Can Employees Use Annual Leave For Sick Leave In New Zealand?

When you run a small business, leave requests can feel like a moving puzzle - especially when someone calls in sick around the same time as they’ve booked time off.

A question we hear a lot is: can an employee use annual leave instead of sick leave, or can annual leave be changed to sick leave once they’re unwell?

This article explains how sick leave and annual leave rules work in New Zealand under the Holidays Act 2003, what you can (and can’t) require as an employer, and some practical steps to keep things fair, consistent, and compliant.

What’s The Difference Between Sick Leave And Annual Leave (And Why It Matters)?

Before you can handle overlap between sick leave and annual leave properly, it helps to be clear on the purpose of each type of leave:

• Sick leave is there to support employees when they’re unwell or injured, or when they need to care for a dependent who is sick or injured. It’s health-related leave.
• Annual leave is for rest and recreation - it’s time off work to recharge, and is generally planned in advance.

Even though both are “paid leave” (in most cases), they’re treated differently under the Holidays Act 2003. For you as an employer, the key risks are:

• paying the wrong entitlement (or paying it at the wrong rate)
• applying rules inconsistently across staff
• pressuring employees into using the wrong leave type (which can lead to grievances and reputational issues)

This is why it’s worth having clear wording in your Employment Contract and a consistent leave process in your Workplace Policy.

Can An Employee Choose Annual Leave Instead Of Sick Leave?

Yes - in many situations, an employee can request to use annual leave instead of sick leave. This often happens when:

• they’ve run out of sick leave entitlements
• they’re not yet entitled to sick leave (for example, they’re within their first 6 months)
• they’d prefer to save sick leave for later
• they want income certainty and don’t want unpaid leave

From an employer perspective, the important point is this: annual leave is usually taken by agreement. The Holidays Act expects employers and employees to agree on when annual leave is taken, unless a specific exception applies (more on that below).

So if an employee asks to use annual leave because they’re sick, you can generally agree - but you should still:

• make sure the request is confirmed in writing (even a short email is fine)
• record it correctly in payroll/leave records as annual leave (not sick leave)
• apply the same approach consistently across your team

If you’d like a deeper breakdown on when you can direct annual leave, it’s worth reading forced annual leave rules so your business is covered.

Can You Make An Employee Use Annual Leave Instead Of Sick Leave?

This is where many small businesses accidentally step into risky territory.

In general, if an employee is entitled to sick leave and they meet your normal notice and evidence requirements, you shouldn’t pressure them to take annual leave instead just because it’s inconvenient for the roster or cash flow.

As an employer, you can (and should) manage leave properly - but your decisions need to align with the Holidays Act and good faith obligations.

When Employers Get This Wrong

These are common “red flag” situations:

• telling an employee they “must” use annual leave because they’re sick on a day they were rostered on
• refusing sick leave automatically and switching it to annual leave without discussing it
• creating an informal rule like “we don’t allow sick leave on Mondays/Fridays”

If you want to build a clear, defensible approach, make sure your contracts and policies clearly explain:

• how to notify the business of sickness/absence
• when medical evidence may be requested
• how leave is recorded when sick leave overlaps with planned annual leave

What About When You Can Direct Annual Leave?

There are situations where employers can require employees to take annual leave (for example, where you can’t reach agreement and you give proper notice). But that’s not the same thing as “converting” sick leave into annual leave because someone is unwell.

In other words: directing annual leave is a separate process, with its own requirements and limits.

What If An Employee Gets Sick During Annual Leave - Can Annual Leave Be Changed To Sick Leave?

Yes, this can happen. Under the Holidays Act 2003, if an employee becomes sick or injured during a period of annual leave, they may be able to take sick leave for the period they’re sick - instead of annual leave.

However, it’s not automatic. A key test is whether the days they were sick would otherwise have been working days for that employee. If the sick days fall on days that wouldn’t have been working days anyway, sick leave won’t apply to those days.

From a practical employer standpoint, there are a few key points to keep in mind:

• The employee generally needs to be entitled to sick leave for it to apply (i.e. they have sick leave available).
• The employee should let you know as soon as reasonably practicable that they’re sick during annual leave (so you can record it properly).
• Sick leave will generally apply only to the portion of the annual leave that overlaps with days that would otherwise have been working days.
• You can apply your usual approach to requesting evidence (like a medical certificate) where appropriate.

This is one of the most common overlap scenarios - and it’s also one of the most important to handle consistently so employees feel treated fairly and your records stay accurate.

Do You Have To Agree To Convert Annual Leave To Sick Leave?

If the employee meets the legal requirements (including that the relevant days would otherwise be working days, they gave notice as soon as reasonably practicable, and they are entitled to sick leave), they can generally take sick leave for the affected period. The best approach is not to treat this as “doing them a favour”, but as applying the Holidays Act correctly.

That said, it’s reasonable to:

• ask for confirmation of the dates they were sick
• request medical evidence in line with the Holidays Act rules (see below)
• confirm how the leave will be recorded and paid

What If They Don’t Have Sick Leave Available?

If the employee has no sick leave entitlement available (or isn’t yet entitled), they generally can’t require you to “reclassify” annual leave as sick leave.

In that case, your options may include:

• leaving it as annual leave (most common)
• agreeing to sick leave in advance (optional - not required)
• agreeing to unpaid leave for the sick period (if both sides agree)

What Evidence Can You Ask For When Sick Leave Is Involved?

