HR Tips & Answers

What You Need To Know About Leave Without Pay

Requests from employees for Unpaid Leave can be tricky for businesses to negotiate. Do you know your business obligations are and what policies and procedures you should have in place?

You may have had some employees asking questions like:

  • “I want to take some Unpaid Leave for a year so I can travel.”
  • “I’ve used all my Annual and Carers Leave; can I take Unpaid Leave to care for my family member?”

These are both questions you might hear at some point and they might take you by surprise if you’re not prepared!

Leave without pay (Unpaid Leave) is an area where it’s important for your business to have right policies and procedures in place because without them, you might be left wondering how to manage it and what to say when this sort of request arises.

So how do you deal with a request for Unpaid Leave?

Commonly employees will request Unpaid Leave if they’ve used all their paid leave requirements and reasons can include some of the following:

  • Wanting to take a holiday and travel for a long period
  • take a career break or undertake study
  • care for children or other family members
  • recover from an extended illness.

And while the Fair Work Act says your business can’t reasonably refuse paid Annual Leave requests, it’s not so clear cut when it comes to taking leave without pay.

While some forms of Unpaid Leave – such as Parental and Community Service Leave – are considered an entitlement under the National Employment Standards and can’t be refused without reasonable grounds,  others are left to the business’s discretion.  So how do you exercise this discretion?

Your decision comes down to the following:

  • What is the reason the leave is being requested,
  • the size of your business,
  • the impact this employee’s absence will have on your business,
  • how long the leave is for,
  • whether your business has a policy that covers Unpaid Leave requests.

For example, it might be reasonable to refuse an employee’s request for Unpaid Leave for a year to go backpacking trip if you’re a very small business.

Having a policy in place clearly sets out the circumstances in which your business is prepared to grant this kind of leave. It also helps if you’re unsure whether to treat an employee as having abandoned their employment if, for example, they’ve taken Unpaid Leave without permission.

Having a policy helps your employees understand their obligations while on Unpaid Leave, such as a clear start and end date or how often they have to check in with you or similar.

Alongside having a policy, you should always make sure that any leave without pay request and arrangement is confirmed in writing.  This ensures that all parties are aware of what is agreed to and what is expected from them.

Does Unpaid Leave impact an employee’s period of continuous service?

Another aspect you also need to understand is how taking Unpaid Leave impacts continuous service.

According to the Fair Work Ombudsman, there are some key points to understand about this:

  • Most Unpaid Leave does not count toward an employee’s continuous service.
  • Employees also can’t accrue annual or personal/sick leave while on Unpaid Leave
  • It does not count towards their continuous service when calculating Long Service Leave.

Remember there may be exceptions, such as Community Service Leave or Pandemic Leave so you should make sure that you fully understand your employee’s request for Unpaid Leave and why!

Although it doesn’t count as service, it does not break a period of continuous service.
For example if an employee works for your business continuously for 5 years and then takes 1 year of Unpaid Leave.  When they come back, their continuous employment restarts from the 5 year mark – the 1 year of Unpaid Leave doesn’t count towards the total, but they don’t have to restart at zero either.

Published: Wednesday, April 19th, 2023

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