Cashing out sick leave means paying an employee for accrued personal leave they have not taken, instead of letting them take the time off. Employees with large balances sometimes ask for it, and employers sometimes offer it as a goodwill gesture when someone leaves, or to clear a leave liability off the books. For most Australian businesses, though, the answer is no. Sick leave, which the Fair Work Act 2009 (Cth) (the Act) calls paid personal/carer's leave, can only be cashed out in the narrow circumstances set out in the Act and in the industrial instruments that sit underneath it. Get those circumstances wrong and you are in breach of the National Employment Standards (the NES), with the Fair Work Ombudsman able to investigate and seek penalties.
This article walks through how cashing out personal/carer's leave actually operates: the default rule, the statutory conditions any cashing out arrangement must satisfy, the few awards that permit it, how enterprise agreements can open the door, and the mistakes that most often land employers in trouble.
The default rule: personal leave stays as leave
s 100 of the Act states that paid personal/carer's leave must not be cashed out except in accordance with cashing out terms included in a modern award or enterprise agreement under s 101. The NES simply creates no general right to convert sick leave into cash. The Fair Work Ombudsman's guidance is blunter still: most awards do not allow sick and carer's leave to be cashed out, and an award or agreement-free employee cannot cash out paid sick or carer's leave at all.
The contrast with annual leave shows how deliberate this design is. Annual leave can be cashed out where a modern award or enterprise agreement includes a cashing out term, and even award or agreement-free employees can agree with their employer to cash out annual leave, provided they keep at least four weeks in the bank. There is no equivalent for personal/carer's leave. If the employee is not covered by an award or agreement that permits it, cashing out paid sick or carer's leave is simply not available, no matter how long the employee has worked or how big the balance is.
Termination is the other common point of confusion. Under s 90(2) of the Act, when employment ends with untaken annual leave, the employer must pay it out. There is no corresponding NES obligation for personal/carer's leave. Unused sick leave lapses when employment ends unless the applicable award or agreement says otherwise. That is why the Black Coal provision discussed below stands out: it is one of the rare cases where an award itself requires payment of accrued personal leave on defined terminations.
Who is involved
A small set of parties drives this area of law. The employee accumulates the leave and must elect, in writing, to cash it out where the instrument allows. The employer decides whether to agree, makes the payment, and carries the compliance risk if the payment was not permitted. The Fair Work Commission approves and registers the enterprise agreements that can contain cashing out terms. And the Fair Work Ombudsman enforces the NES, including the power to investigate an employer who pays out leave without a lawful basis.
The interests at play are worth noting. An employer who wants to clear a leave liability sees cashing out as a win. An employee facing a cash shortfall may prefer money now over leave later. Both preferences run against the logic of the NES, which treats personal/carer's leave as a protective entitlement that should be there when illness or caring needs actually arise. That tension is why the law sets a floor under the balance, requires a written agreement each time, and makes coercion unlawful.
The statutory gateway: what a cashing out term must require
s 101 of the Act allows a modern award or enterprise agreement to include terms providing for the cashing out of paid personal/carer's leave. Where such a term exists, the Act requires it to deliver three safeguards:
- The 15 day floor: paid personal/carer's leave must not be cashed out if the cashing out would leave the employee with less than 15 days of untaken paid personal/carer's leave.
- A separate written agreement: each cashing out of a particular amount must be by a separate agreement in writing between the employer and the employee.
- Full payment: the employee must be paid at least the full amount that would have been payable had they taken the leave.
These conditions matter in practice. A standing policy that personal leave can be cashed out is not enough on its own; each payment needs its own written agreement, made at the time. The floor means an employee cannot be cashed down to a token balance. And because the conditions apply to the award or agreement term itself, a term drafted without these safeguards would not be effective.
The Act and the awards also guard against pressure. The Fair Work Ombudsman states that it is unlawful for an employer to force, or try to force, an employee to make or not make a cashing out agreement. Cashing out must be the employee's genuine choice, made freely.
For context on the 15 day floor: full-time employees accrue ten days of paid personal/carer's leave per year, and part-timers accrue the same entitlement pro rata. Unused leave carries over and accumulates without limit. The floor therefore sits on top of a balance that grows year to year for employees who rarely take sick leave, which is exactly the group most likely to ask for a cash out.
The awards that allow cashing out
Only a couple of modern awards contain terms allowing personal/carer's leave to be cashed out while an employee remains employed, and they work differently from each other. A third award, the Black Coal Mining Industry Award 2020, requires payment of accrued personal leave in defined termination scenarios. Coverage is everything: these provisions apply only to employees the award actually covers, so the first step is always to check the award's coverage and classification clauses before relying on any of them.
Timber Industry Award 2020
Clause 29.3 of the Timber Industry Award 2020 permits cashing out for employees in two streams of the industry:
- General Timber Stream: an employee with more than 15 days of accumulated untaken personal/carer's leave may elect in writing to be paid for the leave above 15 days, up to a maximum payment of 64 hours.
- Wood and Timber Furniture Stream: the same election is available, but the maximum payment is capped at 38 hours.
The award requires the employee to retain a minimum balance of 15 days after the payment is made, and the election can only be made once in any 12-month period. Each cashing out must be by a separate written agreement between employer and employee.
