Understanding leave without pay in Canada

Leave without pay (LWOP) is a critical flexibility tool for your staff, but it’s not a formal entitlement. We’ve put together a blog to understand leave without pay, including why an employee might want to take it, how you can track leave without pay requests and tips for ensuring compliance around the process.

What is leave without pay?

According to the CRA, leave without pay is time an employee can spend off work without being paid. Rather than being provided as an entitlement, it is instead an agreement between you as the employer and your employee.

Canada Revenue Agency adds, “You can request leave without pay for personal needs for either up to 3 months or for more than 3 months but up to one year.” We’ll dive deeper into how LWOP can affect annual holiday entitlements later in this guide.

Why might an employee want to take unpaid leave?

There are a range of reasons why your employees may want to take unpaid leave. Some reasons include:

• They’re travelling for an extended period of time, but don’t have enough vacation time
• They need to attend to personal responsibilities 
• They’re looking to complete educational studies
• They’re sick or injured but don’t have enough sick time to cover the entire period
• They’re taking care of health-related matters for a loved one

It is important to note that employees cannot take unpaid leave without your agreement – this is considered unauthorized leave.

Why should employers offer unpaid leave?

Offering unpaid leave can help boost your employer brand and attract top talent. There are a few benefits to offering unpaid leave, including keeping valued staff around, as they don’t need to resign in order to take extended leave. It also gives your employees more flexibility and can support staff wellbeing, as they know they have options if issues arise. 

How does unpaid leave affect time off entitlements?

In Canada, taking unpaid leave does not change an employee’s anniversary date or their “length of employment.” Under employment standards, an employee’s seniority continues to accrue even while they are on a job-protected, unpaid leave.

Impact on vacation time: The employee’s entitlement to take time off (e.g., 2 or 3 weeks of vacation) remains unaffected by the leave. They are still entitled to take their full annual vacation time once they reach their original anniversary date.

Impact on vacation pay: While the time off remains the same, the vacation pay (the money received) will naturally be lower. In Canada, vacation pay is usually calculated as a percentage of “gross wages” earned during the year (typically 4% or 6%).

• Calculation: Because the employee earned $0 during their unpaid leave, their total gross earnings for the year will be lower.
• Example: If an employee takes 4 weeks of unpaid leave, their 4% vacation pay will be calculated based only on the 48 weeks they were actually paid.

Handling unpaid leave requests 

If you’re offering unpaid leave, follow these steps to ensure the request is handled fairly, documented properly, and remains compliant with employment standards:

• Determine leave type: First, identify if the request falls under a statutory job-protected leave (e.g., pregnancy, parental, sick, or family medical leave). If it does, and the employee meets eligibility requirements, the leave must be granted by law.
• Establish a request pathway: Create a clear process for employees to submit requests—either through your leave management software or a formal written submission—to ensure all requests are tracked in one place.
• Assess operational needs (for discretionary leave only): If the request is for personal reasons (like a sabbatical or extended travel), review your business needs. Determine if you can accommodate the absence or if it would cause undue operational strain before accepting or rejecting the request.
  
• Formalize the agreement: Once a leave is agreed upon, document the details in writing. This should include:
  • The start and end dates of the leave.
  • A confirmation of the return-to-work date.
  • A note that seniority and length of service will continue to accrue (as per Canadian standards).
  • Clarification on how benefits (if applicable) will be handled during the absence.
• Maintain records for compliance: Keep a robust audit trail of the request, the decision-making process, and the final agreement. This is essential for staying compliant in the event of a dispute or a Ministry of Labour audit.

Do I have to offer unpaid leave?

In Canada, the answer depends on the reason for the leave. While you are not required to grant discretionary personal leave (such as for travel or a career break), you are legally required to provide unpaid, job-protected leave for specific life events defined by employment standards.

1. Mandatory (Statutory) unpaid leaves: As an employer, you must grant unpaid leave for reasons such as:

• Sick or personal emergency leave: Most provinces require a set number of unpaid days for illness or injury.
• Pregnancy and parental leave: Federal and provincial laws guarantee this leave.
• Family caregiver/medical leave: To care for a critically ill family member.
• Bereavement leave: Time off following the death of a family member.
• Reservist/jury duty leave: For military service or legal obligations.

During these leaves, you cannot terminate the employee for taking the time off, and you must generally return them to their same position (or a comparable one) when they return.

2. Discretionary unpaid leave: Unpaid leave for personal reasons (e.g., “I want an extra month off to go to Europe”) is indeed at your discretion. This type of leave depends on a mutual agreement between you and the employee. You have the right to deny these requests based on business needs.

Do I have to agree to unpaid leave requests?

It depends on the reason for the request. In Canada, leaves of absence fall into two distinct categories: Statutory (Legally Protected) and Discretionary.

1. Statutory leaves (You CANNOT decline). If an employee is eligible for a “job-protected leave” under provincial or federal law, you must agree to the request. You cannot decline these based on business needs or “busy seasons.” Common examples include:

• Sick leave: (e.g., 3 days in Ontario).
• Family responsibility leave: For urgent family matters or illnesses.
• Pregnancy and parental leave.
• Bereavement leave.
• Critical illness or family medical leave: To care for a seriously ill relative.

If you deny one of these, you risk a reprisal claim, which can result in significant fines and an order to reinstate the employee.

