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Leave without pay

An employee can take leave without pay if their employer agrees. The agreement should be recorded in writing.

Leave without pay is when an employer lets an employee take time off work but doesn’t pay them for this time. Leave without pay doesn’t stop an employee’s employment, and usually the employee returns to their same position and terms and conditions after taking leave without pay (unless the employee and employer agree otherwise). The leave can impact on annual holidays and payment for annual holidays.

Situations when an employee might take leave without pay

Employees aren’t entitled to leave without pay; they can only take it if their employer agrees. The agreement could be contained in their employment agreement, or could be negotiated by the employee and employer at the time the employee asks for the leave. If the employee takes time off work without the employer’s agreement, this is unauthorised leave and could result in a disciplinary process being taken.  An employer might consider agreeing to leave without pay, for example:

  • if an employee doesn’t have enough annual leave or sick leave
  • for study leave
  • for a sabbatical
  • if the employee can’t take parental leave or negotiated carer leave. 

Parental leave provides information for employers, employees and self-employed people about parental leave and associated entitlements.

Annual closedowns has information if an organisation has an annual closedown period, and an employee doesn’t have enough annual leave, they will have to take leave without pay.

Taking more than one week of leave without pay

If an employee takes a period of leave without pay for more than one week, the employer:

  • can move the employee’s annual holidays anniversary date out by the amount of unpaid leave taken (not including the first week). This means the employee becomes entitled to their annual holidays later each year from then on. The employer can choose not to move the anniversary date
  • can agree with the employee to include any period of unpaid leave (not including the first week) when they work out the employee’s average weekly earnings (which is used to work out how much the employee gets paid for annual leave). For example, if the employee took two weeks' leave without pay, the employer can calculate their average weekly earnings by dividing their income by 51.

Annual holidays has more information about this.

Public holidays falling during leave without pay

If a public holiday falls during a period when an employee is taking leave without pay, they wouldn’t receive any payment for the public holiday. This is because it wouldn’t be a day that they would otherwise be working on if it wasn’t a public holiday.

Clarifying and recording leave without pay

Make sure that your employer has agreed in writing to take time off work on leave without pay. If there is a misunderstanding, your employer could think you have left your employment when you think you are on leave without pay. Make sure that if an employee requests time off, for example, to visit their family overseas that they are clear on the basis of that time off, for example, it is leave without pay, annual leave or anticipated annual leave. Agreeing to the time off and stating the type of leave in writing will leave less room for misunderstanding.
Make sure that if you are going on leave without pay for more than 1 week, your employer has told you in writing if your leave without pay will:
  • impact your anniversary date for annual holidays and/or
  • be used to calculate your average weekly earnings for annual leave
If the employee is going on leave without pay for more than 1 week, make sure that you clarify in writing if:
  • there will be any impact on their anniversary date for annual holidays, and/or
  • you will be including the unpaid weeks when you work out their average weekly earnings.

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