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.
Contents
If you run a small business, you’ve probably had an employee ask something like: “I’ve got heaps of sick leave accrued - can I just cash it out?”
It’s a fair question. Paid personal/carer’s leave (often called “personal leave” or “sick leave”) can build up over time, especially for long-serving full-time staff who rarely take time off.
But from an employer perspective, requests to cash out personal leave are one of those areas where doing the “common sense” thing can accidentally put you on the wrong side of workplace law.
Below, we’ll walk you through how personal leave works under Australian employment law, when (if ever) it can be cashed out, what risks to avoid, and the practical alternatives that can help you respond to employee requests in a compliant way.
What Is Personal Leave (And Why Do Employees Accrue It)?
Under the National Employment Standards (NES) in the Fair Work Act 2009 (Cth), eligible employees are entitled to paid personal/carer’s leave.
Personal leave is generally used when an employee:
- is unfit for work because of personal illness or injury (sick leave), or
- needs to provide care or support to an immediate family or household member because of illness, injury, or an unexpected emergency (carer’s leave).
How Much Personal Leave Do Full-Time And Part-Time Employees Get?
As a general rule under the NES:
- Full-time employees accrue 10 days of paid personal/carer’s leave per year (based on ordinary hours).
- Part-time employees accrue paid personal/carer’s leave on a pro-rata basis.
- Casual employees don’t accrue paid personal/carer’s leave (though they may access unpaid carer’s leave in certain circumstances).
Importantly, paid personal/carer’s leave generally accumulates year to year if unused, which is why some employees end up with a large balance.
If you’re getting questions about what happens to leave balances over time, it can help to understand how leave behaves under the NES, including unused sick leave.
Can You Legally Cash Out Personal Leave In Australia?
In most situations, the short answer is: no - you generally can’t cash out paid personal/carer’s leave in Australia.
While some employers are familiar with the idea of cashing out annual leave, the legal position on personal leave is different.
Why Cashing Out Personal Leave Is Usually Not Allowed
The NES sets out minimum entitlements. Paid personal/carer’s leave is intended to protect employees when they’re unwell or caring for someone - it’s not designed as a “savings account” that can be converted into cash.
Because of that policy purpose, cashing out personal leave isn’t generally available in the same way as annual leave.
Common Trap: “We’ll Just Pay It Out As A Bonus”
Sometimes businesses try to meet an employee halfway by paying an amount equivalent to some (or all) of their personal leave balance as a “bonus”, “allowance”, or “ex gratia payment”, while the leave balance is reduced in payroll.
This approach can create legal risk because it can look (and operate) like cashing out an entitlement that is not meant to be cashed out.
Even if the employee is requesting it, an employee can’t simply “agree” to waive NES minimums if the effect is that minimum standards aren’t being met.
What About Enterprise Agreements Or Special Arrangements?
Some workplaces operate under an enterprise agreement (EA) with bespoke leave terms. Some modern awards and EAs can also include additional or different leave-related provisions (for example, in how certain arrangements are managed), but they still need to comply with the Fair Work framework and the NES minimums.
If you’re covered by an award or EA and you’re considering any kind of cash-out arrangement (or you’re planning to alter balances or payroll reporting), it’s worth getting specific advice before you implement anything.
Is Personal Leave Paid Out On Termination Or Resignation?
This is another area where employers can get caught out.
Generally, unused paid personal/carer’s leave is not paid out when employment ends (whether the employee resigns or you terminate their employment).
This is different from annual leave, which is usually paid out on termination. If you’re comparing the two types of entitlements, it’s helpful to separate:
- Annual leave (typically paid out on termination, and sometimes can be cashed out during employment in limited circumstances), and
- Personal leave (generally not paid out on termination, and generally not able to be cashed out during employment).
If you’re dealing with annual leave questions at the same time, you may also want to review cashing out annual leave so you don’t accidentally apply the wrong rules to the wrong entitlement.
What Are The Risks If You Try Cashing Out Personal Leave Anyway?
Even if your intentions are good (for example, you want to reward loyal staff or help them financially), the legal and compliance risks can be significant.
1. Breaching The National Employment Standards
If a cash-out arrangement reduces an employee’s paid personal/carer’s leave entitlement below what they should have under the NES, you may be exposed to claims or penalties.
This can be especially risky if it becomes a “standard practice” across your business, rather than a one-off conversation.
2. Underpayment And Record-Keeping Issues
Where leave balances are adjusted manually or outside your normal payroll process, it increases the likelihood of:
- incorrect payslips,
- incorrect leave accrual records,
- misclassification of payments, and
- future disputes about what was agreed.
Leave records are not just “nice to have”. If there’s ever a complaint, investigation, or dispute, your records will matter.
3. Flow-On Problems With Notice, Final Pay, And Termination Calculations
Leave balances often come up when an employee exits. If you’ve been informally adjusting balances over time, it can complicate final pay calculations and notice issues.
It’s also important to keep termination payments distinct from leave issues. For example, if you end employment and pay payment in lieu of notice, that is a separate legal concept to paying out leave entitlements.
4. Creating An Unintended “Policy” Or Precedent
Small business owners often try to be flexible and fair, which is a great instinct. But if you cash out personal leave for one employee, you may face pressure to do it again for others - and the business can quickly end up with an inconsistent or non-compliant practice that’s hard to unwind.
