Long-Term Sick Leave in NZ

If you employ staff long enough, it’s only a matter of time before you run into a tricky situation: an employee becomes unwell and can’t return to work for weeks (or even months).

Long-term sick leave can be stressful for everyone involved. Your employee may be dealing with a serious health issue, and you may be trying to keep the business running, cover shifts, and manage uncertainty.

The key is to handle long-term sick leave in a way that’s lawful, fair, and well-documented. Done right, you’ll protect your business and support your employee appropriately.

What Counts As Long-Term Sick Leave In NZ (And Why It Matters)?

In New Zealand, “long-term sick leave” isn’t a strict legal category with a set number of days. In practice, it usually refers to a period of illness or injury that goes beyond:

the employee’s available paid sick leave entitlement, and/or
a short, temporary absence (for example, a few days off with a medical certificate).

For many small businesses, “long-term” starts to feel real when:

the absence is measured in weeks rather than days;
there’s no clear return-to-work date; or
the employee’s ability to perform their role may be impacted on an ongoing basis.

Why does this distinction matter? Because once an absence becomes prolonged, the situation shifts from a simple payroll/leave question to a broader employment relationship issue. You’ll need to think about:

your legal obligations under the employment relationship (including acting in good faith);
health and safety risks if they return too early or without adjustments;
operational impact and business continuity; and
whether the role can be kept open, and for how long, without causing the business unreasonable disruption.

As a starting point, your Employment Contract should be clear about sick leave processes, evidence requirements, and how leave is requested and recorded. If your contract is vague (or silent), you’re more likely to end up in a messy, inconsistent process.

What Are Your Key Legal Obligations When An Employee Is On Long-Term Sick Leave?

When you’re managing long-term sick leave, a few legal obligations tend to show up repeatedly. The details depend on the facts, but these are the main “non-negotiables” you should keep front of mind.

1) Act In Good Faith

In NZ, employment relationships are built on a duty of good faith. In practical terms, this means you should:

communicate with your employee openly and reasonably (without harassment or pressure);
be honest about the business impact and what you need from them (for example, medical updates);
give them a real chance to respond before you make decisions that affect their employment; and
avoid making assumptions about their health or capacity.

Good faith doesn’t mean you must hold a role open forever. It does mean you need a fair process, especially if you’re considering any employment changes later on.

2) Apply The Holidays Act Sick Leave Rules Correctly

Sick leave entitlements are governed primarily by the Holidays Act 2003. Most employees become entitled to paid sick leave after 6 months of employment (subject to meeting the eligibility requirements). From that point, employees generally get an annual sick leave entitlement each year (currently 10 days for most employees), and any unused balance can accumulate up to the applicable cap.

For long-term sick leave situations, the common pitfalls for employers are:

not tracking paid sick leave accurately;
incorrectly “forcing” staff to use other leave types without agreement (or without meeting the legal requirements);
not being clear when paid sick leave has run out; and
being inconsistent between staff (which can create risk and resentment).

If you’re thinking about directing an employee to take annual leave (for example, because they have no sick leave left), be careful. The rules can be nuanced, and you generally can’t just decide unilaterally whenever it suits. For example, in many cases an employer can only require annual leave to be taken if the employee receives proper notice (commonly at least 14 days) and the decision is made consistently and in good faith (or under a lawful shutdown arrangement). If you’re unsure, it’s worth checking the legal position around Annual Leave before you act.

3) Meet Health And Safety Duties

Your obligations under the Health and Safety at Work Act 2015 don’t stop because an employee is unwell. In fact, long-term illness often raises extra health and safety questions, such as:

Is it safe for them to return to work right now?
Would a phased return reduce risks?
Do you need temporary adjustments or alternative duties?
Are there psychosocial risks (for example, stress-related conditions) that you need to manage?

From a business perspective, it’s usually better to plan a safe return-to-work pathway than to rush someone back and risk a relapse, injury, or a prolonged absence later.

4) Respect Privacy And Handle Medical Information Carefully

Long-term sick leave almost always involves sensitive personal information. Medical details are treated as sensitive and require careful handling under the Privacy Act 2020.

As an employer, you should:

only request information that is reasonably necessary (usually about capacity and likely timeframe, not diagnosis);
store medical certificates and health information securely;
limit access internally to people who genuinely need to know; and
be careful about what you share with colleagues (even well-meaning updates can overstep).

If you collect and store employee personal information (including health info), having a solid Privacy Policy and internal privacy practices can help you stay consistent and reduce risk.

How Should You Communicate During Long-Term Sick Leave?

When an employee is on long-term sick leave, communication is one of the biggest risk areas for employers.

