A team member calls in sick on Monday morning. If they have no personal leave left — or they ask to use annual leave instead so they can save their sick days — you need to know immediately which leave type applies, whether you have any say in the matter, and how to code it in payroll. Getting this wrong, even once, can mean a breach of the National Employment Standards (NES), a messy payroll reconciliation, or a dispute that takes weeks to untangle.
The two leave types and what separates them
Under the Fair Work Act 2009 (Cth), full-time employees accrue two separate pools of leave that address illness:
Paid personal/carer's leave — commonly called sick leave — is provided under s 96 of the Fair Work Act 2009 (Cth). Full-time employees accrue 10 days per year (calculated as 1/26th of their ordinary hours of work annually). Part-time employees accrue on a pro-rata basis. Casual employees have no entitlement to paid personal/carer's leave under the NES.
Paid annual leave is provided under s 87 of the Fair Work Act 2009 (Cth). Full-time employees accrue four weeks per year. Part-time employees accrue pro-rata. Casual employees do not accrue annual leave under the NES, though some awards may provide otherwise.
These two entitlements exist for different purposes and, critically, they do not automatically substitute for one another. The choice of which leave type to apply to any given absence is not simply administrative — it determines pay rates, whether leave loading applies, and what records you need to keep.
A few practical distinctions matter in day-to-day management:
- Leave loading: Annual leave may attract a loading (typically 17.5%) under an applicable award or enterprise agreement. Personal/carer's leave carries no leave loading.
- Evidence: You can require reasonable evidence — such as a medical certificate or statutory declaration — before approving paid sick leave and, in certain cases, before re-crediting annual leave that was interrupted by illness.
- Payout on termination: Annual leave balances must be paid out on termination. Unused personal/carer's leave is not paid out.
- Cashing out: Annual leave can be cashed out in limited circumstances under some awards and enterprise agreements. Personal/carer's leave cannot be cashed out under any instrument.
The real question most employers are facing
The source of confusion is rarely "what is each leave type?" — most employers know the basics. The actual decisions tend to cluster around three scenarios, and each one has a different answer:
- An employee is sick but still has paid personal/carer's leave available — can you direct them to use annual leave instead?
- An employee's paid sick leave is exhausted and they want to use annual leave to get paid — can you agree to that?
- An employee falls ill during an approved annual leave period — can those days be re-credited?
One option that often comes up but is not generally available is requiring an employee to take unpaid leave while annual leave is sitting in their balance. Employees have a right to access the leave type that correctly applies to their circumstances; you cannot unilaterally reclassify the nature of an absence to suit rostering preferences.
Choosing the correct leave type
Whether paid personal/carer's leave is still available
This is the factor that matters most. If an employee has paid personal/carer's leave accrued and they are genuinely unwell, that is the entitlement that applies. You cannot direct them to use annual leave instead. An employee can voluntarily request to use annual leave in that situation — but genuine agreement is required; it cannot be pressured or assumed from silence.
The obligation runs the other way too: if an employee tries to claim sick leave when their purpose is to extend a holiday, you are entitled to ask for evidence of illness before approving it.
Whether paid sick leave has run out
Once an employee's personal/carer's leave balance is at zero, the landscape changes. You and the employee can agree to apply annual leave to cover the absence. This is often the most practical outcome — the employee maintains income, payroll stays consistent, and no special arrangement is needed beyond a clear written agreement.
If the employee does not want to use annual leave (or has no annual leave balance either), the remaining options are:
- Unpaid personal/carer's leave — an employee is entitled to take unpaid carer's leave under the NES even after paid leave is exhausted, for genuine illness or caring responsibilities. You can require evidence.
- Unpaid leave by agreement — you and the employee may agree to an unpaid absence, subject to any award conditions.
- Leave without pay — some awards and enterprise agreements have specific provisions. Check the applicable instrument before agreeing to anything outside the NES.
The employee type
Casual employees present a distinct scenario. They do not accrue paid personal/carer's leave under the NES. Whether they accrue annual leave depends on their award or enterprise agreement — most standard casual arrangements under modern awards do not include annual leave. An unwell casual typically has no entitlement to paid leave of any kind and will simply need to take time off without pay. Your workplace policy should state this plainly so there are no surprises.
What the award or enterprise agreement says
The NES sets the floor, but the award or enterprise agreement that applies to your workforce often adds rules that constrain your options. Common award provisions relevant here include:
- Rules on when and how you can direct an employee to take annual leave (see below)
- Specific notice requirements before you can redirect leave types
- Evidence thresholds for paid sick leave claims
- Shutdown provisions that may interact with accrued leave balances
Always check the applicable instrument before making a call that departs from the NES defaults.
