Employees may request to take a period of extended unpaid leave. Information on how unpaid leave affects an employee's entitlement to annual holidays can be found on the MBIE website.
MBIE have two different approaches to handling an employee's annual leave entitlement if they take more than one week of unpaid leave in a continuous period:
- their anniversary date for entitlement to annual holidays moves 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 the employee was on leave without pay.
FlexiTime accrues annual leave on a week by week basis and provides an Annual Leave Available total, which is the employee's annual leave due as at their last anniversary plus the leave that has accrued since the anniversary, less any leave taken since the anniversary. Our approach means that the week-to-week accrual of annual leave will be suspended while the employee is on extended unpaid leave and their average pay rate will not be affected by their lack of earnings during this period. We feel that moving the employee's anniversary date is unnecessary, however you can do this if you would prefer to ensure that the employee receives a full 4 weeks entitlement when they pass their anniversary.
For the first week of unpaid leave:
Ensure that the Accrue Leave Based On field on the employee's Leave tab is set to 'Normal Hours' and their usual weekly hours is entered into that field.
Pay the employee using the Unpaid Leave pay code.
This will accrue annual leave during the first week of unpaid leave but the employee's average and ordinary pay rates will be reduced due to their lack of earnings.
For the second and subsequent continuous weeks of unpaid leave:
Modify the Accrue Leave Based On field to be set to 'Hours Worked'.
Optional step: Change the employee's Next Holiday Anniversary to move it out by the number of weeks unpaid leave (excluding the first week). E.g. if the employee is taking 3 weeks unpaid leave in total, change the Next Holiday Anniversary to 2 weeks after its current date.
Include the employee in regular pays but remove any gross earnings pay codes and include the Extended Unpaid Leave pay code with the quantity set to their normal weekly hours and the Rate set to zero.
This will mean that the employee will not accrue any annual leave during this period and their average pay rate will not be affected.
When the employee returns from unpaid leave:
Set their Accrue Leave Based On back to its original setting.
We recommend adding a note to the employee's Personal > Notes tab to explain what happened.