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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 allows an employee time off work when they would otherwise be working, but doesn’t pay them for this time. Leave without pay (LWOP) doesn’t end 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). Leave without pay can affect the employee's annual holidays payment and entitlement in some situations.

Situations when an employee might take leave without pay

Employees aren’t entitled to take leave without pay; they can only take it if their employer agrees. This agreement could be contained in their employment agreement, or could be negotiated by the employee and employer at the time leave is taken.

An employer might consider agreeing to a period of leave without pay, for example:

  • if an employee doesn’t have enough annual holidays to cover the time they want to take off work, or
  • if an employee doesn't have enough sick leave to cover a period of illness or injury
  • for study leave
  • for a sabbatical
  • if the employee can’t take parental leave or negotiated carer 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.

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

Annual closedowns has information on what happens if an organisation has an annual closedown period, and an employee doesn’t have enough annual holidays to cover the closedown.

Taking more than one week of leave without pay

If an employee takes a continuous period of leave without pay for more than one week (not including unpaid sick or unpaid bereavement leave):

  • their anniversary date for entitlement to annual holidays moves 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, or
  • the employer can agree with the employee that their anniversary date for annual holidays entitlement won’t change. If they agree to this, the employer must also reduce the divisor for calculating average weekly earnings for annual holidays by the number of weeks or part weeks greater than one week that the employee was on leave without pay.

If the employee takes eg two periods of leave without pay, each being one week in duration, this does not have any impact on the anniversary date, the period of leave without pay greater than one week must be in one continuous period.

Scenario

Oliver started working for Michael on 1 February. In November the same year he asked Michael if he could take leave without pay for two weeks (10 working days for Oliver) and an additional two days as he wasn’t entitled to any annual holidays yet and he wanted time off to study for a course he is completing in his own time. Michael agreed but explained that it would affect Oliver’s entitlement for annual holidays. Oliver said that was ok with him and he took the leave without pay. Michael moved Oliver’s anniversary for annual holidays entitlement out by one week and two days to 10 February (the first week of leave without pay doesn’t affect annual holidays entitlement).

The following year Oliver wants to take leave without pay for another two weeks. Michael decides to ask him if he wants his anniversary date for annual holidays to stay the same this time. Oliver is grateful for this and agrees. Oliver and Michael record their agreement in writing so that there are no misunderstandings. When Oliver takes annual holidays a few months later, Michael must calculate 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).

Calculating annual holiday payments has more information about this.

Public holidays, bereavement leave, alternative holidays and sick leave during leave without pay

If a public holiday falls during a period when an employee is taking a period of leave without pay, they may not receive any payment for the public holiday. This is because it wouldn’t be a day that the employee would otherwise be working on if it wasn’t a public holiday. For the same reason, an employee may not be entitled to sick leave or bereavement leave during a period of leave without pay because it wouldn’t be a day that the employee would otherwise be working on if they weren’t sick or suffering a bereavement.

However in some situations the employee may be entitled to paid public holidays or bereavement leave during a period of leave without pay so the principles of working out whether the day is an otherwise working day for the employee should always be followed.

For example the employee may be on leave without pay because they are sick and don’t have enough sick leave. If a public holiday falls within the period of leave without pay on a day that the employee would have worked (if they weren’t sick and it wasn’t a public holiday) they will be entitled to payment for the public holiday.

Clarifying and recording leave without pay

EmployeeEmployer
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 work on leave without pay, for example, to visit their family overseas that they are clear on the basis of that time off. For example, if it is leave without pay, annual holidays or annual holidays in advance. 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 one week, you know whether your leave without pay will affect your anniversary date for annual holidays. If the employee is going on leave without pay for more than one week, you should:
  • discuss with them if there will be any impact on their anniversary date for annual holidays, or
  • seek their agreement to keeping their anniversary date for annual holidays the same and reducing the divisor for calculating average weekly earnings.

Leave without pay

[image] Leave without pay [PDF 615KB]


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