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Sometimes, an employee doesn’t have enough leave available to take paid leave when time off work is required for what would normally be a work day. As am employer, you can agree to the time off and not pay them for this time. This is usually called Leave Without Pay or LWOP.

Leave without pay doesn’t end an employee’s agreement or change it, however, did you know that leave without pay can affect the employee’s annual holidays payment and entitlement in some situations? It also has an effect on your business as a whole. Think about it – if your staff are not working, what does this mean for your business? Taking more leave than entitled, even if it is unpaid leave, has a huge financial impact on your business in respect of future annual leave calculations. and the fact they are not on the job generating income.

There are many different situations when an employee might take leave without pay – they aren’t however entitled to it, and can only take it if you as an employer agree to it. You could have a clause in the Employment Agreement regarding Leave without pay, or it could be agreed on at the time by the employee and employer.

As an employer you may agree to a period of leave without pay for some of the following reasons:

• 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 is not entitled to parental leave or negotiated carer leave

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 is then moved 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 that the employee was on leave without pay

If the employee takes two different 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.

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.

More information can regarding Leave without pay can be found on MBIE’s website here

Or contact us and we can assist with any queries!