We'll create a pay item for the employee who's cashing out annual holidays. This lets you pay them for the value of the leave they're cashing in.

1. From the Payroll menu, choose Employees.
2. Click the employee's name to open their record.
3. Click the Pay items - earnings & deductions tab.
4. Click the dropdown arrow next to Add earning... and choose + Create new earning.
   
5. Set up the earning:
   1. For the Type, choose Standard earning
   2. Enter a Name for the earning such as "Cashed Out Annual Holidays" (or similar).

   3. If you'd like a different, more personalised, name to show on payslips for this earning, enter a Name for payslip. Otherwise, this can be the same as the Name field.

   4. For the Rate:
      • In Australia, choose Multiplier of normal rate and leave the Multiply by field as 1.00000. This means the cashed out leave will be paid at the employee's regular hourly rate.
      • In New Zealand, choose Per hour and leave the Amount field as 0.00. This lets you specify the amount in the employee's pay.
   5. For the Tax field, choose Taxable. If unsure, check with your accounting advisor or the ATO/IRD.

   6. Select your country-specific options. Here are some guidelines:

      Option	Details
      Exclude CEC	Selecting this option means compulsory employer contributions will be excluded from cashed out annual leave payments. If you're unsure about selecting this option, check with your accounting advisor or visit the IRD website.
      Exclude from gross earnings for leave calculations	Selecting this option excludes cashed out annual leave payments from leave calculations for Ordinary weekly pay or Average weekly earnings. However, the payments will still be included in the Use Ordinary weekly pay (OWP) formula. Learn more about Leave calculations.
      Don't accrue annual leave on this pay item	Select this option if you don't want employees to accrue pro-rata annual leave on this pay item. Note that employees with a fixed annual leave entitlement will never accrue leave on pay items.

6. Click Save. The pay item is saved for this employee and will now appear on their next pay. If you like, you can also assign this pay item to other employees who cash out annual holiday.

You're now ready to pay the employee for their cashed out annual leave.

1. Go to the Payroll menu and choose Enter Pay.
2. Choose the pay period and select the employee to be paid.
3. Click Start Pay Run.
4. Click Add Holidays or leave then click Annual leave. Take note of the hourly rate with the green tick beside it. Then click Cancel.
5. Enter the noted rate in the Rate field for the Cashed Out Annual Leave pay item.
6. Enter the Hours of annual holidays being cashed out. If the pay is only for the cashed out leave, remove all other hours and amounts from the pay.
7. Continue processing the pay as normal.

Now that you've paid the cashed out leave, you'll need to reduce the employee's leave balance. See below for instructions.

Because of the way you've paid the employee's cashed out leave, their leave balance won't be reduced.

Here's how to reduce their leave balance manually:

1. From the Payroll menu, choose Employees.
2. Click the employee's name to open their record.
3. Click the Leave tab.
4. Reduce the employee's annual leave balance by the number of hours of cashed in leave.
5. Enter the adjustment in the Available balance adjustment field.
   
6. Click Save.

The employee has been paid for their cashed in annual holidays and their leave balance has been reduced accordingly.

Unless cashing out annual holidays will be a regular occurrence for the employee, you'll probably want to remove the Cashed Out Annual Leave pay item from appearing in their future pays.

Here's how to unlink the pay item from the employee.

1. From the Payroll menu, choose Employees.
2. Click the employee's name.
3. Click the Pay items - earnings & deductions tab.

4. Click the ellipsis button next to the Cashed Out Annual Leave pay item and choose Unlink from employee.
   

5. Click Save.

If you need to re-assign the pay item to an employee, see Assigning pay items to employees.