Annual leave and personal/carer's leave (what most people call sick leave) are the two leave entitlements Australian employers handle every week. Both come from the National Employment Standards (the NES) in Part 2-2 of the Fair Work Act 2009 (Cth), and both are minimum standards that no award, enterprise agreement or employment contract can undercut. But the similarities end there. The two entitlements accrue at different rates, are triggered by different events, are governed by different approval rules, and are treated completely differently when an employee leaves.
Getting those differences wrong is how underpayments, unfair-refusal complaints and final pay disputes start. This article walks through how each entitlement actually operates: who accrues what, how each type of leave is taken, what you pay, and what happens at the end of employment. It is written for the person who has to make the call on a leave request or a final pay, so the focus is on the mechanics that bite in practice.
The two entitlements and who gets them
The NES divides leave into two separate schemes. Annual leave sits in Division 6 and exists for rest and recreation. Paid personal/carer's leave sits in Division 7 and exists for illness, injury and caring responsibilities. Who qualifies differs between the two.
- Annual leave: every employee except a casual is entitled to 4 weeks of paid annual leave for each year of service, calculated on their ordinary hours of work. The entitlement rises to 5 weeks where a modern award or enterprise agreement defines the employee as a shiftworker for NES purposes, or where an award/agreement-free employee qualifies under s 87 of the Act. Casual employees receive no paid annual leave.
- Paid personal/carer's leave: full-time and part-time employees are entitled to 10 days of paid personal/carer's leave per year of service, again based on ordinary hours, under s 96. Casual employees receive no paid personal/carer's leave.
- Unpaid entitlements for casuals: casuals do still have NES leave rights. They are entitled to 2 days of unpaid carer's leave for each occasion a member of their immediate family or household needs care, and 2 days of unpaid compassionate leave per occasion under s 102 and s 104.
Paid personal/carer's leave covers two distinct situations under s 97: the employee is not fit for work because of a personal illness or injury, or the employee needs to provide care or support to an immediate family member or household member affected by illness, injury or an unexpected emergency. That second limb is easy to overlook. A day taken to care for a sick child or a household member counts against the same 10-day balance as a day the employee is sick themselves.
How the leave accrues
Both entitlements accrue progressively through the year rather than arriving as a lump sum on the anniversary of employment.
- Annual leave: accrues progressively during each year of service according to the employee's ordinary hours under s 87. The Fair Work Ombudsman confirms it starts accumulating from the first day of employment, even during a probation period, and unused leave rolls over from year to year.
- Paid personal/carer's leave: also accrues progressively according to ordinary hours, and accumulates from year to year under s 96. The Fair Work Ombudsman's sick and carer's leave page confirms that full-time employees get 10 days per year, part-time employees get the pro-rata equivalent, and unused leave carries over.
The pro-rata point matters for part-time workforces. A part-time employee working 20 hours a week accrues annual leave at 80 hours for a full year of service, which is the equivalent of 4 weeks at their ordinary hours. The same logic applies to the 10 days of personal leave. Leave that is taken is deducted from the running balance; leave that is not taken keeps accumulating.
Accrual also depends on what kind of leave the employee is on. According to the Fair Work Ombudsman's annual leave page, annual leave keeps accruing while an employee is on paid leave, including paid sick and carer's leave, community service leave and long service leave. It does not accrue during unpaid leave such as unpaid carer's leave or unpaid parental leave. The practical consequence is that balances move every pay period, so they need to be tracked every pay period. Accurate records of balances, approvals and evidence are the first line of defence if a dispute later reaches the Fair Work Commission.
How each type of leave is taken
This is where the two schemes behave most differently. Annual leave is scheduled and requires agreement. Personal leave is reactive and requires notice and evidence after the fact.
Annual leave is taken by agreement
Under s 88, paid annual leave may be taken for a period agreed between the employee and the employer, and the employer must not unreasonably refuse a request. That is the legal test for every annual leave refusal: not whether the business would prefer the employee to work, but whether the refusal is unreasonable in the circumstances. Operational needs, how many other staff are already away, and the impact on customers or safety are all legitimate factors. A refusal that is arbitrary, inconsistent or retaliatory is the kind that gets an employer in trouble.
Employers can also move first. Modern awards and enterprise agreements may include terms requiring an employee to take annual leave in particular circumstances, as long as the requirement is reasonable, under s 93. For award/agreement-free employees, the employer may require a period of paid annual leave if the requirement is reasonable, and the Act itself gives the examples of an excessive accrued balance and an enterprise shutdown under s 94.
Personal leave is taken as needed, then evidenced
An employee who takes paid personal/carer's leave, unpaid carer's leave or compassionate leave must give notice as soon as practicable, which the Act expressly allows to be after the leave has started, under s 107. The employee must also, if asked, give evidence that would satisfy a reasonable person that the leave is for a permitted reason. That is the ceiling on what you can demand: evidence that would satisfy a reasonable person, which in practice usually means a medical certificate or a statutory declaration. You can set a consistent threshold in your policy, for example evidence for any absence of two days or more or for a repeated pattern, but the evidence you request must stay within the reasonable person test and any evidence rules in your award.
What you pay, and what happens when employment ends
Both entitlements are paid at the same rate, but they diverge sharply at termination.
