How does unpaid leave work?
Under the Workplace Relations Act any employer can direct employees to take annual leave for a period of shut down, however, the act specifies that the employee must have the leave accumulated. If the employer wants employees to take unpaid leave they need the employee’s consent. That’s where this agreement comes in handy.
Unpaid vs Paid Leave
Annual leave is an important part of working life and one of the National Employment Standards (NES). All employees, other than casuals, are entitled to four weeks away from work each year or five weeks if they are shift workers.
So, when might an employee take leave without pay? Typically an employee would take leave without pay when they have exhausted their other leave provisions. This might be employer driver, ie in an attempt to reduce costs/redundancies during business hardship or employee driven, for example requesting extended time off to self-isolate during a pandemic, despite them no being infected.
What is unpaid leave/Leave Without Pay
Leave Without Pay is an unpaid leave of absence from employment, agreed to by an employer and employee. It is rare for unpaid leave to be prescribed by a modern award or an enterprise agreement, and is not a statutory entitlement in Australia. It is usually granted at the complete discretion of the employer.
When can I ask my employee’s to take annual leave?
The general rule is that employers are entitled to direct employees to take annual leave where the request is reasonable. This includes situations where:
- the employee has accrued excessive annual leave; or
- the employer’s operations are temporarily shut down.
Whilst such guidance surrounding the general rule is not as easily found for award or agreement-free employees, the Fair Work Commission has considered the following factors relevant in assessing the reasonableness of a direction by an employer that an employee take annual leave:
- The needs of the business;
- The needs of the employee;
- Any prior agreed arrangement/s between employer and employee;
- The time of notice given to the employee;
- The business’ past practices.
Given that most employees are covered under a modern award or registered agreement (such as an Enterprise Bargaining Agreement), it is important to consider additional provisions contained in the relevant workplace instrument that deal with the taking of annual leave. This often provides guidance as to what constitutes ‘excessive’ annual leave accrual, the notice required to be given to the employee before the annual leave is to be taken and may also specify a partial shut-down as sufficient reason to enforce the taking of annual leave.
When can I ask my employee’s to take unpaid leave?
There are no firm rules around asking employees to take unpaid leave, as it is essentially an agreement between you and the employee. There is nothing that states an employee must agree to the request, even in times hardship or forced shut-downs – however the rules are changing daily during the COVID-19 outbreak and FairWork may have new rulings in the coming days.
What if my employee refuses to take unpaid leave?
Your employee is well within their rights to refuse to take unpaid leave (special Christmas shutdowns excluded), but most do recognise that the alternative may instead mean redundancy.
Do I still need to meet my NES requirements for employees on unpaid leave?
Under the Fair Work Act, an employee does not accrue annual leave, personal/carer’s leave, or have an entitlement to a public holiday during a period of unpaid leave. It will also affect an employee’s entitlement to redundancy pay. However, a period of unpaid leave does not break the employee’s continuity of service, meaning that service with the employer, both prior to and subsequent to unpaid leave, will count when calculating an employee’s entitlement.
Unpaid leave does not affect continuous service with respect to the NES provisions which relate to notice of termination by an employer, flexible working arrangements and unpaid parental leave.