Evidence rules matter because they often decide whether annual leave can be treated as sick leave for the relevant days.

Under the Holidays Act, you can request medical evidence in certain situations, including:

• if the employee has been sick for 3 or more consecutive calendar days (including weekends and non-working days, depending on the pattern of absence)
• if you ask for proof earlier than 3 days - but if you do this, you generally need to cover the reasonable cost of getting that proof

In a small business, the practical balance is:

• don’t request medical certificates for every single one-day absence as a default
• do apply your policy consistently (especially if patterns emerge)
• make sure managers understand when they can ask and who pays

If you’re dealing with wellbeing-related absences (like stress or burnout), you may also find it useful to review how a mental health day can fit within your wider leave and health and safety approach.

Common Scenarios For Employers (And How To Handle Them)

Here are a few real-world scenarios we see in NZ workplaces, and a sensible, legally-aware way to approach each.

Scenario 1: Employee Calls In Sick But Has No Sick Leave Left

If the employee has used up their sick leave, they can ask to take annual leave instead. You can decide whether to agree to that request.

Practical steps:

• confirm the request in writing (annual leave for the relevant day/s)
• consider whether unpaid leave is also an option (if annual leave is low)
• check if you want to offer sick leave in advance (optional, but sometimes helpful for retention)

Scenario 2: Employee Is On Annual Leave And Emails To Say They’re Sick

If they are entitled to sick leave and they were sick for part of their annual holiday, they may be able to take sick leave for those days instead of annual leave (to the extent those days would otherwise have been working days).

Practical steps:

• ask which dates they were unwell
• check whether those dates would otherwise have been working days for that employee
• request evidence if appropriate and consistent with your policy
• update payroll records to reflect sick leave vs annual leave correctly

Scenario 3: Employee Requests Annual Leave, Then Says It Was “Actually Sick Leave” After The Fact

This is where clarity matters. If an employee took annual leave and later says they were sick, it doesn’t automatically mean the leave must be changed - you’ll need to look at:

• did they notify you as soon as reasonably practicable?
• were the relevant days ones that would otherwise have been working days?
• are they entitled to sick leave for that period?
• can they provide evidence if requested?

If you’re unsure, it’s worth getting advice early - these issues can escalate quickly if either side feels the other is acting unfairly.

Scenario 4: Casual Or Variable-Hours Staff And Leave Confusion

Leave entitlements can be trickier when someone’s hours fluctuate, or when they’re genuinely casual.

Two common pain points are:

• working out whether the day would have been a working day (which affects whether sick leave applies)
• correctly calculating leave pay, especially for annual leave

If you engage casual team members, it’s worth double-checking your approach to casual leave entitlements so you’re applying the right rules to the right category of worker.

How To Protect Your Business: Policies, Records, And Consistent Decision-Making

Most sick leave versus annual leave issues don’t start because someone is trying to do the wrong thing - they start because the business doesn’t have a clear process, or different managers handle it differently.

Here’s what we recommend putting in place early (or tightening up now).

1. Set Clear Rules In Your Employment Documents

Your Employment Contract should align with the Holidays Act and clearly cover:

• how employees notify you of sickness/absence
• when medical evidence may be required
• how you deal with annual leave overlaps and changes to leave type
• how leave requests are approved and recorded

It’s also a good idea to support the contract with a practical Workplace Policy that managers can follow step-by-step.

2. Train Your Managers On What They Can (And Can’t) Say

Managers are usually the first point of contact when someone calls in sick. If they say the wrong thing (even casually), it can create legal risk and employee distrust.

Give managers a simple “script” for sick leave that focuses on:

• thanking the employee for letting you know
• confirming when they expect to return (if known)
• asking if they need any support
• explaining when a medical certificate may be needed

3. Keep Accurate Leave Records

Leave record-keeping isn’t just admin - it’s part of compliance.

Make sure your payroll system and internal processes can clearly show:

• what leave type was taken (sick leave vs annual leave)
• the relevant dates and hours/days
• any agreements to switch leave types
• any evidence requested/received (stored appropriately)

4. Get Advice When Things Feel “Off”

If a pattern emerges (for example, repeated sick leave around public holidays, or ongoing disputes about leave balances), it’s worth getting early legal advice so you can respond fairly and lawfully - without jumping straight to disciplinary steps.

When you need tailored guidance, speaking with an Employment Lawyer can help you map out a compliant process that fits your workplace.

Key Takeaways

• In New Zealand, sick leave and annual leave are different entitlements under the Holidays Act 2003, and they need to be managed and recorded differently.
• An employee can often request to use annual leave instead of sick leave (for example, if they have no sick leave left), but it’s generally handled by agreement.
• As an employer, you generally shouldn’t force an employee to use annual leave instead of sick leave if they’re entitled to sick leave and meet the usual notification/evidence requirements.
• If an employee becomes sick or injured during annual leave, they may be able to take sick leave for the affected days instead, but it generally depends on notice being given as soon as reasonably practicable and whether those days would otherwise have been working days.
• You can request medical evidence in certain circumstances, and if you ask for proof earlier than the usual threshold, you may need to cover the reasonable cost.
• Clear contracts, consistent policies, trained managers, and accurate record-keeping are the best way to reduce disputes and protect your business.

Note: This article is general information only and isn’t legal advice. For advice tailored to your business and situation, get in touch with a lawyer.

If you’d like help setting up a clear leave process or updating your employment documents, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.