Sick leave pay is the compensation employees receive when they take sick leave. While sick leave policies determine when and how employees can take time off for illness, sick leave pay addresses how much they're paid during that absence.
Calculating Sick Leave Pay
For most hourly employees, sick leave pay is straightforward: you pay them their regular hourly rate for the sick hours used.
Example: Your retail cashier normally earns $16 per hour. She uses 8 hours of sick leave. You pay her $128 (8 hours × $16) for that day.
Regular Rate Complications
Some jurisdictions require paying sick leave at the employee's "regular rate of pay," which isn't always the same as their hourly wage. The regular rate includes:
- Base hourly wage
- Shift differentials
- Non-discretionary bonuses allocated to the workweek
- Commissions
Example: Your warehouse worker earns $18 per hour base pay plus a $2 per hour night shift differential. When he uses sick leave for a night shift he would have worked, you pay $20 per hour, not $18.
Check your state or local sick leave law for specific requirements. Some specify base wage only; others require the regular rate.
Variable Schedule Employees
What about employees whose hours vary week to week? Most laws require calculating an average:
90-day average: Total wages in past 90 days ÷ total hours worked in past 90 days = average hourly rate
Pay period average: Total wages in current pay period ÷ total hours worked = average rate for this period
Your restaurant server works 25 hours one week and 35 the next. When calculating sick pay, you'd average his earnings over the prior 90 days to determine his hourly rate, then pay that rate for sick hours used.
Salaried Employees
For salaried employees, sick leave doesn't reduce their pay (they're paid the same whether they work or not). However, if you track sick leave balances for salaried staff, using sick leave decrements their available balance without affecting their paycheck.
Your salaried retail store manager has 40 hours of sick leave. She uses 8 hours for a doctor's appointment. Her paycheck doesn't change, but her sick leave balance drops to 32 hours.
Minimum Sick Leave Pay Requirements
Where sick leave is legally mandated, the law usually specifies minimum pay:
Same as regular rate: Most common requirement. Employees receive their regular hourly rate.
At least minimum wage: Some laws require only minimum wage for sick leave, though most employers pay the regular rate.
Your California restaurant pays servers $16 per hour. When they use sick leave, you must pay at least their regular rate ($16), not just minimum wage.
When Sick Leave Pay Doesn't Apply
Not all absences due to illness result in paid sick leave:
Unpaid sick leave: If the employee has exhausted accrued sick leave or works for an employer without sick leave benefits, the absence is unpaid.
FMLA leave: FMLA is unpaid unless the employee uses accrued sick leave concurrently.
Workers' compensation: Workplace injuries are covered by workers' compensation, not sick leave. Employees typically receive partial wage replacement through workers' comp insurance.
Your line cook cuts his hand at work. This is a workers' comp claim, not a sick leave situation. He receives workers' comp benefits, not sick leave pay.
Concurrent Use with Other Leave
Employees may use sick leave pay while also on other types of leave:
Sick leave during FMLA: Employee uses accrued paid sick leave for the first portion of FMLA leave (paid), then continues on unpaid FMLA once sick leave is exhausted.
Sick leave plus short-term disability: Some employers allow employees to use sick leave to supplement disability payments. If disability pays 60% of wages, sick leave might cover the other 40% until sick leave is exhausted.
Your warehouse employee is out for 6 weeks with a serious illness. She uses 40 hours of accrued sick leave (paid at regular rate), then receives short-term disability payments (60% of wages) for the remaining 4 weeks.
Taxability of Sick Leave Pay
Sick leave pay is taxable wages. You withhold federal income tax, Social Security, Medicare, and applicable state and local taxes just like regular wages. It's reported on the employee's W-2 as regular wages.
Payment Timing
Sick leave pay should be included in the next regular paycheck following the sick leave use. Don't delay payment or treat it differently than regular wages.
If your pay period is bi-weekly and an employee uses sick leave in the first week, that sick pay appears on the paycheck covering that period, paid on the regular pay date.
Partial Day Sick Leave
Some employees need just a few hours off for a doctor's appointment, not a full day:
Hourly employees: They use the exact hours needed. Your cashier leaves 2 hours early for a dentist appointment. She uses 2 hours of sick leave, paid at her regular rate.
Salaried exempt employees: Partial day absences for sickness don't reduce salary. If your salaried manager leaves 3 hours early due to illness, his paycheck doesn't change (assuming he has sick leave or it's company policy to pay salaried employees for sick time).
Documenting Sick Leave Pay
Your payroll records and pay stubs should clearly show:
- Hours of sick leave used
- Sick leave pay received
- Remaining sick leave balance (required in many jurisdictions)
Transparency helps employees track their benefits and demonstrates compliance if audited.
Common Sick Leave Pay Errors
Paying less than regular rate: If your employee earns $20 per hour with shift differential, paying only $18 for sick hours violates most sick leave laws.
Delaying payment: Sick leave pay must be included in the regular paycheck, not paid separately later.
Not paying for partial days: If your sick leave policy allows use in hourly increments, you must pay for those hours.
Failing to update balance: After sick leave use, the employee's balance should immediately reflect the change.
The Bottom Line
Sick leave pay is simpler than it first appears. Pay employees their regular rate (including applicable premiums) for sick hours used, process payment with their regular paycheck, and track balances accurately. When sick leave policies and payment practices are clear and consistent, employees know what to expect and compliance comes naturally.
