t rely on this income in the future. Your employer might have changed their stance by next year. You really need to have space in your regular budget for these surprise expenses.

Have you ever cashed in annual leave? What’s your employer’s stance on it? I’m keen to hear what’s happening out there as it’s a relatively new thing to me, but I’ll definitely be giving it a go once I’ve been with my current employer 12 months.

Comment Policy: For this blog, I’ve implemented a Comment with Kindness policy. You can read more about it here, but the gist of it is: Follow what I call the “Grandma Rule”. If you wouldn’t take that tone with your grandma, your comment probably won’t make it through moderation.

1 Comment

  1. Yep use it most years. I have never had an employer refuse. Historically I cash it in shortly after my annual pay rise so I receive a higher amount. Yes it all gets taxed at my highest tax rate, but still it’s a nice boost that goes towards savings. Most employers like having less annual leave on their books

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