If you communicate too little, you can end up with uncertainty and operational stress. If you communicate too aggressively, you risk claims that you pressured the employee, failed to act in good faith, or mishandled the process.

A practical approach is to set a calm, predictable communication plan early. For example:

Agree on how often you’ll check in (e.g. weekly or fortnightly, depending on the situation).
Confirm what method you’ll use (email, phone call, or both).
Be clear about what you need (e.g. medical certificates, updates on anticipated return date, capacity restrictions).
Keep communication supportive and work-focused (avoid asking for intimate medical details).

Be Careful With “Check-Ins” That Become Performance Conversations

If someone is genuinely unwell, “business as usual” performance management can look and feel unfair. Even if your operational needs are real, you should avoid turning wellbeing updates into disciplinary or accusatory discussions.

That said, you can still talk about business continuity and operational needs. The key is to keep it factual and to document it appropriately.

Document Everything (Without Over-Lawyering It)

You don’t need to write a novel after every call, but you should keep basic records, including:

dates of contact and what was discussed;
medical certificates received (and what they confirm);
any agreed plans for return to work or updates; and
any concerns raised by either side.

Good documentation protects your business if the situation escalates later, and it also helps you treat the employee consistently and fairly.

Can You Require Medical Certificates Or Independent Medical Assessments?

In long-term sick leave situations, it’s reasonable (and often necessary) to request medical information that helps you understand:

whether the employee is currently fit to work;
what duties they can safely perform (if any); and
the expected timeframe for returning (even if it’s an estimate).

Typically, employers rely on medical certificates from the employee’s doctor. Also note that if you request a medical certificate for an absence of less than 3 consecutive calendar days (where you’re allowed to request it), you’ll generally need to meet the cost of obtaining that certificate.

But sometimes, particularly where:

the absence has been prolonged;
there are conflicting medical messages;
the role has safety-critical elements; or
you need clarity to plan operationally,

you may consider an independent medical assessment (IMA) or asking for a more detailed medical report focused on capacity.

There are a few best-practice points to keep this lawful and fair:

Explain why you need it (capacity and business planning, not curiosity).
Seek consent and be transparent about what information you’re requesting.
Limit the scope to what’s relevant to work capacity and safety.
Consider paying the cost (often the fair approach if you’re requesting additional assessments).

If you’re thinking about requesting more detailed medical information, it’s smart to get advice first. The “right” approach can depend on what your employment agreement says and the specifics of the role.

What Are Your Options When Paid Sick Leave Runs Out?

This is where many small business owners feel stuck: the employee has used all their paid sick leave, but they’re still unwell and not ready to return.

At this stage, your options often include:

1) Unpaid Sick Leave (By Agreement)

Once paid sick leave is exhausted, the employee may take additional time off unpaid if you agree. Many employers choose this path where:

there’s a reasonable prospect the employee will return; and
the business can manage the absence for a bit longer.

Put the arrangement in writing (even a simple email confirmation) so expectations are clear.

2) Annual Leave (Only If The Legal Requirements Are Met)

Some employees choose to use annual leave to remain paid while they recover. That can be workable, but it should be handled carefully.

Annual leave rules can be technical, and you should avoid assuming you can “just make” the employee take annual leave because they’re out of sick leave. If you’re considering requiring annual leave, make sure the legal notice and process requirements are actually met for your situation.

3) Alternative Duties Or A Phased Return

If an employee is partially fit for work, you can explore whether temporary changes could help them return sooner, such as:

reduced hours for a period;
modified duties;
remote work (where feasible); or
additional breaks or adjustments.

Any changes to hours or duties should be approached carefully, because changing someone’s role or hours without proper agreement can create legal risk. If you’re considering reducing hours, it’s worth understanding the right process around Reducing Staff Hours.

4) Using Time Off In Lieu (If Applicable)

In some workplaces, employees may have accrued time off in lieu (TOIL) arrangements. TOIL doesn’t replace sick leave, and it needs to be handled under the agreed policy or contract terms, but it can sometimes form part of a practical solution when the employee is transitioning back to work.

Where TOIL is part of your workplace practices, make sure you’re aligned with the rules for Time Off In Lieu and that you’re applying them consistently across your team.

When Can Long-Term Sick Leave Lead To Termination (And How Do You Do It Fairly)?

This is the hardest part of long-term sick leave for employers: at some point, you may reach a stage where the employee can’t return to work within a reasonable timeframe, and keeping the position open is no longer workable.

In NZ, you generally can’t dismiss someone simply because they’re sick. However, termination can sometimes be lawful where the employee is unable to perform their role due to incapacity, and there’s no reasonable prospect of them returning in the near future.

