Published On: 17/12/2025By

Sick Leave vs. Annual Leave: A Guide to Your Rights in Malaysia (2025)

Understanding the difference between sick leave and annual leave is more than an HR admin task — it is a legal compliance responsibility for employers in Malaysia.

Yet, this remains one of the most misunderstood areas in workforce management.
Can sick leave be replaced with annual leave?
Is an MC always required?
What happens to unused leave when an employee resigns?

This guide breaks down the key differences between sick leave and annual leave under the Employment Act 1955, explains common workplace scenarios, and highlights how employers can manage both accurately using a structured HR system like Pandahrms.

What Is Annual Leave?

Annual leave is a paid entitlement earned through service. Its purpose is to allow employees time off for rest, personal matters, or planned holidays without loss of income.

From an employer’s perspective, annual leave:

  • Is planned and applied in advance

  • Requires managerial approval

  • Must be tracked and recorded accurately

  • Is encashable upon resignation if unused

Annual leave supports employee well-being while allowing businesses to plan manpower allocation in advance.

What Is Sick Leave?

Sick leave (medical leave) is a statutory entitlement granted when an employee is medically unfit to work.

Key characteristics of sick leave:

  • Unplanned and health-driven

  • Requires a valid Medical Certificate (MC) from a registered medical practitioner (if requested by the employer)

  • Intended strictly for recovery from illness or injury

  • Not encashable and cannot be carried forward

For employers, sick leave must be managed carefully to ensure compliance while preventing misuse.

Sick Leave vs. Annual Leave: Key Differences at a Glance

Legal Leave Entitlements Under the Employment Act 1955

Both sick leave and annual leave are statutory rights, not optional benefits.

Minimum Annual Leave Entitlement (Section 60E)

Minimum Sick Leave Entitlement (Section 60F)

Hospitalisation Leave:
Employees are additionally entitled to up to 60 days of paid hospitalisation leave per year, provided medical certification is issued.

Hospitalisation leave is separate and does not deduct from normal sick leave.

Common Employer Questions & Scenarios

Can an Employer Require an MC for Sick Leave?

Yes. Employers are legally entitled to request a medical certificate.
If an employee fails to produce a valid MC without reasonable justification, the absence may be treated as unpaid leave or misconduct, subject to company policy.

Can Annual Leave Be Used When Sick Leave Is Exhausted?

Yes — with mutual agreement.

Once statutory sick leave is fully utilised, employers may:

  • Allow annual leave to be used, or

  • Grant unpaid leave

However, annual leave cannot be forced to replace sick leave when a valid MC is provided.

Can Employers Force Employees to Use Annual Leave Instead of Sick Leave?

No.
Sick leave and annual leave are separate legal entitlements.
If an employee submits a valid MC, sick leave must be applied accordingly.

What Happens to Unused Leave Upon Resignation?

This distinction is frequently audited and must be handled correctly in payroll calculations.

Why Leave Mismanagement Creates Compliance Risk

From an employer’s standpoint, common issues include:

  • Mixing sick leave and annual leave balances

  • Manual MC tracking

  • Incorrect encashment upon resignation

  • Disputes due to unclear policies

  • Inconsistent records during audits

These errors expose companies to employee disputes, LHDN checks, and labour claims.

Streamline Leave Management with Pandahrms

Managing leave manually increases risk. Pandahrms provides employers with a structured, compliant solution.

Clear Leave Segregation

Employees and HR can view separate real-time balances for:

  • Annual leave

  • Sick leave

  • Hospitalisation leave

No confusion. No overlap.

Automated Entitlement Calculation

Pandahrms automatically:

  • Calculates leave entitlement based on service length

  • Applies statutory minimums

  • Supports customised company policies

This ensures full Employment Act compliance.

Digital MC Submission & Tracking

Employees can:

  • Apply for sick leave via mobile or web

  • Upload MCs instantly

  • Create a secure digital record for HR review

HR gains a clear audit trail without paperwork.

Policy-Controlled Approvals

Pandahrms enforces:

  • Approval workflows for annual leave

  • Validation rules for sick leave

  • Transparent records for dispute prevention

Conclusion: Know the Difference, Stay Compliant

Sick leave and annual leave serve different purposes and must be managed separately.

For employers:

  • Understanding the distinction prevents legal risk

  • Proper systems ensure fairness and transparency

  • Accurate records protect the business during audits

For employees:

  • Sick leave protects health

  • Annual leave protects rest and work-life balance

With Pandahrms, employers can automate leave policies, reduce HR admin burden, and stay fully compliant with Malaysian labour laws.

Frequently Asked Questions (FAQ)

Is unpaid sick leave allowed?
Yes, if paid sick leave is fully exhausted, subject to employer approval.

Can employers verify an MC?
Yes. Employers may verify authenticity with the issuing clinic or hospital if there is reasonable doubt.

What if an employee falls sick during annual leave?
With a valid MC, annual leave may be converted to sick leave, subject to company policy.

Is hospitalisation leave separate from sick leave?
Yes. Hospitalisation leave is a separate statutory entitlement.