Whether illness struck during an approved annual leave period
Under Fair Work Ombudsman guidance, if an employee is sick or injured during a period of approved annual leave, they can access paid personal/carer's leave for those days — and the annual leave balance is re-credited for the same period. The leave loading implications also shift accordingly.
Two conditions must be met for re-crediting to apply:
- The employee must have paid personal/carer's leave available.
- The employee must provide reasonable evidence that they were genuinely unfit for work during those days.
Only the sick days are re-credited, not the full holiday. Your policy should specify the evidence required and the timeframe for making a re-credit request.
How much annual leave the employee has accrued
If an employee's annual leave balance has grown to an excessive level — generally above eight weeks, or ten weeks for shift workers — some awards and enterprise agreements allow you to direct them to take annual leave. A direction to take excess annual leave:
- Must give reasonable notice (often at least eight weeks under award terms)
- Cannot result in the employee's balance falling below six weeks after the directed leave is taken
This power is separate from the sick leave question and should not be used to override a legitimate sick day. Directing an employee to use annual leave when they are ill and have sick leave available would constitute misclassification under the NES.
Correct leave type by situation
| Situation | Correct leave type | Can employer direct? |
|---|---|---|
| Sick, has paid personal/carer's leave | Personal/carer's leave | No — employee chooses |
| Sick, personal/carer's leave exhausted, employee agrees to use annual leave | Annual leave (by agreement) | Only by mutual agreement |
| Sick, personal/carer's leave exhausted, no agreement | Unpaid personal/carer's leave or unpaid leave by agreement | No direction to force annual leave |
| Ill during approved annual leave, leave available | Personal/carer's leave (annual leave re-credited) | N/A — employee may elect |
| Casual employee, unwell | No NES paid entitlement | N/A |
| Excessive annual leave balance (generally 8+ weeks) | Annual leave — direction possible | Yes, subject to award/agreement rules and minimum floor |
The pattern that causes the most payroll problems is misclassifying personal/carer's leave days as annual leave when the employee did not agree to the swap. Even if done with good intentions — to preserve a casual's income, or to help someone keep their sick leave in reserve — it can trigger underpayment claims if leave loading was not applied, or short-payment claims if the correct base rate was not used.
When to get advice from Artificer Legal
The NES entitlements are clear in straightforward cases. The difficulty arises at the edges: an employee who works split arrangements across casual and part-time contracts; an enterprise agreement that modifies the standard re-crediting rules; a long absence that moves through sick leave, annual leave, and unpaid leave in sequence; or a termination where disputed leave classifications affect the final payout.
Artificer Legal practitioners can help you:
- Audit your employment contracts and workplace policy to confirm they accurately reflect NES obligations, award conditions, and your internal processes
- Draft or update leave management clauses that set clear expectations around evidence, re-crediting, and short-notice requests
- Work through a specific disputed absence — including whether a direction to take annual leave was lawful, whether re-crediting should have occurred, and how to correct payroll records
- Advise on the applicable modern award or enterprise agreement for your workforce and flag any provisions that affect how leave types interact
If a long-term or repeated absence is raising questions about fitness for work, reasonable adjustments, or disciplinary action, that conversation needs legal input before you act.
The bottom line
The factor that resolves most of these situations is a simple one: check whether paid personal/carer's leave is available before deciding anything else. If it is, that is the entitlement — full stop. Annual leave can only substitute by genuine agreement, and it cannot be swapped in by employer direction when the employee is entitled to sick leave. The situations where re-labelling is both lawful and appropriate are narrower than many employers assume, and the record-keeping consequences of getting it wrong compound quickly.
The key points to carry forward:
- Full-time employees accrue 10 days of paid personal/carer's leave and four weeks of annual leave per year under the NES. Casuals have neither entitlement under the NES.
- When sick leave is available, it is the correct entitlement — annual leave can only substitute by genuine mutual agreement.
- If illness interrupts an approved annual leave period, those days can be re-credited as personal/carer's leave (where the employee has leave available and provides evidence).
- Employers can direct employees to take excess annual leave under some awards and enterprise agreements, but only when the balance exceeds the threshold and strict notice and floor requirements are met — never as a workaround for a legitimate sick day.
- Annual leave may attract leave loading under an applicable award; personal/carer's leave does not. Pay and payroll coding must reflect whichever leave type actually applies.
- Written policies and employment contracts that set out leave processes, evidence requirements, and re-crediting rules reduce disputes before they start.