- Payment while employed: Annual leave is paid at the employee's base rate of pay for their ordinary hours under s 90, and paid personal/carer's leave is paid the same way under s 99. Many modern awards add an annual leave loading on top of the base rate when leave is taken, so check the applicable instrument before you calculate. The NES itself does not mandate a loading.
- Annual leave is paid out on termination: If employment ends with untaken annual leave, the employer must pay the amount that would have been payable had the employee taken the leave, under s 90. This is a mandatory final pay item, and it applies to every departure: resignation, dismissal, redundancy or end of a fixed-term contract.
- Personal leave is not paid out: The NES contains no equivalent payout for unused personal/carer's leave. Accrued but untaken sick leave simply does not convert to money when employment ends. This is the clearest practical difference between the two entitlements, and it surprises employees more than employers.
- Cashing out annual leave: Paid annual leave must not be cashed out at all except through an award or enterprise agreement term, or through a written agreement with an award/agreement-free employee, under s 92, s 93 and s 94. The rules are strict: each cash-out needs a separate written agreement, the employee's remaining balance must stay at or above 4 weeks, and the employee must be paid at least the full amount they would have received had they taken the leave. Personal/carer's leave can only be cashed out if the award or enterprise agreement expressly allows it, and any such term must keep the employee's remaining balance at or above 15 days under s 101. Very few awards include that term, so treat sick leave as effectively non-cashable.
- Public holidays during leave: If a public holiday falls inside a period of annual leave, the employee is taken not to be on annual leave that day under s 89. The day comes out of the public holiday entitlement, not the annual leave balance. The same rule applies to personal leave under s 98.
Where the edge cases bite
The straightforward cases are easy. The disputes live in the overlaps, and a few scenarios come up repeatedly.
An employee gets sick while on annual leave
Under s 89, if a period of annual leave includes a period of any other NES leave, the employee is taken not to be on annual leave for that period. So where an employee becomes ill during approved annual leave and takes paid personal/carer's leave instead, with the usual evidence, those days can be reclassified and the annual leave is preserved rather than consumed. Most awards set out how this conversion works, so check the award and apply it consistently.
An employee is sick during their notice period
A genuinely unfit employee with accrued personal leave can take it during the notice period like any other period of employment. Whether that shifts the actual termination date depends on the circumstances and any award or enterprise agreement rules. The critical point for you is that final pay must be calculated to the actual last day, including the full annual leave payout under s 90.
Personal leave runs out
Once the paid balance is exhausted, the employee's options depend on the reason for the absence. For caring responsibilities, unpaid carer's leave of up to 2 days per occasion remains available under s 102, though it cannot be taken when paid personal leave is available instead. Annual leave can be taken by agreement, and unpaid leave can be agreed. What you cannot do is treat the absence as annual leave unilaterally or start docking pay without working through the options.
Excessive annual leave balances
Awards commonly include excessive-leave clauses that allow the employer to direct leave with notice, and award/agreement-free employers can require leave where it is reasonable, with excessive accrual and shutdowns given as examples in the Act. Reasonable notice and a documented process keep these directions defensible.
Casual employees
Casuals accrue no paid annual leave and no paid personal leave, but they do get 2 days of unpaid carer's leave per occasion and 2 days of unpaid compassionate leave per occasion, with compassionate leave unpaid for casuals under s 106. Record these the same way you record paid leave, because they are still NES entitlements.
Evidence disputes
When an employee cannot produce a medical certificate, a statutory declaration may satisfy the reasonable person test, depending on your policy and the award. If genuine misuse is suspected, the issue should be managed through the performance or conduct process rather than by retrospectively converting the absence to annual leave without agreement.
Where a lawyer earns their fee
The NES is the floor, not the whole picture. The first thing that changes in practice is the applicable modern award or enterprise agreement, and that is where a lawyer's review pays for itself.
- Award and agreement mapping: Which award applies, whether your employees are defined as shiftworkers, what loading applies, what evidence thresholds the award sets, and whether it contains excessive-leave or cashing-out terms. These details change the answers to almost every question above.
- Policies and contracts: A leave policy that sets request processes, evidence thresholds and shutdown rules in writing, and employment contracts that align with the NES and the award, remove most of the grey areas before they become disputes.
- Final pay before termination: Annual leave payout miscalculations, including missed loading and wrong termination dates, are among the most common underpayment claims. A calculation checked against the award before the employee leaves is far cheaper than a Fair Work investigation after.
- Disputed leave and dismissals: Refusing leave unreasonably, or dismissing an employee in connection with a leave dispute, can expose the business to unfair dismissal and general protections claims in the Fair Work Commission. A lawyer can assess the risk before the decision is made rather than after the application lands.
The final pay is where the scheme bites hardest
If there is one place to concentrate your attention, it is the termination payment. Annual leave converts to money on the last day and personal leave does not, and getting that split wrong is the most common and most expensive mistake in this area of the law. An underpaid final pay can become a Fair Work Ombudsman complaint, a court claim or a general protections application, none of which is proportionate to the cost of checking the award first.
The same logic applies to leave decisions made during employment. Annual leave can be refused on reasonable business grounds and personal leave can be refused only where the evidence fails the reasonable person test, so the quality of your records and the consistency of your approvals determine whether either decision survives scrutiny. If you are facing a termination, a disputed refusal or a new award that you are not sure applies, a short consultation to confirm the mechanics before you act is a small price against the cost of getting it wrong.