2. Discretionary leaves (You CAN decline): If an employee asks for unpaid leave for personal reasons not covered by law—such as an extended vacation, a “sabbatical,” or a hobby project—this is entirely at your discretion.

• Business needs: In these cases, you can decline the request if there is a genuine business need for the employee to be at work.
• Consistency: If you do agree to personal leaves for some employees but not others, ensure your decision is based on objective business criteria (like seniority or department coverage) to avoid discrimination claims.

What are employees entitled to during LWOP?

While employees generally do not receive their regular salary during leave without pay (LWOP), they maintain several key legal entitlements in Canada.

1. Statutory (public) holiday pay

In Canada, an employee may still be entitled to pay for a public holiday that falls during their unpaid leave, depending on their recent earnings.

• The eligibility rule: In most provinces (like Ontario), eligibility depends on the “last and first” rule—the employee must work their last scheduled shift before the holiday and their first scheduled shift after. If the absence was authorized by the employer (which LWOP is), they often still qualify.
• The calculation: The amount they receive is usually a pro-rated average. For example, in Ontario, it is the total wages earned in the 4 weeks prior to divided by 20. If an employee has been on unpaid leave for those entire 4 weeks, their holiday pay would be $0. However, if they worked even one week of that period, they would receive a partial payment.

2. Benefit and pension contributions

For statutory job-protected leaves (like parental or medical leave), the rules are strict:

• Health benefits: Employers must usually allow employees to continue their health and dental coverage. The employer must continue to pay their share of the premiums unless the employee chooses to stop their own contributions.
• Pension and CPP: For pension plans, many Canadian laws require the employer to continue matching contributions during protected leaves if the employee chooses to keep contributing. For discretionary leaves (personal leave), this is usually up to the employer’s policy.

3. Accumulation of seniority

Even if the leave is unpaid, the employee’s seniority and length of service continue to accumulate as if they were working. This ensures they don’t lose their place in the “queue” for future raises, increased vacation time, or notice period entitlements.

How LWOP interacts with other types of leave

Employees might not always take leave without pay exclusively. Instead, they may use LWOP to add onto paid leave that they’ve already accrued to give themselves extra time. Here’s how each type of leave can interact with LWOP.

LWOP and sick leave

An employee may have an extended injury or illness that requires more time off than they’ve accrued. To help their recovery, they may take LWOP after using up their sick leave entitlement until they’re ready to return to work. It’s also worth noting that this is when it’s most likely that an employee may receive public holiday pay, as highlighted in the example above.

LWOP and parental leave

In Canada, parental and pregnancy leaves are statutory job-protected leaves. While the employer does not pay the employee during this time, the federal government provides income replacement via Employment Insurance (EI).

• Pregnancy (maternity) leave: Generally up to 15 weeks for the person giving birth.
• Parental leave: Available to both parents. Standard parental leave is up to 35–40 weeks, and extended parental leave can go up to 61–69 weeks.
• Interaction with LWOP: If an employee does not qualify for EI, or if they wish to stay home longer than the EI period, the “extra” time is considered unpaid leave. However, most provinces guarantee the job will be held for the full duration of the statutory period (up to 18 months in many cases).

LWOP and family violence or bereavement leave

Most Canadian provinces provide a specific number of days for these situations.

• Domestic/family violence leave: Many provinces (like BC, ON, and Federal) provide 5 paid days and an additional 5 unpaid days. If an employee needs more than 10 days, they transition into a longer-term unpaid LWOP.
• Bereavement leave: Usually 2–3 days. Anything beyond the provincial minimum is at the employer’s discretion or covered by a company-specific LWOP agreement.

What are the main compliance rules around leave without pay?

In Canada, compliance is governed by the Employment Standards Act (ESA) of your specific province or the Canada Labour Code (for federal employers).

• Written agreements: Always document the start and end dates of the LWOP. If it is a statutory leave (medical/parental), you cannot require an end date before the legal maximum is reached.
• Public holiday pay: This is the most common error. In Canada, we use a “First and Last” rule.
  • The rule: If a holiday falls during the LWOP, the employee is technically entitled to holiday pay if they worked their last scheduled shift before and first scheduled shift after.
  • The catch: Because the pay is calculated as a percentage of the last 4 weeks’ earnings, if they have been on LWOP for more than 4 weeks, the calculation usually results in $0.00.

What are the risks of mishandling leave without pay?

In Canada, the consequences of mishandling unpaid leave are severe:

• Reprisal claims: If you fire or discipline an employee for taking a protected unpaid leave (like sick leave), you can be forced to reinstate them and pay massive “damages for hurt and feelings.”
• Constructive dismissal: If you shift an anniversary date or reduce seniority due to LWOP (which is illegal in most cases), an employee may claim they have been “constructively dismissed” and sue for severance.
• Human rights complaints: If the LWOP was for a medical reason and you denied it, you may face a Human Rights Tribunal for “failure to accommodate.”

How can leave management software help?

Leave management software, like Employment Hero, can help you better manage leave without pay requests. Employees can easily submit their own leave requests through the Employment Hero Work app. And, with accurate tracking and less manual data entry, our software can help you reduce the risk of compliance errors.

Ready to discover how the right leave management software can transform the way you track leave requests?