Published: October 2025

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Employee sick leave represents one of the most significant hidden costs for Australian small and medium enterprises. While the Fair Work Act guarantees 10 days of paid personal leave annually, the true cost extends far beyond the obvious salary payments. For an employee earning $70,000 annually, the total annual cost of sick leave entitlements reaches $3,876, with additional impacts from productivity loss, replacement staffing, and unlimited accumulation creating substantial balance sheet liabilities.

Australian businesses collectively lose over $33 billion annually to employee absence, with sick leave representing approximately 60% of this total according to Safe Work Australia data from 2024. For SMEs operating on tight margins, understanding the complete financial impact of sick leave is essential for accurate budgeting, cash flow management, and strategic workforce planning.

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Understanding Australian Sick Leave Entitlements

Under the Fair Work Act 2009 and modern awards, full-time employees accrue 10 days (76 hours) of paid personal leave per year. This accrual occurs progressively throughout the year at a rate of 0.833 days per month worked. Personal leave encompasses both sick leave and carer's leave, allowing employees to use their entitlement for their own illness or to care for immediate family members.

Key entitlement features include:

• Progressive accrual: Leave accrues from the first day of employment
• Unlimited accumulation: Unused leave rolls over indefinitely in most states
• No cash out: Personal leave cannot be cashed out while employed (except in limited circumstances)
• Part-time pro-rata: Part-time employees receive proportionate entitlements based on hours worked
• Casual exclusion: Casual employees receive no paid sick leave entitlements

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The Direct Cost Calculation

The immediate financial impact of sick leave includes the employee's salary plus mandatory on-costs. For a full-time employee earning $70,000 annually:

Base Salary Component:

• 10 days sick leave = 3.8% of annual working days (260 days)
• Direct salary cost: $70,000 × 3.8% = $2,660

Superannuation Guarantee:

• 12% on ordinary time earnings (from July 2025)
• Super on sick leave: $2,660 × 12% = $319

Workers Compensation:

• Average premium 1.5% of wages (varies by industry and state)
• Workers comp allocation: $2,660 × 1.5% = $40

Payroll Tax (if applicable):

• Businesses exceeding state thresholds pay 4.85% to 6.85%
• Example NSW rate 5.45%: $2,660 × 5.45% = $145

Total Direct Cost: $2,660 + $319 + $40 + $145 = $3,164 annually

This represents 4.5% of the employee's total remuneration package, before considering indirect costs.

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Industry Usage Patterns and Benchmarks

Sick leave utilisation varies dramatically across industries, affecting the actual cost impact for different business types.

Healthcare and Social Assistance:

• Average usage: 8.2 days per employee annually
• Higher exposure to illness and physical demands
• Actual cost for $70,000 employee: $2,181 in direct salary

Professional Services:

• Average usage: 4.6 days per employee annually
• Lower physical demands, flexible work arrangements
• Actual cost for $70,000 employee: $1,224 in direct salary

Retail Trade:

• Average usage: 6.1 days per employee annually
• Customer-facing roles with higher infection exposure
• Actual cost for $70,000 employee: $1,619 in direct salary

Manufacturing:

• Average usage: 7.4 days per employee annually
• Physical demands and workplace injury risk
• Actual cost for $70,000 employee: $1,967 in direct salary

Construction:

• Average usage: 8.9 days per employee annually
• Highest usage due to physical labour and injury rates
• Actual cost for $70,000 employee: $2,366 in direct salary

According to Australian Bureau of Statistics data from 2024, the national average sick leave usage is 6.8 days per employee per year, representing 68% utilisation of the 10-day entitlement.

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The Accumulation Problem

Unlike annual leave, personal leave accumulates without limit in most Australian states, creating significant balance sheet liabilities for businesses with long-term employees.

Long-term Accumulation Example:

An employee working 10 years using only 5 days sick leave annually:

• Annual accrual: 10 days
• Annual usage: 5 days
• Net accumulation: 5 days per year
• Total after 10 years: 50 days (approximately 10 weeks)

Balance Sheet Liability:

For an employee now earning $85,000 (after salary increases):

• 50 days at current rate: $16,346
• Plus superannuation (12%): $1,962
• Total liability: $18,308

This liability must be recognised in financial statements and represents a contingent cash flow obligation if the employee resigns or takes extended sick leave.

Industry Accumulation Averages:

Based on 2024 workforce data:

• Healthcare: Average accumulation 32 days per employee
• Professional services: Average accumulation 28 days per employee
• Manufacturing: Average accumulation 22 days per employee
• Retail: Average accumulation 18 days per employee

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State-by-State Variations

While the National Employment Standards provide the baseline 10 days annually, state-specific legislation and long service leave interactions create variations.

