Managing Annual and Sick Leave for Employers in Australia

Managing annual leave and sick leave well is part of running a fair, productive workplace. It keeps your team healthy, reduces burnout and helps you plan staffing with fewer surprises.

But as a small business owner in Australia, it can be tricky to balance employee entitlements with day-to-day operational needs. What can you ask for as evidence? When can you say no to a leave request? How do awards affect the rules?

In this guide, we break down how annual leave and sick leave work under the National Employment Standards (NES), what’s expected of you as an employer, and the contracts and policies that make managing leave much easier.

What Do “Annual Leave” And “Sick Leave” Mean Under Australian Law?

Under the NES, most employees are entitled to minimum leave entitlements. These apply whether or not your business is covered by an award or registered agreement (and those instruments can add to, but not reduce, the minimums).

Annual Leave (Paid)

• Accrual: Full-time employees accrue 4 weeks of paid annual leave for each year of service, pro rata for part-time employees. Shiftworkers (as defined by the applicable award/Agreement) may be entitled to 5 weeks.
• Accrues progressively: Leave builds up gradually based on ordinary hours worked and carries over year to year if unused.
• Taking leave: Employees request annual leave; you consider operational needs and any award rules about notice, shut-downs and peak periods.
• Payment: When on annual leave, employees are paid their base rate for ordinary hours. Some employees may be entitled to annual leave loading (often 17.5%) if an award or agreement says so.

Sick Leave (Personal/Carer’s Leave)

• Paid sick/carer’s leave: Full-time employees accrue 10 days of paid personal/carer’s leave per year, pro rata for part-time. It accrues progressively and carries over.
• When it can be used: When the employee is unfit for work because of illness or injury, or to provide care/support to an immediate family or household member due to illness, injury or an unexpected emergency.
• Casual employees: Casuals don’t get paid personal/carer’s leave under the NES, but can access 2 days of unpaid carer’s leave per occasion (and other unpaid NES leave types where relevant).
• Evidence: You can require reasonable evidence (for example, a medical certificate or statutory declaration) for paid personal/carer’s leave requests - more on this below.

Other Leave Types You’ll See

Keep in mind there are additional NES leave types: compassionate leave, family and domestic violence leave, community service leave and parental leave. Your leave policies should outline how each works so managers handle requests consistently.

How To Manage Annual Leave In Your Business

Annual leave is an important entitlement and also a key part of your workforce planning. Clear processes reduce friction and help you maintain service levels during busy periods.

Approving Or Refusing Annual Leave

Employees should submit leave requests with reasonable notice, following your policy. You can refuse a request if there are genuine business reasons - for example, during a critical trading period when multiple team members are already away.

Refusals must be reasonable and consistent with any award or agreement rules. This is a common sticking point, so it’s worth understanding the boundaries around whether an employer can refuse annual leave before you make a call.

Notice, Peak Periods And Close-Downs

Many awards set expectations around notice for taking annual leave and how close-downs (temporary business shutdowns) should be managed. Make sure your team knows any notice expectations in advance and align your policy with any award conditions about annual leave notice periods.

Cashing Out And Carryover

Cashing out annual leave is only allowed in limited circumstances, usually where an award/Agreement or contract permits it and specific safeguards are met (like keeping a minimum balance and putting it in writing). Otherwise, unused leave carries over year to year.

Pay While On Annual Leave

Employees are paid their base rate for ordinary hours while on annual leave, plus any applicable annual leave loading if required by an award/Agreement. Public holidays that fall during annual leave are handled separately under the NES.

Managing Sick Leave And Evidence Requirements

Personal/carer’s leave protects your people when they’re unwell and supports carers. A fair, consistent approach builds trust - and proper evidence rules deter misuse.

When Can You Ask For Evidence?

You can ask for evidence that would satisfy a reasonable person the leave was taken for the right reason - typically a medical certificate or a statutory declaration. Your policy should explain what evidence is acceptable and when it must be provided.

Medical Certificates And Casual Employees

Even though casuals don’t receive paid personal/carer’s leave, they can take unpaid carer’s leave and you can require reasonable evidence for that leave, too. If you engage casuals regularly, it’s useful to understand how evidence can work in practice and what’s reasonable under your policy and any award. For specifics, see medical certificates for casual employees.

Medical Clearance To Return To Work

If an employee takes personal leave for a health condition that might affect their capacity to perform inherent requirements or safety at work, you can in some cases ask for a fitness-for-work note. This must be reasonable in the circumstances and consistent with privacy and anti-discrimination obligations. For guidance on the boundaries, see when employers can request medical clearance.

