Set up a payroll category for cashed out annual leave

AccountRight uses payroll categories to handle the different components of an employee's pay. Tell me more about payroll categories.

Here's how to set up a payroll category for cashing out annual leave.

1. Go to the Payroll command centre and click Payroll Categories.
2. On the Wages tab, click New.
3. Name the new category "Cashed Out Annual Leave" (or similar).
4. Choose the applicable ATO Reporting Category. Typically this would be set to Cash Out Of Leave In Service. If you're still reporting via STP Phase 1, this would typically be set to Gross Payments. But if you're not sure, check with your accounting advisor or the ATO. How do I move to STP Phase 2?
5. Set the Type of Wages to Hourly.
6. For the Pay Rate, choose the option Regular Rate Multiplied by and leave the rate set to 1.0000.
7. If you have a separate account you want to use to track the amounts you've paid as cashed out annual leave, select the Optional Account option and choose that account. Need a refresher on how to create accounts?
8. Click Employee and choose the employee(s) who are cashing out annual leave, then click OK.
9. Click OK to save the new payroll category.

You now need to ensure that when an employee cashes out annual leave, their leave balance is reduced.

Here's now:

1. Go to the Payroll command centre and click Payroll Categories.
2. Click the Entitlements tab.
3. Click the blue zoom arrow to open the Annual Leave Accrual category.
4. Click the dropdown arrow for Linked Wage Category and choose the Cashed Out Annual Leave wage category you created earlier.
   
5. Click OK, then click OK again to save your changes.

Pay the employee for their cashed out annual leave

By paying the cashed out leave in a separate pay, you can ensure no leave accrues on the pay and the employee can see exactly what they're being paid for.

1. Start a new pay run for the employee.
2. Click the blue zoom arrow () to edit their pay.
3. Enter a Memo to describe the pay - this will appear on the employee's pay slip.

4. Enter the number of annual leave hours being cashed out against the Cashed Out Annual Leave wage category.

5. Leave the calculated PAYG Withholding and Superannuation Guarantee contribution amounts, but remove all other hours and amounts. This includes removing any accrued entitlements.
   Here's our example of cashing out 1 week (38 hours) of annual leave.
   

6. Finish processing the pay as normal.