As a business owner or employer, sometimes you may receive requests from staff members and employees who want time off work without pay. This kind of leave request can leave managers scratching their heads, wondering whether the employee is entitled to unpaid leave, leave without pay entitlements, and the policy in place. Under the Fair Work Act 2009, employers have a legal obligation related to types of unpaid leave. In this guide, we help employers navigate unpaid leave, and leave without pay (LWOP), and provide strategies for balancing your business needs.
Understanding unpaid leave
Unpaid leave is a term used to describe an employee taking time away from work without pay. In some cases, a modern award, registered agreement, or employment contract gives an employee the entitlement to a certain amount of unpaid leave.
More often, unpaid leave is used when part-time or full-time workers have exhausted their paid annual leave or personal leave allowance but still need time away from work.
Common reasons for unpaid leave
Employees may apply for LWOP for many reasons. Some of the most common reasons include:
- Physical or mental health – If an employee suffers from physical or mental health issues and has used all their leave, they may agree to take further time off without pay to recover fully.
- Extended holidays – If an employee is planning a long holiday that extends beyond their remaining annual leave balance, they may ask for an unpaid leave of absence.
- Birth or adoption of a child – If an employee is welcoming a new member into the family and has used all their parental leave, sometimes they will apply for unpaid leave.
- Caring for an unwell or elderly family member – If an employee is responsible for caring for a sick or vulnerable family member and has exhausted all their leave, employers will often permit unpaid leave.
- Community service – If an employee must perform community service, they should be granted unpaid leave.
Australian employment laws distinguish between instances where employees have a legal entitlement to unpaid leave and where it is at the employer’s discretion. Understanding the differences between these situations can ensure employers make the right decision.
Unpaid leave entitlements
In certain circumstances, employees are entitled to unpaid leave. The Fair Work Act 2009 and National Employment Standards outline specific situations where employees must be entitled to unpaid leave:
- Unpaid carer’s leave - Employees are entitled to leave without pay where an immediate family member or household member relies on them for care or support due to a serious illness, injury, or emergency.
- Compassionate leave - An employee can take compassionate leave when an immediate family member or household member faces a life-threatening illness, a significant injury, or in the event of their death.
- Unpaid parental leave - When an employee welcomes a new child in their family through birth or adoption, they are legally entitled to a significant amount of unpaid leave. This allows them to create stability for the child and maintain job security.
- Community service leave - Certain community service duties fall under the National Employment Standards. Some activities like participating in volunteer emergency management operations or serving on a jury are protected. Employees have the right to take LWOP when fulfilling these roles.
Employers should also acknowledge that casual employees have the right to choose not to work or take some form of unpaid leave under the National Employment Standards. These include unpaid carer’s leave and unpaid compassionate leave.
Can an employer refuse an unpaid leave request?
If an employee has used all their unpaid leave entitlements, or unpaid leave entitlements do not apply, it is up to the employer to decide if to approve the request or not.
Whether or not the employer decides to approve a request will depend on a range of factors, including the employee’s length of service, how valid the unpaid leave reason is, and the timing of the leave request (an employer may be less likely to approve a request during traditionally busy periods).
In the interest of clarity and managing the expectations of your staff, it is advisable to have an unpaid leave policy, which should be included in your company’s leave policy documents.
Benefits of unpaid leave
It is recommended that employers approach any unpaid leave requests with an open mind and factor in how it may improve the employee’s well-being, productivity, and loyalty to the business. The benefits of approving unpaid leave requests include:
- The break could refresh the employee, preparing them to perform at their highest level when they return.
- Approving unpaid leave when business is normally slow could be financially beneficial.
- The time off work might give the employee a chance to learn a new skill that’s valuable to the business.
- Granting unpaid leave requests could help to improve workplace culture, staff engagement, and employee retention.
Submitting unpaid leave request
An employee needs to submit a request for unpaid leave before taking time off work. An employee needs to give their employer the minimum amount of notice when making an unpaid leave request.
The process for requesting unpaid leave is normally set out in an award, registered agreement, company policy, or employment contract.
In many cases, the process is the same as applying for annual leave, although the employee may wish to have a conversation with their line manager before sending a formal request.
Employee rights during unpaid leave
When an employee takes unpaid leave, they must understand the impact on their rights.
When an employee takes LWOP, it does not break their continuity of service. This can affect entitlements to future paid leave, long service leave, and redundancy pay. There may be some exceptions depending on the length of leave and the provisions of their award or agreement. The employee also must return to the same position they held before commencing unpaid leave.
The expert Peninsula team can provide free initial advice on managing unpaid leave and related entitlements for employees. You can call them 24/7.