In Australia, the Fair Work Act 2009 (‘the Act’) provides the framework for employment regulations and standards. Whilst this outlines the various entitlements for employees underpinned by legislation; there is an aspect that often goes overlooked and can lead to some confusion – unpaid leave.

Many employers and employees are unaware of the complexities for unpaid leave and how it can impact an employee’s various rights and entitlements, as well as how to appropriately handle requests for unpaid leave when they arise in the business.

What is unpaid leave?

Unpaid leave refers to periods of absence from work where an employee takes time off without receiving any salary or wages. Generally, this occurs where an employee may not have accrued enough annual leave or personal/carer’s leave to cover the time off they have requested. Typically, this type of leave will not be something that an employee is automatically entitled to take and will be granted at the business’ discretion.

However, some forms of unpaid leave are protected under the Act such as unpaid community service leave, unpaid parental leave or the two days unpaid carer’s leave provided for within the Act. In these instances, the unpaid leave is an entitlement – to which a business will be limited in the instances in which a request could be refused.

Unpaid leave is not to be confused with other periods of unpaid time that might arise during employment such as the employer’s ability to stand-down an employee without pay due to a stoppage of work outside the employer’s control (eg due to natural disaster, etc) or when an employee is unfit for work and receiving workers’ compensation / WorkCover payments.

How does unpaid leave impact an employees length service?

Calculating length of service can have many implications, from determining whether an employee has reached their qualifying period for bring an unfair dismissal claim, for calculating entitlements such as annual leave, personal leave or long service leave, as well as redundancy pay and notice of termination requirements. These can all be impacted by how long an employee has served for. However, unpaid leave can have a unique impact on how you calculate service for an employee.

If an employee is on unpaid leave, this will not generally “break” their continuity of service.  That is, if someone has been employed for 6 months and then takes a period of unpaid leave, they are not regarded as having no service accrued (the service “clock” does not reset to zero).

However, for most entitlements a period of unpaid leave generally does not count as service. This means that there are no accrual of entitlements, and if they have not reached their qualifying period for unfair dismissal, it pushes the date back by the amount of leave they took. It will also not count as ‘service’ when calculating certain entitlements such as the employees entitlement for redundancy pay. In effect, their period of service is “paused”.

Let’s look at an example:

  • An employee is new to the business, they work for 5 weeks, but have a pre-booked holiday that requires them to then take 5 weeks off.
  • The employee does not have sufficient annual leave to cover the whole period and the employer agrees that the employee will use their accrued annual leave entitlements, and then take unpaid leave for the remainder of their time off.

The period of unpaid leave (not the paid annual leave) will ‘push back’ their length of service by the same amount. If they ended up taking 4.5 weeks of unpaid leave; this would mean once they returned, their service would still be only 5.5 weeks with the business – not 10 weeks, for purposes such as unfair dismissal access.

However, there are some exceptions to this rule where unpaid leave does count towards an employee’s length service.

Some entitlements such as unpaid community leave, including jury duty, as well as unpaid pandemic leave will all count as service.

Furthermore, unpaid leave that has been agreed with an employer (such as in our pre-booked holiday example) counts towards an employee’s continuous service for certain NES entitlements like:

  • an employee’s right to request flexible working arrangements
  • unpaid parental leave and related entitlements
  • notice of termination or payment in lieu of notice.

For the purpose of these entitlements, the entire period of employment (including approved unpaid time off) will count as service except for any periods of unauthorised absence.

Periods of agreed unpaid leave do not count as service for the purposes of unfair dismissal or redundancy pay.

How should employers manage unpaid leave requests?

Considering how important unpaid leave is towards various entitlements for your employees, it is vital that employers have in place good record keeping practices, and clearly communicate with staff around processes for unpaid leave requests.

To minimize any impact of unpaid leave, businesses can adopt several strategies to manage this in the workplace:

  1. a) Effective Communication: Clear policies and procedures regarding unpaid leave should be communicated to employees. This ensures transparency and helps manage employee expectations are when an application for unpaid leave can be approved.

  2. b) Workforce Planning: Employers should develop robust workforce planning strategies to address staffing gaps created by unpaid leave. Proactive hiring, cross-training employees, or establishing a pool of temporary staff can help mitigate the impact on service quality.
  3. c) Flexibility Options: Exploring flexible work arrangements, such as job sharing or remote work, can provide alternative solutions to address the need for unpaid leave while minimizing disruption to service.

Should a business grant unpaid leave requests?

It is quite common for businesses to take a stance that where an employee has not accrued sufficient annual leave that general unpaid holiday requests will just outright not be considered. However, considering unpaid leave requests in certain circumstances can be an important reflection of company values and culture. It can also be important when considering the retention of top performing staff or long-standing employees.

We encourage employers to make clear that, outside of what the NES outlines, other unpaid leave will be at the discretion of the business and is not an entitlement. Where a request is made, we recommend having clear communication with your employees to help ascertain whether the business will approve or reject the request; and to consider any reasons why the employee may require the unpaid time off. Considering these requests in extenuating circumstances can be imperative to developing a positive and supportive workplace culture, and work to proactively retain the staff that may be raising these requests.

However, do keep in mind that if unpaid leave is granted to one employee, others will expect the same result should they be in a similar situation. So being consistent is key and ensuring your methodology for considering these requests is on a genuine basis!

Unpaid leave is a critical aspect of employment that provides employees with the necessary flexibility to manage personal and professional obligations. However, it is essential to recognize the potential impact on service quality both from the employee and employer perspectives. By adopting effective communication, strategic workforce planning, flexibility options, and providing support to employees, organisations can mitigate the negative consequences of unpaid. Balancing the needs of employees and maintaining service excellence is key to achieving a harmonious and productive work environment.

Other alternatives to consider would be allowing an employee to take leave before the employee has accrued the leave. Many modern awards allow for employees to take annual leave in advance and for employers to recoup any payments outstanding for annual leave taken from termination pay, though you need to check the exact provisions of the relevant modern award.

Can I require employees to take unpaid leave?

It is generally not possible to require an employee to take a period of unpaid leave, this needs to be done by agreement.

The main exception is the Fair Work Act allows an employer to “stand down” an employee without pay for a stoppage of work outside the employer’s control (eg due to natural disaster, etc), although professional advice should always be sought before relying on this provision.

Disclaimer

The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact HR Connect for advice.

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