Managing sick leave can feel tricky, especially when questions pop up around accrual, end-of-employment payouts, and what records you actually need to keep. The good news is the Fair Work framework is clear once you break it down.
In this guide, we’ll explain how paid personal/carer’s leave (often called “sick leave”) works in Australia, what happens to unused leave, whether it carries over, why it can’t be cashed out, and the practical steps employers can take to stay compliant while supporting a healthy workplace.
How Does Sick Leave Work Under The NES?
Under the National Employment Standards (NES) in the Fair Work Act, paid personal/carer’s leave covers time off when an employee is unwell, needs to care for an immediate family or household member, or faces an unexpected emergency affecting that person.
- Full-time employees: 10 days paid personal/carer’s leave per year.
- Part-time employees: Pro-rata entitlement based on ordinary hours of work.
- Accrual and carry over: Unused paid personal/carer’s leave accumulates from year to year with no cap while the employee remains employed by the same employer.
- Casual employees: Casuals don’t receive paid personal/carer’s leave under the NES, but they are entitled to certain unpaid leave entitlements (such as unpaid carer’s leave and compassionate leave), and separate paid family and domestic violence leave applies under recent changes.
Employees may be required to provide reasonable evidence (for example, a medical certificate) when they take this leave. What counts as “reasonable” depends on the circumstances, but it’s important your approach is consistent and compliant with the law and any applicable industrial instrument.
Employers must keep accurate records of leave and attendance. While many payroll systems display balances for transparency, payslips are not legally required to show leave balances under the Fair Work Regulations. You should still ensure balances are tracked accurately and available if queried or required.
Your contracts and policies should match these settings. Having a tailored Employment Contract and a clear leave policy can avoid confusion and set fair, consistent processes for staff from day one.
What Happens To Unused Sick Leave When Employment Ends?
This is one of the most common questions we hear from small businesses. In short: under the NES, unused paid personal/carer’s leave is not paid out when employment ends.
- Resignation: There’s no requirement to pay out accrued but unused sick leave.
- Termination or dismissal: No payout applies for unused sick leave.
- Redundancy: Unused sick leave is not included in redundancy pay or other termination entitlements.
The only time you’d treat unused personal/carer’s leave differently is if a binding industrial instrument or contract lawfully requires something else. In practice, that’s rare-and clauses that attempt to pay out personal/carer’s leave will generally not be effective where they conflict with the NES.
Other entitlements may be payable on exit (for example, annual leave and sometimes long service leave, depending on the jurisdiction and service length). It helps to build a checklist for exits and calculate entitlements consistently. If you’re finalising someone’s pay, ensure your approach aligns with the NES and any applicable instrument, and consider a step-by-step process similar to the guidance in calculating final pay for departing employees. If you’re also navigating annual leave balances at exit, keep your approach consistent with your obligations around annual leave on resignation.
Does Sick Leave Carry Over Each Year?
Yes. Unused paid personal/carer’s leave rolls over indefinitely while the employee remains employed by the same employer. There’s no annual reset or cap under the NES.
Once employment ends, any remaining balance is forfeited unless a lawful instrument says otherwise (again, this is uncommon). Make sure this is clear in your policies and FAQs so employees understand the difference between annual leave (which is paid out on termination) and sick leave (which is not).
Can Sick Leave Be Cashed Out In Australia?
No. Under the NES, paid personal/carer’s leave cannot be cashed out. This is different to annual leave, which can be cashed out in limited circumstances subject to strict rules. If you see a clause in an agreement or policy that suggests sick leave can be cashed out, that provision will generally be inconsistent with the NES and shouldn’t be relied upon.
It’s important this is reflected accurately across your internal documents. If you’re updating your leave settings or onboarding a new payroll system, check that any “cash out” functionality is disabled for personal/carer’s leave to prevent accidental non-compliance.
Managing Sick Leave Day To Day (Evidence, Notice, And Edge Cases)
Day-to-day management matters just as much as the headline rules. Clear expectations and consistent processes will help reduce disputes, protect employee privacy, and support a healthy culture.
