Everyone
Leave without pay
Employees can take leave without pay if their employer agrees. This agreement should be recorded in writing.
What is leave without pay?
Leave without pay, or unpaid leave, is time an employee can spend off work without being paid. Typically, the employee will return to the same position with the same terms and conditions unless the employee and employer agree otherwise. Leave without pay can affect annual holidays payment and entitlement in some situations.
When employees might take leave without pay
Employees are not automatically entitled to take leave without pay – it’s not an entitlement in law.
Employees can take unpaid leave if their employer agrees. This could already be in their employment agreement or could be negotiated at the time leave is taken.
Employees might consider requesting a period of leave without pay, for example:
- if they do not have enough annual holidays to cover the time they want to take off work
- if they do not have enough sick leave to cover a period of illness or injury
- for study leave
- for a sabbatical
- if they cannot take parental leave or negotiated carer leave.
If they take time off work without their employer’s agreement, this is unauthorised leave and could result in disciplinary action.
Taking more than 1 week of unpaid leave
If an employee takes a continuous period of more than 1 week’s unpaid leave (not including unpaid sick, bereavement or family violence leave):
- the date they become entitled to annual holidays (their anniversary date) moves out by how many extra weeks (more than 1) of unpaid leave they took. The employee will have to wait longer before they become entitled to annual holidays, or
- they can agree with their employer that their anniversary date stays the same. This changes the calculation for annual holiday pay. This option can be easier for employers to manage in their payroll system.
If the anniversary date stays the same
The employee still gets their annual holiday entitlement after 12 months if their anniversary date stays the same. However, when they take holidays, the extra unpaid leave they took (the amount that exceeds 1 week) is not counted in the calculation for average weekly earnings (AWE). This is so it does not reduce their annual holiday pay.
When calculating AWE, reduce the divisor (the number of weeks gross earnings are averaged over) by the number of whole or part-weeks of extra unpaid leave taken. Do this every time you calculate AWE until the unpaid leave was taken more than 52 weeks ago.
For example, if an employee takes 3 weeks of unpaid leave, you reduce the divisor by 2 (the amount more than 1 week) to 50 weeks instead of 52.
Examples of taking more than 1 week's leave without pay
Oliver started working for Michael on 1 February. In November he asks Michael if he can take leave without pay for 2 weeks (10 working days for Oliver) and an additional 2 days, as he is not entitled to any annual holidays yet and needs the time off to study for a course. Michael agrees but explains that it will affect Oliver’s entitlement for annual holidays. Oliver says that that’s okay with him, and he takes the leave without pay. Michael moves Oliver’s anniversary for annual holidays entitlement out by 1 week and 2 days to 10 February (the first week of leave without pay does not affect annual holidays entitlement).
The following year Oliver wants to take leave without pay for another 2 weeks. Michael decides to ask him if he wants his anniversary date for annual holidays to stay the same this time. Oliver agrees to this, and they record their agreement in writing so that there are no misunderstandings. When Oliver takes annual holidays a few months later, Michael calculates Oliver’s average weekly earnings by dividing his gross earnings by 51, not 52, because he agreed not to move Oliver’s anniversary date for annual holidays.
Public holidays and other leave during a period of leave without pay
When an employee is on unpaid leave, they will generally not get paid for:
- a public holiday
- sick, bereavement or family violence leave.
This is because the employee was not going to be at work, so they’re not entitled to paid leave.
The exception to this is when an employee is on unpaid leave because they’ve run out of sick, bereavement or family violence leave. If a public holiday:
- falls while they’re on unpaid sick, bereavement or family violence leave, and
- is on a day they would usually work (an otherwise working day)
they are entitled to payment for the public holiday.
Clarifying and recording leave without pay
Any agreement about unpaid leave should be recorded in writing.
For unpaid leave of more than 1 week, employers and employees should agree in writing what happens to the employee’s anniversary date so that everyone is clear.
Keeping a record of what was agreed helps avoid any confusion later.