Employees in the Pulp and Paper stream sit under different rules. For them, excess accrued sick leave is paid out only on defined events: retirement due to age or incapacity, termination of employment after ten years of continuous service for other reasonable cause, or death while employed, with payment going to the deceased employee's estate in that last case.
Stevedoring Industry Award 2020
Clause 25.3 of the Stevedoring Industry Award 2020 takes an annual, balance-based approach. Where an employee has accumulated more than 28 days of unused sick leave as at 1 July of any year, they may elect to receive an amount equivalent to all or part of the accumulated sick leave in excess of 28 days, at the ordinary rate of pay, instead of taking the leave. The 28-day buffer stays intact, and the excess can be drawn down on that annual election.
Black Coal Mining Industry Award 2020: payment on termination
The Black Coal Mining Industry Award 2020 does not allow cashing out while employment continues. Instead, clause 33.4 requires the employer to pay out accrued personal/carer's leave on termination in defined circumstances. An employee whose employment ends by retrenchment, by retirement at or after age 60, by the employer because of ill health, or by death must be paid for their untaken personal leave if they have 70 or more hours accrued, at the base rate of pay.
The award also handles a distinct situation. Where the employer terminates employment while the employee is on paid personal leave, the employee must be paid until their personal leave accumulation runs out or they are fit for duty, whichever comes first. That rule protects employees who are dismissed mid-illness from losing pay they would otherwise have drawn.
Enterprise agreements with cashing out terms
Registered agreements can also open the door. An enterprise agreement approved by and registered with the Fair Work Commission may include a cashing out term for personal/carer's leave, and an employee covered by such an agreement can cash out in accordance with it. The s 101 conditions still apply: a separate written agreement for each cashing out, a remaining balance of at least 15 days, and payment of at least the full amount the employee would have received had they taken the leave.
Two practical points follow. First, if the agreement is silent on cashing out, the answer is no, regardless of what the employee wants or what the business can afford. Second, an employer negotiating a new agreement who wants the flexibility to pay out personal leave should have the term drafted so it satisfies the s 101 requirements, because a term that omits the 15-day floor, the separate written agreement, or the full payment condition will not be effective.
Where it goes wrong: the mistakes that cost employers
The most common failures fall into five patterns:
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Paying out sick leave as a favour: If no award or agreement term permits it, a payment for untaken personal/carer's leave contravenes s 100 of the Act. Section 44 makes it a contravention of the NES for an employer to breach any NES provision, and s 44 is a civil remedy provision, meaning the Fair Work Ombudsman can investigate and seek penalties in court. An employee's request does not change the analysis: the employee cannot authorise the employer to step outside the NES.
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The termination assumption: Many employees expect unused sick leave to be paid out on their last day, the way annual leave is. Under the NES it is not, unless the award or agreement requires it. Paying it out as a farewell gesture carries the same s 100 risk as paying it out mid-employment, and it creates an expectation in the workforce that the business will repeat it next time.
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Eroding the safety net: Cashing out reduces the balance employees draw on when they or a family member falls ill. The unpaid fallback is narrow. Under s 102 of the Act, unpaid carer's leave is available for two days per occasion, and only where the employee is caring for an immediate family or household member. There is no NES entitlement to unpaid leave for the employee's own illness once paid personal leave is exhausted. An employee who cashes out heavily and then becomes seriously ill can find themselves with no paid leave and no statutory unpaid leave for their own incapacity, and the cost of that lands back on the workplace.
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Missing the paperwork: Because each cashing out requires a separate written agreement, a verbal arrangement, or a payment processed without an agreement, is non-compliant even where the instrument permits cashing out. Keep each signed agreement and the payment records with the employee's file so the basis for the payment can be shown if the Fair Work Ombudsman asks.
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Pressure from either direction: It is unlawful to force or pressure an employee into cashing out. This cuts both ways: an employer cannot steer employees into cashing out to clear a leave liability, and should not penalise an employee who declines.
When to get legal advice
Most of the questions in this area come down to the instrument. Which award covers the employee, and which stream or classification? Does the enterprise agreement actually contain a cashing out term, and does it satisfy s 101? Has a payment already been made, and if so, what is the exposure? An employment lawyer can answer these quickly by reviewing the award and the agreement, and can advise on how to respond to an employee's request or to a Fair Work Ombudsman inquiry. For businesses negotiating a new enterprise agreement, a lawyer can draft a cashing out term that complies with the s 101 conditions from the start, which is far cheaper than unpicking an unlawful payment later.
Check the instrument before you pay out leave
The pattern across every permitted cashing out is the same: a specific term in a specific instrument, a written election or agreement, a protected balance, and full payment. The most expensive mistake in this area is the goodwill payment, paying out personal leave because the employee asked, or because it feels fair, when no award or agreement term permits it. That payment is a contravention of the NES regardless of the employee's request, and it combines money out the door with a penalty exposure on top. Before any cashing out of sick leave, find the term that authorises it, check the coverage and stream, and follow the written agreement and balance requirements to the letter. If the instrument is silent, the answer is no, and a short consultation can confirm that in a way that protects the business.