Selling a Small Business in Australia: Pro Rata Sick and Carer’s Leave and the Reality of Use

When selling a small business such as a retail tyre shop or other owner-operated business in Australia, employee entitlements can become a point of negotiation at settlement. Sick and carer’s leave is often one of the most debated items, particularly because it may never actually be used by employees.

Under the Fair Work Act 2009, permanent employees accrue paid personal leave over time. This leave accumulates from year to year and transfers with employees when a business is sold, provided they continue their employment with the buyer. Unlike annual leave, it is not paid out when employment ends.

From a buyer’s perspective, accrued sick and carer’s leave represents a potential future liability. However, unlike annual leave, there is no certainty that this leave will ever be taken. An employee may rarely be sick, may resign before using the leave, or may never use their full balance at all. In many cases, large personal leave balances simply lapse over time when employment ends.

This uncertainty is why sick and carer’s leave is often treated differently from annual leave in business sale negotiations. While some buyers request a full pro rata adjustment at settlement, others accept that the entitlement is contingent and may never result in an actual cost. As a result, the treatment of sick and carer’s leave is often a commercial decision rather than a strict accounting one.

In smaller businesses such as retail tyre shops, it is common for parties to agree to a reduced adjustment or, in some cases, no adjustment at all for sick and carer’s leave. This reflects the practical reality that the leave is only payable if and when it is taken and that the buyer may never incur the full cost. The agreed approach will often depend on factors such as the size of the accrued balances, the length of employee service, and the negotiating strength of each party.

Another approach sometimes adopted is to include sick and carer’s leave in the sale price negotiations rather than as a separate settlement adjustment. This allows both parties to acknowledge the potential liability without requiring a precise dollar-for-dollar calculation at settlement.

For sellers, the important point is to understand that sick and carer’s leave is not automatically treated the same way as annual leave. For buyers, it is equally important to recognise that while the entitlement transfers, it does not guarantee a future cash outlay.

Ultimately, the treatment of sick and carer’s leave in the sale of a small Australian business comes down to disclosure, negotiation, and agreement. Recognising that employees may never actually need to use the leave can help both parties reach a more balanced and commercially realistic outcome at settlement.