Cashing Out Annual Leave – What Employers Need to Know
Annual leave is designed to give employees time away from work to rest and recharge. But in some cases, employees can request to “cash out” part of their leave instead of taking time off.
If you’re an employer in New Zealand, understanding the legal rules — and applying them consistently — is essential to staying compliant and supporting your people’s wellbeing.
When Can Annual Leave Be Cashed Out?
Under Section 28A of the Holidays Act 2003, employees who have become entitled to at least four weeks of annual leave (usually after 12 months’ continuous service) can request to cash up, up to one week of that entitlement per entitlement year.
Key rules include:
The request must come from the employee — employers cannot require or pressure staff to cash out leave.
Requests must be in writing, and employers must respond in writing.
Employers may decline the request without giving a reason, though providing a brief explanation is considered best practice.
How to Process a Cash-Up Request
Receive a written request from the employee, clearly stating the amount of leave they wish to cash up.
Check eligibility — they must have completed 12 months’ service and have the entitlement available
Approve or decline in writing — keep a dated copy of both the request and your decision
Pay correctly — the cash-up must be paid at the greater of the employee’s ordinary weekly pay or average weekly earnings
Update records — adjust the employee’s leave balance and keep documentation for audit purposes
Why It’s Not Always Best to Approve
While cashing out annual leave can help employees with short-term financial needs, there are potential downsides:
Reduced rest and recovery — annual leave exists to prevent fatigue and burnout (
Possible health and safety risks — tired or stressed employees are more prone to mistakes and accidents.
Cultural impacts — if cash-ups are frequent, you risk fostering a “no time off” culture.
Best Practice for Employers
Have a written policy — outline how employees can request a cash-up and how you’ll assess it.
Promote rest first — encourage staff to take annual leave before considering a cash-up.
Be consistent — apply the same process across all teams to avoid claims of unfair treatment.
Watch for patterns — repeated cash-up requests may indicate overwork or financial pressure.
Cashing out annual leave is a legal option, but it should be approached carefully. The aim is to respect employee choice while safeguarding their right to genuine rest — keeping your workplace healthy, productive, and compliant.