Practical Alternatives To Cashing Out Personal Leave (That Can Still Keep Employees Happy)
If an employee has asked about cashing out personal leave, it’s usually a sign they want more flexibility - not necessarily that they want to undermine the rules.
Here are practical, employer-friendly alternatives that are commonly used in Australia.
1. Consider Cashing Out Annual Leave (If Allowed)
In some workplaces, annual leave can be cashed out in limited circumstances (often under a modern award or enterprise agreement), as long as strict requirements are met.
This can be a helpful alternative where an employee is looking for additional money but you want to stay compliant.
It’s important not to treat annual leave cashing out casually - you need to get the rules right. The overview on cashing out annual leave is a useful starting point.
2. Offer A One-Off Bonus (Without Touching Leave Balances)
If you want to reward performance or retention, a discretionary bonus can be a clean alternative - provided it is:
- clearly documented as a bonus (not leave),
- paid through payroll correctly, and
- not linked to reducing personal leave balances.
This way, you’re not cashing out personal leave - you’re simply paying an additional amount for a separate business reason.
3. Encourage Staff To Use Personal Leave Properly
Some employees stockpile sick leave because they feel guilty taking time off, or because the workplace culture rewards “pushing through”.
From a risk management perspective, this can backfire. Unwell staff at work can create:
- workplace health and safety concerns,
- lower productivity, and
- higher risk of longer absences later.
Clear processes (including when evidence is required) can also reduce tension in sick leave management. You may find it helpful to align your approach with what’s considered reasonable around sick days without a certificate.
4. Use Time Off In Lieu (TOIL) Carefully (Where Appropriate)
Some employers look at time off in lieu (TOIL) as a way to provide flexibility without changing leave balances.
TOIL can be lawful in certain circumstances, but it must be managed carefully to ensure it complies with any applicable modern award or agreement. If you’re using TOIL, it should be properly documented and consistently applied (not handled informally).
For a broader view of compliance considerations, time in lieu is a useful reference point.
5. Set Clear Policies On Leave Requests And Supporting Evidence
A lot of leave disputes don’t come from the entitlement itself - they come from unclear expectations.
A well-drafted policy can cover:
- how to notify you about sick leave,
- when medical evidence is required,
- how you handle patterns of leave, and
- how leave interacts with rostering and operational needs.
This can be especially important if you manage shift workers and need reliable attendance planning.
How To Handle A Request To Cash Out Personal Leave (Step-By-Step For Employers)
When an employee asks about cashing out personal leave, your goal is to respond consistently, stay compliant, and preserve the working relationship.
Step 1: Confirm What Type Of Leave They Mean
Employees sometimes use “personal leave” to mean different things (for example, annual leave, rostered days off, or even long service leave).
Start by confirming:
- Are they referring to paid personal/carer’s leave (sick leave)?
- Or do they mean annual leave?
This matters, because the cash-out rules are different.
Step 2: Check The Employment Instrument (Award, EA, Contract)
Before you respond definitively, check what rules apply to that employee:
- their modern award coverage (if any),
- any enterprise agreement (if applicable), and
- their employment contract.
Remember: an award or enterprise agreement can contain specific terms you’ll need to follow, so it’s important to check the actual instrument that applies to your employee before making changes to pay or leave records.
If you don’t already have written employment terms in place, it’s a good time to tighten this up with a tailored Employment Contract.
Step 3: Respond Clearly (And Avoid Informal “Side Deals”)
If the request is genuinely about paid personal/carer’s leave, you’ll generally need to say no to cashing it out as an entitlement.
What you can do is explain the alternatives you’re willing to consider (for example, annual leave cashing out where permitted, a bonus, or a different flexibility arrangement).
Keep your response in writing (email is usually fine), so there’s a clear record of what was requested and what was decided.
Step 4: If You Offer An Alternative Payment, Document The Reason
If you decide to pay a discretionary bonus, document:
- that it is not a leave payout,
- the amount and timing, and
- any conditions (if applicable).
This protects you if questions arise later about whether the payment was actually an unlawful cash-out of leave.
Step 5: Review Your Leave Culture And Payroll Practices
If multiple employees are asking to cash out personal leave, it may be a sign that:
- your team doesn’t feel comfortable taking leave,
- employees want more financial support, or
- your leave policies aren’t clearly communicated.
Taking a proactive approach here can prevent future disputes and improve retention.
Key Takeaways
- Under the NES, cashing out paid personal/carer’s leave is generally not permitted in Australia (unlike annual leave, which can sometimes be cashed out in limited circumstances under an award or enterprise agreement).
- Unused paid personal/carer’s leave usually does not get paid out on termination, which is different to annual leave.
- Trying to “cash out” personal leave through informal payroll adjustments can create risks around NES compliance, record-keeping, and future disputes.
- If an employee wants extra pay, consider compliant alternatives like annual leave cashing out (where allowed), a discretionary bonus (without changing leave balances), or other flexibility arrangements.
- Clear contracts and policies help you handle leave requests consistently and reduce misunderstandings as your team grows.
If you’d like help reviewing your leave practices or putting the right employment documents in place, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
