# How to pay out (cash out) an employee’s leave

KB135

### Overview

“Paying out” an employee’s leave means giving them money in respect of some or all of their accrued leave and then clearing out the corresponding leave balance for an employee who is continuing employment. The employee does not accrue further leave on the paid-out leave (normally an employee will accrue leave when they are “on leave”).

You may be paying out because they have changed their employment status from full time to casual, or they may have requested a payout. Be sure to check relevant regulations about how much annual leave you are allowed to pay out and how it is taxed.

### Process

1. Ensure that you have a Pay Item defined for an annual leave payout. If not, create one using Payroll > Setup > Pay items and ensure that:
   - Type: Special income
   - Default rate: Employees hourly rate
   - Rate: 1.00
   - Default quantity: Custom
   - Qty: 0.00
   - Unit: Hours
   - Tick Allow user to change quantity
   - Payment period: if an amount is added to this field, Accentis will calculate the tax for the pay item over the period of time entered.
   - Payment type: Paid leave: Cash out leave in service
   - Check "Leave item linking" is completely clear of ticks (no leave accrues when this is paid)
2. Ensure the pay item is set to deduct the correct leave item when it is paid out
   - Go to Payroll > Setup > Leave items
   - Find your leave item (Annual leave)
   - Edit and click on Pay items

   - Tick the newly created cash out leave pay item
3. Create a Pay run
4. Add the employee and then use the leave payout pay item to pay the employee

Leave payouts for continuing employees is treated as a lump sum or bonus from a tax perspective. This usually means that it is taxed at the employee’s marginal tax rate, so it is important to double check that the tax being deducted for this payout is correct.

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Last edit 23/12/21