Sooner or later most employers hit it: a good employee has used all their sick leave and is still unwell or injured, or a pattern of absence is starting to affect the team. It feels awkward, and the payroll side is easy to get wrong. Handled well, it is straightforward, and it protects both the person and the business. Here is the ground to stand on, and the steps to work through.
What the law actually gives
Under the Holidays Act 2003, the baseline entitlements are:
- 10 days of paid sick leave a year, once the employee has worked for six months, or six months averaging at least 10 hours a week.
- Unused sick leave carries over, up to a maximum balance of 20 days, unless you have agreed something more generous.
- Sick leave is not pro-rated: a part-timer who meets the test still gets the full 10 days. This is the current Holidays Act position. From 6 August 2028, the Employment Leave Act changes it, with leave accruing in hours.
- Sick leave is not paid out on termination of employment.
- This is the floor, not the ceiling. Your employment agreements or policies may provide more.
Step 1: Check the real position before you act
Before any conversation, get the facts straight:
- How much paid sick leave is left?
- Is there annual leave available?
- What does the employment agreement or policy say about additional or discretionary leave?
- What is the employee’s anniversary date for leave entitlements?
- Did this start with an accident or injury, at work or outside it? If so, it may be an ACC claim, which follows different rules. See Step 2.
- Is this a one-off illness, a longer-term health issue, or a pattern worth understanding?
Acting on assumptions is where employers can find it gets complicated.
Step 2: If it’s an ACC injury, different rules apply
If the absence is the result of an accident or injury, it may be covered by ACC, and that changes the leave and pay picture. Don’t reach for sick leave by default.
The key points:
- Work injury, first week: You, the employer, pay the employee 80% of their normal earnings for the first week off work. The employee can’t claim ACC weekly compensation for that first week.
- From week two: Once ACC accepts the claim, ACC pays weekly compensation of up to 80% of the employee’s income.
- Non-work injury: For example, a weekend sports injury. There is no employer first-week payment. By agreement, the employee can use sick leave or annual leave to cover that first week.
- You can’t force sick leave: If someone is receiving ACC weekly compensation, you cannot make them take the time as sick leave. Check how you are recording this time off in payroll.
- Topping up to 100%, by agreement: The employee can use one day of sick leave for every five days they are on ACC to top their payments up from 80% to 100%. Topping up does not affect their ACC compensation.
The upshot: work out first whether ACC covers the absence, then agree how, or whether, to top up. That way a good employee isn’t quietly burning through sick leave they didn’t need to use.
Step 3: Talk early, and lead with support
A short, genuine conversation does more than any policy.
In it:
- Ask how the person is and what they expect the road ahead to look like.
- Ask what support would help and discuss the impact on their work and the work of the wider team.
- Keep it supportive. This is not a disciplinary or performance meeting. It is you understanding the situation so you can plan around it.
People remember how they were treated when they were unwell, and it shapes whether they come back engaged.
Step 4: Work through the options
Once paid sick leave is exhausted, and ACC doesn’t apply or has ended, the remaining options are:
- Annual holidays: The employee may request to use accrued annual leave, and you can approve or decline that request. You cannot unilaterally treat sick leave as annual leave.
- Unpaid leave: If no paid leave is available or approved, the absence is unpaid by default. This does not require the employee’s agreement.
- Paid special leave: This only applies if your employment agreement or policy provides for it.
- Sick leave in advance: This allows an employee to access future sick leave entitlements early. Because it effectively creates a leave debt the employee owes, we generally only recommend using it only where the employee’s next entitlement date is close to rolling over and you are comfortable extending that discretion.
In short: annual leave is requested by the employee and approved by you, special leave depends on your policy, sick leave in advance should be used sparingly, and where none of these apply, the absence is unpaid.
Step 5: Get the payroll right
Whatever is agreed, confirm it in writing. If sick leave is taken in advance, clearly document how it will be reconciled or recovered.
This is where errors creep in. A few anchors:
- Pay paid sick leave at the employee’s relevant daily pay or average daily pay, per the Holidays Act, and check it.
- For an ACC injury, keep the pieces separate and correctly coded: your 80% first-week payment for a work injury, then ACC’s weekly compensation, with sick leave only topping up by agreement at one day for every five days on ACC.
- Unpaid days are simply leave without pay, and watch the flow-on effects on how future annual leave and public holidays are treated.
- Long absences can change anniversary and accrual calculations. Seek advice to check this.
- If you are unsure, confirm the calculation before you run the pay, not after.
Step 6: Know the line between illness and performance
Genuine illness and a performance or conduct concern are different things, and the order they happen in matters:
- If someone is genuinely unwell and still cannot return after a reasonable period, and the role genuinely needs to be filled, it may be time to consider medical incapacity or other reasonable work arrangements. The focus should remain constructive: supporting the person to return and perform where that is possible, reasonable and workable for the business.
- If performance or conduct concerns were already on the table before the person became unwell, pause before jumping to conclusions. It may be reasonable to ask whether the illness is genuinely preventing them from taking part, or whether the process is being avoided, but you need facts, not assumptions. Handle it carefully, in good faith, and keep health support separate from accountability. Either way, if someone is unwell, support them first and keep any performance process fair and separate.
- Don’t use a performance step to pressure an unwell employee.
These situations can become complex quickly. An HR partner with employment relations experience helps you ask the right questions, follow a fair process and act at the right time.
Step 7: Medical certificates, and telling performance from conduct
For a recurring absence, a medical certificate is your fairest tool. It protects a genuinely unwell employee and gives you the facts instead of guesswork.
- When you can ask: For three or more consecutive days off, you can require a certificate at the employee’s cost. For shorter absences you can too, but only if you ask early and cover the reasonable cost. If reasonably required proof isn’t provided without good reason, that absence can be unpaid.
- Do it with dignity: Apply the same rule to everyone, explain it as routine rather than an accusation, keep it private and lead with the benefit of the doubt.
If genuine certificates keep coming, the question is answered and you support.
If they can’t or won’t be produced, or a pattern persists, ask whether it’s capability or conduct:
- Capability: The ill health is genuine, the person engages openly, follows the notification process and wants to be at work. Focus on support and medical incapacity if it becomes long-term.
- Conduct: The signals are about behaviour. This might include absences clustered around weekends, declined days off or deadlines, notification steps being skipped, explanations that don’t add up, refusing reasonable proof, or acting in ways that are at odds with being unwell.
Don’t assume. Gather the facts and apply the fair-and-reasonable-employer test.
If it tips into conduct, run a fair process on its own footing, and never use it to pressure someone who is genuinely unwell.
A quick reality check
Most sick-leave situations are resolved with one good conversation and the right leave option.
The ones that go wrong are usually the ones where the employer guessed, skipped the conversation, or blurred illness with performance or conduct.
Slow down to work through these steps and you will almost always land it well.
If you would like a second set of eyes before a tricky absence conversation, or help getting your leave policy clear so this is easier next time, the first 15 minutes are free.
Download our free resource: When sick leave runs out: a manager’s decision and conversation guide
General information only, not legal advice. Current as at 31 August 2026. Every situation turns on its facts. Get advice before acting.
