Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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When a team member wakes up unwell, you’re juggling rosters, customer commitments and compliance. A common question we hear from employers is: can an employee use annual leave when they’re sick, and can you require it?
The short answer is: sometimes. The rules depend on whether they have paid personal/carer’s (sick) leave available, what your contracts and policies say, and any applicable award or enterprise agreement.
In this guide, we’ll walk through how annual leave and sick leave interact under Australia’s National Employment Standards (NES), what you can and can’t require as an employer, and the practical steps to process these requests correctly and fairly.
Sick Leave Vs Annual Leave: What’s The Legal Difference?
Under the NES, full-time employees accrue 10 days of paid personal/carer’s leave (often called “sick leave”) each year. It is intended for illness or injury affecting the employee, and for caring responsibilities. Part‑timers accrue it on a pro‑rata basis. Casuals don’t get paid sick leave under the NES.
Annual leave (paid annual leave/holiday leave) is separate. Full-time employees accrue four weeks per year (pro‑rata for part‑time). It’s primarily for rest and recreation, and is usually taken by agreement.
Key differences to keep in mind:
- Purpose: Personal/carer’s leave is for illness, injury or caring; annual leave is for holidays or by mutual agreement.
- Evidence: You can ask for reasonable evidence (e.g. a medical certificate) for paid sick leave and, in certain cases, for annual leave taken at short notice.
- Pay calculations: Annual leave may attract annual leave loading if an award or agreement provides for it. Sick leave generally doesn’t have leave loading.
- Cash out: Annual leave can be cashed out in limited circumstances; sick leave cannot be cashed out and generally doesn’t get paid out on termination.
Can An Employee Use Annual Leave When They’re Sick?
In many workplaces, employees ask to use annual leave when they’re sick - often because their paid sick leave has run out, or because they’re a casual employee without paid sick leave. As an employer, here’s how to handle those scenarios.
If Paid Sick Leave Is Available
Where an employee still has paid personal/carer’s leave accrued, that is the correct entitlement to use for illness or injury. You should not direct an employee to use annual leave instead, unless they choose to and it’s genuinely by agreement.
If Paid Sick Leave Is Exhausted (Or Not Available)
Once paid sick leave is exhausted (or for casuals who do not have it), you and the employee can agree to use annual leave to cover the absence. This is often the most practical option to avoid a loss of income for the employee and to keep payroll consistent.
Alternatively, you can agree to unpaid personal/carer’s leave for illness or caring responsibilities. If you’re weighing up options, this piece on managing sick leave when entitlements run out sets out practical pathways employers typically use.
Re‑Crediting Annual Leave Taken While Sick
If an employee falls sick during a period of approved annual leave and provides reasonable evidence, those days can generally be re‑credited as personal/carer’s leave and the annual leave balance restored (provided they have paid sick leave available and the absence was genuinely due to illness).
That re‑crediting principle typically applies only to the sick portion, not the entire holiday. Make sure your policy clearly explains the process and evidence required.
What About Casual Employees?
Casuals do not accrue paid sick leave under the NES, so if they’re unwell they can request annual leave only if they have an annual leave entitlement under an award or enterprise agreement (most casuals do not accrue annual leave either). In practice, unwell casuals often take time off without pay or you may offer additional flexibility under your internal policy.
Can You Require Employees To Use Annual Leave Instead Of Sick Leave?
Generally, no. If an employee is unfit for work and has paid sick leave available, they are entitled to take it. You cannot unilaterally reclassify a sick day as annual leave or require the employee to use holidays instead of their personal/carer’s leave.
There are, however, limited situations where you can require the use of annual leave:
- Excess annual leave: Some awards and enterprise agreements allow you to direct employees to take annual leave if their balance is excessive, subject to strict rules and notice. This is unrelated to sick leave and shouldn’t be used to override a legitimate sick day.
- Close-downs/shutdowns: If you shut down over a holiday period, some awards let you direct employees to take annual leave with minimum notice. That is separate from illness and should be set out in your policy and communications.
- Mutual agreement: An employee may prefer to use annual leave (for example, once their sick leave is exhausted). That choice must be genuinely agreed, not pressured.
Be consistent and careful with classification. Re‑labelling a sick day as annual leave without agreement can breach the NES and create payroll and record‑keeping issues.
Evidence, Pay And Payroll: Getting It Right
When someone is unwell, handle the paperwork and pay settings correctly from day one. This protects your business and keeps trust with your team.
