Sick leave is a minimum statutory entitlement under the Holidays Act 2003 (‘the Act’) and a frequent source of compliance risk for employers. Issues most commonly arise around eligibility, proof requirements, payment calculations, and the management of repeat or extended absences.
Failing to manage sick leave obligations can present legal risk to employers, including protracted employment disputes and non-compliance claims. Such issues underscore the importance of employer’s being informed about this area of employment law before making associated decisions like managing sick leave requests.
Who is Entitled to Paid Sick Leave?
Employees become entitled to paid sick leave once they have:
Completed 6-months’ continuous employment, or
Met the Act’s alternative work pattern test over a 6-month period.
Entitlements apply to full-time, part-time, fixed-term, and casual employees, provided the eligibility threshold is met.
Minimum Entitlement
Eligible employees are entitled to:
10 days’ paid sick leave after the first 6-months of continuous employment, and
A further 10 days’ paid sick leave each 12-months thereafter.
A maximum accrual of 20 days, unless the employer provides more generous terms.
Unused sick leave carries over year to year, subject to the statutory cap and is not required to be paid out on termination.
When Can Sick Leave Be Taken?
An employee may take paid sick leave if they are:
Sick or injured, or
Caring for a dependent who is sick or injured, including:
A spouse or partner.
A dependent child.
Any other person who depends on the employee for care.
Payment Obligations
The Act requires that sick leave must be paid at the employees based on:
Relevant Daily Pay (‘RDP’), or
Average Daily Pay (‘ADP’) where RDP cannot be determined.
This is a common compliance risk for employers with employees on variable hours, commission, or allowances.
Payroll systems incorrectly defaulting to set calculations without applying the Act’s requirements in certain circumstances may present risk.
Proof of Sickness or Injury
Medical certificates can be requested:
Employers may request proof after three consecutive calendar days of sick leave, at the employee’s cost.
Employers may request proof earlier but must pay the reasonable cost of obtaining it.
Extended or Frequent Sick Leave
Repeated or prolonged sick leave may justify:
Medical incapacity processes in limited circumstances.
Requests for medical information.
Reasonable accommodations or adjustments.
Special Rule Where an Employee Is Sick, or Injured Before Annual Leave
Under section 38 of the Act, where an employee is scheduled to take a period of annual leave, but becomes sick or injured before taking annual leave, then the employer must allow the employee to take their sick leave rather than annual leave.
This rule also applies to the same situation but involving a bereavement or family violence leave.
Case Law Snapshot – What Decisions Tell Employers?
Rail and Maritime Transport Union Inc v KiwiRail Limited [2023] NZERA 17
Employees covered by a collective agreement received a daily transport allowance for working night shifts or being called back to work. When members took paid sick leave, KiwiRail did not include the transport allowance in the sick leave pay calculation. The Union argued the allowance should be included because employees would have earned it had they worked on the day they took sick leave.
The Employment Relations Authority’s (‘the Authority’) Findings:
The relevant collective agreement defined “relevant daily pay” in line with the Act and specified that it included allowances paid under the agreement except for strict reimbursement allowances.
The transport allowance was not a strict reimbursing allowance because it was a conditional payment under the collective agreement, payable whether or not the employee actually incurred travel costs.
As a conditional payment, the allowance had to be included in the calculation of relevant daily pay and average daily pay for sick leave under sections 9 and 9A of the Act.
The Authority ruled that the transport allowance should be included when calculating sick leave pay for the affected employees.
Employer Takeaway: When calculating sick leave pay under the Act, components of remuneration such as allowances that would have been earned had the employee worked must be considered part of relevant daily pay, unless they are strict reimbursements excluded by the Act. Failing to properly include such payments can breach statutory sick leave obligations.
Key Risk Areas for Employers
Misunderstanding eligibility for casual or fixed-term employees.
Incorrect sick leave payment calculations.
Failing to understand the rules regarding medical certificate requests.
Treating sick leave as discretionary.
Poor record-keeping of accruals and usage.
Tips for Managing Sick Leave
Maintain a clear sick leave policy aligned with the Act.
Train managers on when proof can be requested and who pays.
Audit payroll calculations regularly for compliance.
Seek professional advice early where medical incapacity may be involved.
Handled well, sick leave supports workforce wellbeing and reduces legal risk. Handled poorly, it can quickly escalate into legal disputes, reputational and employment relationship damage.
Employer Takeaway
Sick leave is a minimum statutory entitlement that requires careful, consistent, and lawful management. Employers who understand the limits of their management of entitlements, apply proof requirements correctly, and address attendance issues through appropriate processes are best placed to minimise risk and maintain trust in the employment relationship.
Compliance Warning
Sick leave is a statutory minimum entitlement, not a discretionary benefit. Mismanaging sick leave can expose employers to findings of unjustified disadvantage, wage arrears, penalties, on-compliance and reputational risk.
Key compliance risks include:
Misunderstanding eligibility, particularly for casual or fixed-term employees.
Incorrect payment calculations.
Requesting medical certificates unlawfully or failing to meet the cost of proof where required.
Treating sick leave as discretionary or requiring employees to use other leave instead.
Conflating genuine sickness absence with performance or disciplinary issues.
The Authority and Employment Court expect employers to act reasonably, consistently, and in good faith when managing sick leave. When in doubt, seek professional assistance from Employer Pro.
This article is provided for general information only and does not replace professional advice. Employers should seek advice specific to their circumstances from Employer Pro if in doubt on their legal obligations associated with managing sick leave. Employer Pro has a range of employer focused resources and services available through our competitive Employer Protection Packages.
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