New South Wales:

• Standard 10 days NES entitlement applies
• No additional state-based sick leave requirements
• Long service leave does not affect sick leave accrual

Victoria:

• Standard 10 days NES entitlement applies
• Long Service Leave Act 2018 provides additional protections
• Sick leave continues to accrue during long service leave periods

Queensland:

• Standard 10 days NES entitlement applies
• Industrial Relations Act 2016 provides additional protections for some workers
• Public sector employees may have enhanced entitlements under enterprise agreements

Western Australia:

• Standard 10 days NES entitlement applies for most workers
• State system employees (not covered by Fair Work Act) follow WA Industrial Relations Act
• Some awards provide higher sick leave entitlements (up to 15 days)

South Australia:

• Standard 10 days NES entitlement applies
• Fair Work Act coverage for most private sector employers
• Some state awards provide different accrual patterns

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Cash Flow Impact and Management

The unpredictable nature of sick leave creates cash flow challenges distinct from other leave entitlements.

Quarterly Cash Flow Scenario:

A business with 15 employees (average salary $65,000):

• Normal quarterly sick leave usage: 25.5 days total (1.7 days per employee)
• Quarterly cost: $6,394

Flu Season Impact (Q3):

• Increased usage: 48 days total (3.2 days per employee)
• Quarterly cost: $12,019
• Additional unplanned cost: $5,625

Replacement Staffing Costs:

When sick leave creates coverage gaps:

• Casual replacement at $35/hour for 8-hour shift: $280
• Overtime for existing staff at time-and-a-half: $420 per day
• Total additional cost per sick day with replacement: $280 to $420

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Evidence Requirements and Medical Certificates

Employers can request evidence for sick leave claims, but requirements must be reasonable and comply with privacy legislation.

When Evidence Can Be Requested:

Under Fair Work Regulations 2009:

• For absences of 3 or more consecutive days
• For single days if the employer has reasonable grounds
• When patterns of absence raise legitimate concerns

Acceptable Forms of Evidence:

• Medical certificate from registered medical practitioner
• Statutory declaration in some circumstances
• Statement from traditional healer for cultural medical treatment

Medical Certificate Costs:

The employer must not require employees to pay for certificates if requested by the employer. Average costs:

• Standard medical certificate: $50 to $80
• After-hours or weekend: $100 to $150
• Telehealth certificate: $40 to $60

For a business requesting certificates for 30 sick leave instances annually, total certificate costs can reach $1,500 to $2,400.

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Tax Treatment and Deductibility

Sick leave payments are fully tax-deductible business expenses when paid, subject to standard PAYG withholding requirements.

Accrual vs Cash Accounting:

Accrual basis taxpayers (most businesses):

• Sick leave expense recognised when liability accrues
• Provision for accumulated leave deductible annually
• Actual payment timing does not affect deduction

Cash basis taxpayers (some small businesses):

• Sick leave expense deductible when paid
• Accumulation creates no immediate tax benefit
• Payment triggers deduction in that financial year

Payroll Tax Treatment:

Sick leave payments are included in taxable wages for payroll tax purposes in all states, increasing the effective payroll tax rate for businesses near thresholds.

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Sick Leave vs Annual Leave Cost Comparison

Understanding the relative costs helps businesses prioritise leave management strategies.

Annual Leave (4 weeks):

• Represents 7.7% of annual salary
• Must be paid out on termination at current salary rate
• Can be cashed out in some states (maximum 2 weeks annually)
• Creates definite future liability

Sick Leave (10 days):

• Represents 3.8% of annual salary
• Not paid out on termination
• Cannot be cashed out while employed
• Creates contingent liability only if used

While annual leave creates a larger ongoing liability, sick leave's unpredictability creates greater cash flow management challenges.

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Strategies for Managing Sick Leave Costs

Effective sick leave management balances employee wellbeing with business sustainability.

Prevention and Workplace Health:

Investing in workplace health reduces sick leave usage:

• Ergonomic workstation assessments: Reduce musculoskeletal issues by 30%
• Flu vaccination programs: Reduce winter sick leave by 15% to 25%
• Mental health support services: Reduce stress-related absences by 20%

Cost-benefit example:

• Investment in flu vaccinations: $25 per employee × 20 employees = $500
• Reduction in sick days: 4 days saved × 20 employees = 80 days
• Savings at average salary $65,000: $20,000 worth of sick days reduced by 15% = $3,000 saved
• Net benefit: $2,500

Return to Work Programs:

Structured return to work arrangements for recovering employees:

• Modified duties during recovery period
• Gradual hours increase (4 hours, then 6 hours, then full-time)
• Reduce total sick leave days by enabling earlier return

Attendance Monitoring:

Regular reporting identifies patterns requiring intervention:

• Monthly sick leave reports by department
• Individual usage tracking against benchmarks
• Early intervention conversations at 8+ days annually

Flexible Work Arrangements:

Remote work options can reduce sick leave usage:

• Employees with minor illness can work from home
• Reduces exposure spread in office environments
• 2024 data shows 22% reduction in sick leave for hybrid workers

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Legal Compliance and Record Keeping

Proper documentation protects businesses from disputes and ensures compliance.

