If you have an employee on unpaid leave, it's important to record and process their leave appropriately. The first step is to add the unpaid leave as a Leave Request. Enter the request from the first day the employee is not working until the day before they return to work.
If your employee is taking less than a week of unpaid leave, this will simply appear in their pay as Unpaid Leave. Employees on salaries will have their earnings reduced by the quantity of unpaid leave they're taking.
Extended Unpaid Leave
The Holidays Act differentiates between unpaid leave (or leave without pay) of less than a week, and longer periods of unpaid leave. If less than a week, there are no changes to an employee's leave entitlements. For longer periods of unpaid leave, the next anniversary for the employee is pushed out by the number of days over one week.
When you enter a leave request for unpaid leave, PayHero completely automates this process for you.
The first week of unpaid leave will be added to the employee's pay as Unpaid Leave. Further weeks will be split out under the Extended Unpaid Leave pay item, even if they fall in separate pay periods.
Pays containing the Extended Unpaid Leave pay item will automatically push out the employee's Next Anniversary for Annual Leave by the number of days of extended unpaid leave.
In the example below, a salaried employee is taking an entire month of unpaid leave. Their Next Anniversary will be pushed out by 23 days.
Unpaid Leave FAQ
What should I do if my employee is on unpaid leave longer than expected?
If an employee is expected back to work but chooses to further extend their unpaid leave, it's important to edit the original leave request and change the end date rather creating a new request, as adding a new request would reset the first week of unpaid leave.
Will unpaid leave affect my employee's leave rates?
Unpaid leave will always reduce the Average Rate (52 week average) for annual leave, due to the weeks with no earnings. However, the employee will still be paid at the highest of their Annual Leave Rates, which is likely to be their Ordinary Rate in this case.
What if I don't want to extend my employee's anniversary?
The Holidays Act offers an alternative, more generous approach to extended unpaid leave, where the leave has no impact on an employee's leave balance or rates. This requires reducing the number of weeks in the average weekly rate calculation by the weeks of unpaid leave, meaning the average weekly rate is not affected by the weeks with no earnings.
This approach is not supported by PayHero, so the rates for annual holiday would need to be calculated manually if you choose to take this alternative approach. To prevent the Holiday Anniversary being extended, you would need to remove the Extended Unpaid Leave line from the employee's pay and replace it with Unpaid Leave.
What happens to public holidays while an employee is on unpaid leave?
If an employee is on a week or less of unpaid leave, any public holidays will be assessed normally based on whether the day is an Otherwise Working Day. Likewise, public holidays will be processed normally in the first week of a longer period of unpaid leave.
For unpaid leave of more than a week, any public holidays falling in subsequent weeks will be ignored, as it is known that the employee wouldn't have been at work that day. If you wish to pay the employee for the public holiday, you can manually add it to their pay, as detailed in the 'Manually Specifying Public Holiday Entitlements' section of this support article:
How is the salary deduction calculated for monthly salaried employees?
When a monthly employee takes unpaid leave for a period of less than a month, the salary will be reduced by the number of work days as a proportion of the total work days in the month. Thus, a week of unpaid leave in February (which has 20 work days) will reduce the salary amount by 5/20, whereas in a 31 day month with 23 work days, the salary would only reduce by 5/23.
If you wish to manually override the salary hours the employee receives, you can follow the steps detailed here: How do I edit my employee's salary hours?