Evidence You Can Request
- Reasonable evidence: You can ask for evidence such as a medical certificate or statutory declaration that the employee was unfit for work. This applies to paid sick leave days and, where appropriate, to re‑credit annual leave that was interrupted by illness.
- Policy-based triggers: Many employers set a policy that a certificate is required for absences of two or more consecutive days, or for absences adjacent to a public holiday. If your workforce includes casuals, it’s worth clarifying your expectations around medical certificates for casual employees too.
Pay And Entitlements
- Sick leave pay: Paid at the employee’s base rate of pay for ordinary hours they would have worked.
- Annual leave pay: Paid at the employee’s base rate of pay for ordinary hours, plus any applicable leave loading under an award or agreement.
- Superannuation: Super is generally payable on ordinary time earnings, which includes paid sick leave and annual leave. Check your award/enterprise agreement for any variations.
- Public holidays: If a public holiday falls during approved leave, different rules may apply to pay and how the day is counted. Capture this in your payroll notes and policy.
If an employee has run out of sick leave and doesn’t wish to use annual leave, you can discuss unpaid leave or the rules around leave without pay for short absences, considering any award terms.
Record-Keeping
Record the type of leave taken, dates, hours, and any evidence supplied. This helps you demonstrate compliance with the NES, awards and payroll obligations. It also simplifies re‑crediting if a holiday was interrupted by a genuine illness.
During Notice Periods
Employees can access sick leave during a notice period if they are unfit for work. If they request to use annual leave during notice, consider the operational impact, any award rules, and pay implications. If termination is involved, factor in balances and rules around annual leave payments and any obligations for payment in lieu of notice.
What Should Your Policies And Contracts Say?
Clear documents make hard days easier. The best way to avoid disputes about “annual leave vs sick leave” is to set expectations up front and apply them consistently.
Employment Contracts
Your Employment Contract should outline leave entitlements, how leave is requested and approved, and any interactions with relevant awards or enterprise agreements. While the contract can’t undercut the NES, it can clarify processes and evidence requirements.
Workplace Policies
A well-drafted Workplace Policy or staff handbook can cover:
- How to notify you of illness and by when.
- When evidence is required (e.g. medical certificates, statutory declarations).
- How annual leave requests are handled, including emergencies and short-notice requests.
- Re‑crediting process if an employee becomes ill during annual leave.
- When leave without pay may be considered and how it’s approved.
- Any special award or enterprise agreement rules at your workplace.
A consistent, written process reduces the risk of ad‑hoc decisions that can feel unfair or create legal risk. For recurring issues or long absences, it can help to have a template approach aligned with your obligations and your business operations.
Handling Long Or Repeated Absences
Long or repeated absences can be challenging. Beyond the immediate question of which leave bucket applies, consider fitness for work, reasonable adjustments and consultation obligations. This guide to managing employee sick leave when entitlements run out outlines practical options employers commonly use to balance support with operational needs.
Awards, Enterprise Agreements And Custom Arrangements
Always check the applicable award or enterprise agreement. Many instruments include detailed rules about directing annual leave, requiring evidence, shutdowns, excessive leave balances and cashing out. If you have negotiated terms with senior staff, make sure those documents align with the NES and your policy framework.
Training For Managers And Payroll
Train supervisors on the difference between sick and annual leave, when evidence can be requested, and how to escalate unusual requests. Ensure payroll understands coding and entitlements so that leave loading, superannuation and balances are calculated correctly.
Key Takeaways
- Employees should use paid personal/carer’s leave when they’re genuinely unwell and have it available; annual leave is for holidays and can only substitute by genuine agreement.
- You generally cannot force an employee to use annual leave instead of sick leave, but you can agree to annual leave if sick leave is exhausted or consider unpaid leave options.
- If illness interrupts a booked holiday and the employee provides evidence, you can re‑credit the annual leave and process the days as sick leave (subject to entitlement).
- Set clear expectations in your Employment Contract and Workplace Policy, including evidence rules, re‑crediting, and short-notice requests.
- Pay and payroll settings differ: annual leave may attract leave loading under some instruments; sick leave does not. Keep clean records and apply awards/agreements correctly.
- For edge cases like long absences, depleted balances or notice periods, use a consistent, documented process that balances legal compliance with operational needs.
If you’d like a consultation on managing sick leave and annual leave in your workplace, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