Required Records:

Fair Work Regulations require businesses to maintain for 7 years:

• Employee leave accrual balances
• Dates and duration of sick leave taken
• Evidence provided (medical certificates)
• Communication regarding leave requests

Privacy Obligations:

Under Privacy Act 1988:

• Medical information must be stored securely
• Access limited to relevant personnel only
• Cannot be disclosed without employee consent
• Must be destroyed appropriately when retention period expires

Dispute Resolution:

Common sick leave disputes include:

• Refusal of leave requests
• Unreasonable evidence requirements
• Termination related to excessive sick leave
• Calculation errors in accrual balances

Fair Work Commission applications for sick leave disputes averaged 847 cases in 2023-24, with average employer costs of $8,500 in legal representation and lost management time.

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Business Examples

Professional Services Firm - Sydney:

25 employees, average salary $78,000:

• Average sick leave usage: 4.2 days per employee annually
• Total annual sick leave cost: $32,760 (salary only)
• With on-costs: $37,714
• Implemented flu vaccination program
• Reduced usage to 3.1 days per employee
• Annual savings: $10,778

Manufacturing Business - Melbourne:

40 employees, average salary $62,000:

• Average sick leave usage: 8.1 days per employee annually
• Total annual sick leave cost: $61,938 (salary only)
• High accumulation: average 28 days per employee
• Balance sheet liability: $268,800
• Implemented workplace health program and ergonomic improvements
• Reduced usage to 6.4 days per employee
• Annual savings: $16,354

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FAQ: Employee Sick Leave in Australia

How many sick days are employees entitled to in Australia?

Full-time employees are entitled to 10 days (76 hours) of paid personal leave annually under the National Employment Standards. This accrues progressively throughout the year at 0.833 days per month. Part-time employees receive a pro-rata entitlement based on their ordinary hours of work.

Does unused sick leave accumulate in Australia?

Yes, unused personal leave accumulates indefinitely. There is no maximum accumulation limit under the Fair Work Act. Long-term employees can accrue substantial sick leave balances, creating significant balance sheet liabilities for employers.

What is the average sick leave usage in Australia?

The national average is 6.8 days per employee per year, representing 68% utilisation of the 10-day entitlement. Usage varies by industry, with construction averaging 8.9 days and professional services averaging 4.6 days annually.

Can employers request medical certificates for sick leave?

Employers can request evidence for sick leave of 3 or more consecutive days, or for shorter absences if they have reasonable grounds. The evidence must be reasonable in the circumstances, and employers cannot require employees to pay for certificates requested by the employer.

What does sick leave cost employers per employee?

For an employee earning $70,000 annually, the full entitlement of 10 days costs approximately $3,164 including salary, superannuation, workers compensation, and payroll tax (where applicable). Actual costs depend on industry-specific usage patterns.

Is sick leave paid out when an employee resigns?

No, personal leave is not paid out on termination of employment. Unlike annual leave, which must be paid at the employee's current salary rate, accumulated sick leave is forfeited when employment ends.

How do you calculate sick leave accrual?

Full-time employees accrue 76 hours annually (10 days × 7.6 hours), which equals 0.833 days per month or 0.192 days per week. Part-time employees accrue proportionally: (ordinary hours per week ÷ 38) × 76 hours annually.

Can casual employees take sick leave?

Casual employees are not entitled to paid sick leave under the National Employment Standards. However, long-term casuals may have rights to request conversion to permanent employment, which would then provide sick leave entitlements.

What are the payroll tax implications of sick leave?

Sick leave payments are included in taxable wages for payroll tax purposes. For businesses above state thresholds (ranging from $700,000 to $1.5 million depending on state), this adds 4.85% to 6.85% to the cost of sick leave.

How can businesses reduce sick leave costs?

Effective strategies include workplace health and safety programs, flu vaccination schemes, flexible work arrangements, ergonomic assessments, mental health support, and return-to-work programs. Data shows these initiatives can reduce sick leave usage by 15% to 30%.

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About Scale Suite

Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses. Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete payroll management to strategic HR advisory, we help businesses manage sick leave obligations, maintain compliance, and optimise workforce costs.

For assistance with payroll management, leave calculations, and HR compliance, visit www.scalesuite.com.au/services/human-resources

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