Pay, Privacy And Managing Patterns

• Pay: Paid personal/carer’s leave is paid at the employee’s base rate for ordinary hours, not including overtime.
• Privacy: Handle medical information confidentially and store it securely in line with your privacy obligations and workplace policies.
• Patterns of absence: If you notice patterns (e.g. frequent Mondays), address concerns early and apply your evidence policy consistently. Focus on facts and support, not assumptions about health conditions.

Contracts, Policies And Payroll: Set It Up Right

Clear documentation is the easiest way to avoid disagreements about leave. It also keeps managers aligned and your payroll clean.

Employment Contracts

Your Employment Contract should set out key terms, refer to NES entitlements, identify the applicable award (if any), and explain how leave is requested and approved in practice. If you’re hiring permanent staff, a well-drafted Employment Contract is your baseline for setting clear expectations from day one.

Workplace Policies

Policies help you apply the rules consistently and transparently. A Staff Handbook or Leave Policy typically covers request processes, notice, peak periods/blackout dates, evidence requirements, close-downs, and contact procedures when someone is unwell.

If you’re formalising processes for the first time or refreshing outdated policies, consider a cohesive Staff Handbook so managers and staff are on the same page.

Payroll And Record-Keeping

• Accrual tracking: Use payroll software to calculate progressive accrual for annual leave and personal/carer’s leave (for eligible staff) based on ordinary hours.
• Payslips: Payslips must meet Fair Work requirements, including showing leave balances for certain employees.
• Award compliance: Configure pay categories so leave is paid at the correct base rate and any award-specific rules (including loading) are applied properly.

Common Employer Scenarios And How To Handle Them

Here are everyday situations we see, with practical ways to manage them while staying compliant.

1) Multiple Leave Requests For The Same Period

Use a first-in, first-approved approach unless there are compelling business reasons to prioritise specialist roles. Your policy can set expectations about peak periods and limits on concurrent leave. If you need to refuse, be reasonable and consistent with any award rules and your documented notice periods.

2) An Employee With A Large Leave Balance

Encourage planning and take a supportive approach first. Some awards allow you to direct an employee to take annual leave to reduce excessive accruals, provided you follow the process and give proper notice. Your policy should mirror any award process before you rely on a direction.

3) Sick Leave Runs Out But The Employee Is Still Unwell

If paid personal/carer’s leave is exhausted, the employee might access other options such as unpaid leave (or annual leave with their agreement). How you approach this will often depend on the award, the role’s inherent requirements, safety considerations and your policies. It’s helpful to understand the practical issues in managing sick leave when entitlements run out.

4) Probation And Leave Requests

NES entitlements still apply during probation. You can set expectations around notice and processes in your contract and policies, but you can’t deny minimum entitlements because someone is new to the team.

5) Resignation And Payouts

On termination, accrued but untaken annual leave must be paid out at the employee’s base rate, with any applicable award rules for loading. There are additional considerations if the employee resigns during a notice period while taking leave, or if you provide pay in lieu. For an overview of employer obligations, see annual leave on resignation.

6) Evidence Concerns Or Suspected Misuse

If patterns raise red flags, apply your evidence policy consistently and have a factual, supportive conversation. You can reasonably require evidence for personal/carer’s leave. For ongoing concerns, consider performance management steps anchored in conduct and attendance, not health-based assumptions.

7) Shut-Downs And Forced Leave

Some awards allow you to direct annual leave during a shut-down with proper notice. Others may require alternative arrangements. Always check the applicable award or agreement before announcing a close-down and reflect the process in your policy and employee communications.

Key Takeaways

• Annual leave and sick leave are core NES entitlements - most permanent staff accrue 4 weeks of annual leave and 10 days of paid personal/carer’s leave per year, pro rata for part-time.
• Approvals and refusals for annual leave must be reasonable and consistent with any relevant award rules, including notice expectations and peak period management.
• For sick leave, you can require reasonable evidence and, in some cases, a fitness-for-work note; make sure your policies are clear and applied consistently.
• Get the foundations right with a clear Employment Contract and a practical Staff Handbook that spells out request processes, evidence, notice and close-downs.
• Awards and agreements can add obligations (such as annual leave loading), so align your payroll and policies accordingly.
• Plan ahead for common scenarios - high leave balances, overlapping requests, shut-downs and what to do when paid sick leave runs out - so you can react fairly and quickly.

If you’d like a consultation on managing annual leave and sick leave in your small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.