Do You Accrue Annual Leave While on Workers' Compensation in Australia?

Yes — in most Australian states, annual leave continues to accrue while an employee is on workers’ compensation. The National Employment Standards (NES) under the Fair Work Act 2009 do not exclude accrual during a workers’ compensation absence, and the general position is that annual leave accumulates as though the employee were still working.

That is the default. The rules vary by state, and some jurisdictions carve out specific exceptions — particularly where the employee has received a lump-sum payment on termination. This article walks through the state-by-state position, the exceptions, and the practical implications for employers.

Key Takeaways

• Under the NES, annual leave accrues during workers’ compensation — Fair Work Ombudsman.
• State and territory workers’ compensation legislation may modify this position, particularly around lump-sum termination payments.
• Personal/carer’s leave (sick leave) does not accrue during workers’ compensation in most states.
• On termination, the accrued annual leave is paid out at the employee’s normal weekly rate (not the workers’ compensation rate).

The General Rule: Leave Accrues

The Fair Work Act requires employers to pay annual leave loading and maintain leave balances for employees on approved leave, including workers’ compensation. The NES does not create an exception for workplace injuries.

The Fair Work Ombudsman confirms that annual leave continues to build up during workers’ compensation, and that the employee’s entitlement to annual leave is not reduced by the period of absence.

The position for personal/carer’s leave is different. Most states and territories provide that personal/carer’s leave does not accrue during a workers’ compensation absence, because the employee is already receiving compensation for the illness or injury that would otherwise justify sick leave. The exact mechanism varies by jurisdiction.

State-by-State Comparison

The interaction between annual leave, personal/carer’s leave, and workers’ compensation is governed by state legislation, not the Fair Work Act alone. Here is the position as of 2026:

State/Territory	Annual leave accrues?	Personal/carer’s leave accrues?	Key legislation
New South Wales	Yes	No	Workplace Injury Management and Workers Compensation Act 1998
Victoria	Yes	No	Workplace Injury Rehabilitation and Compensation Act 2013
Queensland	Yes	No	Workers’ Compensation and Rehabilitation Act 2003
South Australia	Yes	No	Return to Work Act 1986
Western Australia	Yes	No	Workers’ Compensation and Injury Management Act 1981
Tasmania	Yes	No	Workers’ Compensation and Rehabilitation Act 1988
ACT	Yes	No	Workers’ Compensation Act 1951
Northern Territory	Yes	No	Workplace Health and Safety (National Uniform Legislation) Act

The table reflects the general position. Each state’s legislation contains specific provisions, and there are nuances — particularly around lump-sum redemptions, common law claims, and the interaction with enterprise agreements — that require state-specific advice.

The Lump-Sum Redemption Problem

The most significant exception arises when an employee receives a lump-sum payment on termination while on workers’ compensation. In some states, accepting a lump-sum payment extinguishes certain leave entitlements.

In New South Wales, for example, a worker who receives a lump-sum payment under the workers’ compensation scheme may have their annual leave entitlement reduced by the amount already compensated. The precise interaction depends on the nature of the lump sum and whether it was characterised as a redemption of all future entitlements or a payment for specific loss.

In Victoria, the position is clearer: annual leave is a separate entitlement and is paid out on termination regardless of any workers’ compensation payment. The lump-sum redemption does not extinguish annual leave.

For employers, the critical step is to check the specific state legislation before paying out accrued leave during or after a workers’ compensation absence. Incorrect treatment can result in an underpayment claim.

Worked Example: Accrual During a 6-Month Absence

Raj works in New South Wales, earning $1,200 per week. He is on workers’ compensation for 6 months following a workplace injury.

Annual leave accrual during the absence:

• NES annual leave entitlement: 4 weeks (20 days) per year
• During 6 months: 2 weeks accrued
• At his normal weekly rate: 2 × $1,200 = $2,400 in accrued annual leave value

Personal/carer’s leave accrual:

• Does not accrue during workers’ compensation in NSW
• Remains at whatever balance existed at the start of the absence

When Raj returns to work or is terminated, his accrued annual leave balance includes the 2 weeks that accumulated during his absence. If terminated, that leave is paid out at his normal weekly rate.

What Employers Should Track

During a workers’ compensation absence, employers should:

1. Continue accruing annual leave in the payroll system at the employee’s ordinary rate.
2. Stop accruing personal/carer’s leave in jurisdictions where the legislation suspends it.
3. Record the workers’ compensation payments separately — they are not salary and should not be treated as such for leave calculation purposes.
4. Track the duration of the absence — if it extends beyond 12 months, the leave balance can become material and should be reflected in financial reporting.
5. Consult state-specific legislation before making any lump-sum payment that might affect leave entitlements.

What About Long Service Leave?

Long service leave accrual during workers’ compensation is governed by separate state long service leave legislation. In most states, long service leave continues to accrue during workers’ compensation, though the calculation base may differ. This is outside the scope of the Fair Work Act and requires state-specific advice.

Can the Employer Direct the Employee to Take Annual Leave?

Generally, no. An employer cannot direct an employee to take annual leave during a workers’ compensation absence. The employee is absent due to a workplace injury and is receiving compensation for that absence. Directing them to use annual leave to cover the same period would effectively reduce their NES entitlement without their agreement.

The Working Time Regulations equivalent in Australia — the NES provisions on annual leave direction — allow employers to request leave with adequate notice, but this does not extend to directing leave during an active workers’ compensation claim.

How Leave Balance Helps

Leave Balance tracks annual leave accrual separately from workers’ compensation payments, maintaining accurate balances across different state jurisdictions. For multi-state employers, the system applies the correct personal/carer’s leave accrual rules per jurisdiction, reducing the risk of over- or under-accrual during extended absences.