The key issue here is following a fair process. Even when the outcome may seem obvious operationally, a poor process can expose you to personal grievance risk.

What A Fair “Medical Incapacity” Process Often Looks Like

While every case is different, a fair and defensible process typically includes:

Gathering up-to-date medical information focused on capacity and likely return timeframe.
Consulting with the employee and giving them a chance to comment on the situation and any medical information obtained.
Considering adjustments or alternative duties if reasonable and available (and discussing these with the employee).
Assessing operational impact (for example, workload, cost, ability to cover shifts, impact on service delivery).
Considering whether further leave is reasonable in all the circumstances.
Providing clear written communication about the process and potential outcomes.

Even where termination is a possibility, you should treat it as a last resort after you’ve genuinely considered options and consulted properly.

Be Careful About “Pre-Deciding” The Outcome

A common mistake is going into meetings with a fixed decision (“we’re ending your employment”) and treating consultation as a formality. If it looks like you didn’t genuinely consider the employee’s input or medical information, you increase your legal risk significantly.

Think About Notice And Final Pay

If termination occurs, you’ll need to follow the notice requirements in the employment agreement (or minimum standards where relevant). In some cases, employers consider paying out notice instead of requiring the employee to work it.

This is another area where getting the mechanics right matters. If you’re considering a payout of notice, make sure you understand the rules around Payment In Lieu Of Notice.

Because termination in a long-term sick leave context is high-risk and highly fact-dependent, it’s a good idea to get tailored legal advice before you take steps that could lead to dismissal.

Best Practices For Managing Long-Term Sick Leave (Without Burning Out Your Business)

Beyond the legal minimums, there are a few practical best practices that make long-term sick leave far easier to manage as a small business.

1) Have A Clear Sick Leave Process From Day One

A clear process reduces confusion and helps you apply rules consistently. Your process should cover:

how employees notify you they’re unwell;
when medical evidence is required;
how leave is recorded; and
who the employee communicates with while away.

It’s much easier to manage long-term sick leave when your day-to-day sick leave process is already working well.

2) Keep Your Policies Consistent Across The Team

Inconsistency is one of the fastest ways to create disputes. If one employee is allowed to “go quiet” for months and another is pressured for weekly updates, you could face arguments about unfair treatment.

If you have a staff handbook or workplace policy suite, it should align with your employment agreements and actual practices.

3) Plan For Business Continuity Early

Long-term sick leave can impact rosters, client delivery, and team morale. To protect the business, consider:

temporary cover (fixed-term arrangements can be an option, but they need to be done correctly);
redistributing duties in a way that doesn’t overload other staff; and
communicating with your team carefully while respecting privacy.

There’s a balance here. You can’t promise other staff confidential medical details, but you can explain practical changes (“we’re arranging temporary cover” or “please direct queries to X”).

4) Treat Mental Health Leave As Real Leave

More employees are taking leave related to stress, anxiety, depression, or burnout. From a legal and practical standpoint, mental health can fall within sick leave just like physical illness.

If your business hasn’t dealt with this before, it helps to have a grounded understanding of Mental Health Leave and how to respond appropriately as an employer.

5) Get Advice Early (Especially Before You Make Big Decisions)

If the absence is dragging on and you’re considering significant steps (like role changes, restructuring, or termination), get advice before you act. Early advice is often far cheaper than defending a personal grievance later.

It also helps you approach the situation with confidence, because you’ll know your communications and process are aligned with NZ employment law expectations.

Key Takeaways

In NZ, “long-term sick leave” isn’t strictly defined, but it generally means an extended absence that goes beyond standard short-term sick leave and often exceeds the employee’s paid sick leave balance.
Your key obligations include acting in good faith, applying sick leave and annual leave rules correctly, meeting health and safety duties, and handling medical information carefully under the Privacy Act 2020.
Set a clear, respectful communication plan during long-term sick leave and document key interactions so expectations stay aligned and your business is protected.
Once paid sick leave runs out, options can include unpaid leave by agreement, annual leave (only if handled lawfully and with the right process), and practical return-to-work adjustments like reduced hours or modified duties.
Termination due to medical incapacity can be lawful in some cases, but it’s high-risk and should only happen after a fair process, proper consultation, and consideration of reasonable alternatives.
Strong employment documents and consistent workplace practices make long-term sick leave much easier to manage and reduce the chance of disputes.

If you’d like help managing long-term sick leave, updating your Employment Contract, or getting advice before making any big employment decisions, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.

Long-Term Sick Leave in NZ: Employer Obligations & Best Practices