What are the rules for leave without pay?

Occasionally employers receive requests from staff for leave without pay, or unpaid leave. These sorts of requests often have employers scratching their heads wondering, ‘do I need to approve this?’, ‘how does leave without pay/unpaid leave work in payroll?’

What is unpaid leave?

There is no special legal definition for unpaid leave, it is just that - a period of leave which is unpaid.

There are some situations where an employee will enter a period of unpaid leave by default, for example, when they take personal leave and use up all their entitlement but remain absent because they are still unfit for work.

When an employee is on a period of unpaid leave, their accrual towards annual leave or personal/carer’s leave (sick leave) will pause. This is because unpaid leave is not an entitlement under the National Employment Standards (NES) and is generally not considered as service under the Fair Work Act (FW Act).

Can an employee apply for unpaid leave?

It is strongly recommended that employers have leave policies to help with managing employee leave requests. Some leave policies may include an ability for an employee to apply for unpaid leave and have it approved by the employer.

However, it is important to note that unpaid leave is not an entitlement under the NES. This means that if an employee wants to take unpaid leave from their employer, it will need to be approved in the same way that annual leave requests need to be approved.

Casual employees have a right under the NES to take unpaid personal/carer’s leave and unpaid compassionate leave.

Does an employer have to approve an unpaid leave request?

While the FW Act says the employer must not unreasonably refuse a request from an employee to take paid annual leave, the answer to the question above will depend on factors such as whether the employer has a leave policy which allows for the taking of unpaid leave, the size of the business, how long the period of leave is for, and the reason that the employee is wanting to take unpaid leave.

Some examples of reasons that an employee may request to take unpaid leave include:

• going on an extended holiday and only have a small balance of annual leave accrued which will not cover the whole period of leave; or
• they need to look after a family member, and they only have a few days of accrued carer’s leave remaining.

In the case of a casual employee who is exercising their right to take unpaid personal/carer’s leave or unpaid compassionate leave, the employer must approve such a request provided that the casual employee complies with any evidentiary requirements.

If there is no leave policy expressly allowing for unpaid leave, an employer may decide that they cannot accommodate a particular request for unpaid leave. An employer’s refusal to grant unpaid leave may be reasonable if say, it is a small business with a small team, and an employee is wanting to take 3 months of unpaid leave to go backpacking overseas.

If there is a leave policy, the employer should refer to it to determine what rules the business has regarding unpaid leave.

As with all workplace matters, it is important that each request is dealt with separately on a case-by-case basis. The factors in each situation should be considered before any decision is made.

What if the business is willing to agree to a portion of unpaid leave?

Let us use the example of the employee of the small business who wants to take 3 months of unpaid leave to go backpacking overseas. This employee only has enough annual leave to cover two weeks of paid annual leave and wants to take the rest of the time as unpaid leave. The employer really wants to approve the request, but they cannot afford to have a valuable employee away from the business for that length of time.

In this situation, the employer could try to meet the employee in the middle. The employer should explain to the employee that unpaid leave is not an entitlement under the NES, however, they are willing to compromise. The employer could approve the two weeks of paid annual leave as per the employee’s entitlement and approve by agreement three weeks of unpaid leave instead of the full three months. If agreement is reached, the employee should complete a leave form and have it approved and signed by their manager.

What if a public holiday occurs during a period of unpaid leave?

If a public holiday occurs during a period of unpaid leave, the employee will not be paid for that public holiday.

More information

The Fair Work Ombudsman have information regarding unpaid leave on their website. Information on unpaid leave and public holidays is available here.