Reasonable Evidence And Notice
You can ask employees to provide reasonable evidence that the leave is taken for a permitted reason. This often includes a medical certificate or statutory declaration, depending on the situation. What’s “reasonable” will vary based on factors such as the length of the absence, timing, and any past concerns.
To reduce friction, set out your approach in your leave policy and training materials. For a deeper look at setting boundaries around evidence, see when employers can request medical certificates under Australian law.
If Sick Leave Runs Out
Sometimes an employee may have an ongoing illness and exhaust their paid personal/carer’s leave. In these cases, you’ll move into unpaid entitlements (such as unpaid carer’s leave for eligible events) and may need to consider reasonable adjustments, flexible work arrangements, or other support options. A supportive and lawful approach limits risk and helps retain valued staff where that’s possible.
There’s helpful guidance on practical steps and employer obligations in managing sick leave when entitlements run out.
Sick Leave During A Notice Period
Employees may fall ill during their notice period. They can use any accrued paid personal/carer’s leave for authorised absences in that period, and you’ll need to apply your usual evidence rules. However, personal/carer’s leave doesn’t extend the notice period by default unless a relevant instrument says otherwise.
For the mechanics and common pitfalls here, it’s worth reviewing your process against the guidance in sick leave during a notice period, and ensuring your termination letters explain what happens to each entitlement.
Medical Capacity And Employment
If an employee has a long-term illness or injury, you may eventually need to consider capacity to perform the inherent requirements of their role. This area sits at the intersection of employment, safety, and discrimination laws-so proceed carefully.
Before making decisions, consider medical evidence, reasonable adjustments, any obligations under a modern award or enterprise agreement, and procedural fairness. Our overview of termination on medical grounds walks through the key risks and steps.
Employer Best Practices And Documents To Have
Clear, well-communicated rules minimise confusion and help your managers respond consistently. Here’s a practical roadmap.
Set Expectations In Writing
- Employment Contracts: Use a modern, compliant Employment Contract that reflects NES personal/carer’s leave entitlements and any award/enterprise agreement overlay. Keep clauses simple and consistent with the NES.
- Leave Policy: A plain-English policy housed within a broader workplace policy pack can outline when leave applies, how to notify, what evidence may be required, and what happens if paid leave runs out.
Train Managers And Use Consistent Processes
- Evidence rules: Teach managers what “reasonable evidence” looks like and when it’s appropriate to request it. Consistency reduces the risk of unfair treatment claims.
- Record keeping: Keep accurate leave records and ensure your payroll settings reflect the NES (e.g. no cashing out of sick leave). Payslips don’t need to show balances, but your HR system should maintain up-to-date accruals.
- Support first: Encourage early check-ins for longer absences, ask whether adjustments could help, and make referrals to EAP or similar supports where available.
Make Exit Steps Clear
- Exit communications: Standardise letters and checklists so they accurately describe what will (and won’t) be paid on termination. Keep your approach aligned with the NES and any relevant instrument.
- Final pay: Align timing and content of the final payment with your legal obligations. Cross-check against your processes for calculating final pay to avoid errors.
Align Policies With The NES
Finally, audit your template contracts and leave policies to ensure there’s no suggestion that personal/carer’s leave can be cashed out, and that rollover, evidence, and forfeiture at termination are described correctly. If you include guidance about study leave, compassionate leave, and family and domestic violence leave, make sure those sections are also current and consistent across your documents.
Key Takeaways
- Paid personal/carer’s leave (commonly called sick leave) is an NES entitlement that accrues for full-time and part-time employees and carries over from year to year with no cap.
- Unused sick leave is not paid out on resignation, termination, or redundancy under the NES; any clause suggesting otherwise will generally be inconsistent with the law.
- Personal/carer’s leave cannot be cashed out in Australia-ensure your contracts, policies, and payroll settings reflect this.
- Payslips do not have to show leave balances, but you must keep accurate leave records and apply consistent evidence rules.
- If an employee runs out of paid sick leave, consider unpaid options, reasonable adjustments, and a supportive, compliant process-especially for longer-term illness.
- Set expectations through a clear Employment Contract and leave policy, train managers, and standardise your exit processes to reduce risk and confusion.
If you’d like a consultation on Australian sick leave rules, employment contracts, or workplace policies, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
