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Xero – Pay Out or Cash In Accrued Unused Annual Leave Any Time

by | 11 Mar 2018 | Payroll

Sometimes employees accumulate a lot of annual leave and prefer to be paid the money instead of taking a holiday. When this happens, you can “pay out” or “cash in” some of their annual leave in Xero. In this tutorial, I will show you how to pay out some of the accrued annual leave of an employee in Xero’s demo company.

Before you pay out any annual leave for your employees, be sure to visit and familiarise yourself with the latest rules for cashing out annual leave.

Add a Leave Request

In this tutorial we will allow demo company employee Odette Garrison to cash in seven hours of her annual leave. The first thing we need to do is add a leave request:

  1. Go to Payroll → Employees in the main menu.
  2. Choose Odette Garrison.
  3. Click on the Leave tab. Here, we can see that Odette has 27.0574 hours of annual leave accrued.
  4. Click on New Leave Request.
  5. Populate the fields in the popup box as follows:
    • Type of request: choose Annual Leave
    • Description: type in Cash Out
    • Start Date: select a date about four days before the current date. I have selected 17-July-2018.
    • End Date: make this the same date as the Start Date
    • Hours (the bottom field): type in 7.00
  6. Press Approve when ready.


Odette should now have seven hours of approved leave to take in the pay run that covers the date you entered as the Start Date and End Date.

Set Up the Pay Run

Now we need to process the pay run that will include Odette’s approved annual leave:

  1. Go to Payroll → Pay Employees in the main menu.
  2. Click on + Add Pay Run.
  3. Select the pay run that will include Odette’s annual leave payment. For this exercise, I have chosen Weekly Calendar: Week ending 21 Jul 2018.

Check and Adjust the Pay Template

Once you have started the pay run you can check to see if Odette’s annual leave payout is included in her pay template:

  1. Click on Odette Garrison to go into her pay template.
  2. Check the earnings section to see if there is 7.00 hours of Annual Leave included.
  3. Check her Annual Leave accrual for this pay run towards the bottom of the pay template. We can see that Odette will have 1.3425 hours to her annual leave balance owing.


At this point, you may need to consider making a PAYG tax adjustment if you are processing an annual leave pay out for a real employee. This is because Xero may not calculate the right amount of PAYG tax on a lump sum annual leave payment. In this tutorial we are not making a tax adjustment, so we can go ahead and finish the exercise.

Post the Pay Run

Once you have adjusted and checked Odette’s numbers, save the pay template and post the pay run. Odette’s annual leave pay out should now be complete and her annual leave balance should have reduced.

We’ll finish the exercise by going to Payroll → Employees → Odette Garrison → Leave and checking her annual leave balance. Here we can see that Odette now has 21.3999 hours of annual leave owed to her. You may recall that before posting the pay run her balance was 27.0574. By subtracting the 7.00 hours of annual leave cashed in and adding the 1.3425 hours she gained through the pay run we get 21.3999, which checks out with the balance in Xero. Success!



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