Published: August 2025

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Leave without pay (LWOP) is a common arrangement in Australian workplaces, allowing employees to take time off without receiving their regular wages. For small and medium businesses (SMBs), understanding the rules, legal obligations, and best practices for managing LWOP is critical to maintaining compliance with Australian employment laws and fostering a supportive workplace.

This guide provides actionable insights, practical examples, and compliance tips for Australian business owners in 2025, ensuring fair and transparent leave processes.

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What is Leave Without Pay?

Leave without pay refers to an approved absence from work where the employee does not receive their regular salary or wages. Unlike paid leave entitlements such as annual leave or personal/carer’s leave, LWOP is not a statutory entitlement under the National Employment Standards (NES) in the Fair Work Act 2009. Instead, it is typically granted at the employer’s discretion or as outlined in employment contracts, modern awards, or enterprise agreements.

LWOP is often used for personal reasons, such as extended travel, study, or family commitments, when paid leave has been exhausted. For SMBs, offering LWOP can enhance employee satisfaction and retention while balancing operational needs.

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Legal Framework for Leave Without Pay

In Australia, LWOP is governed by:

• Fair Work Act 2009: While the NES does not mandate LWOP, it requires fair treatment in employment arrangements. Any refusal of LWOP must not breach general protections or anti-discrimination laws.
• Modern Awards and Enterprise Agreements: Some awards, like the Retail Industry Award 2020, may include provisions for unpaid leave for specific purposes, such as cultural or community activities. Check relevant awards at https://www.fairwork.gov.au/employment-conditions/awards.
• Employment Contracts: Contracts may specify LWOP conditions, such as approval processes or maximum duration.
• Anti-Discrimination Laws: Refusals must not discriminate based on protected attributes like gender, disability, or family responsibilities, as per the Australian Human Rights Commission guidelines.

Employers must also consider superannuation and leave accrual implications. LWOP generally does not accrue paid leave or superannuation unless specified in an award or agreement.

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When is Leave Without Pay Granted?

LWOP is typically granted in the following scenarios:

• Personal Reasons: Employees may request LWOP for extended travel, personal development, or family obligations. For example, a Melbourne retail employee might request two months’ LWOP to care for a sick relative overseas.
• Exhausted Paid Leave: When annual or personal leave is depleted, LWOP can bridge the gap. A Sydney tech worker might take one month’s LWOP for study after using their 20 days of annual leave.
• Business Downturns: During slow periods, SMBs may agree to LWOP to reduce costs while retaining staff. For instance, a Brisbane cafe might offer LWOP during a quiet season instead of reducing headcount.
• Cultural or Community Commitments: Some awards allow unpaid leave for cultural obligations, such as Indigenous ceremonies, as seen in the Social, Community, Home Care and Disability Services Industry Award.

Approval is discretionary unless specified in an award or agreement. Employers should assess requests based on business needs, employee performance, and fairness.

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Key Considerations for Employers

To manage LWOP effectively, SMBs should follow these best practices:

Develop a Clear LWOP Policy

A written policy ensures consistency and transparency. Include:

• Eligibility: Specify who can apply (e.g., permanent employees after 12 months).
• Application Process: Require written requests with details like duration and reason.
• Approval Criteria: Outline factors like operational impact and employee history.
• Conditions: Clarify impacts on superannuation, leave accrual, and return-to-work guarantees.

For example, a Perth construction firm might require LWOP requests to be submitted 30 days in advance, with approval based on project schedules.

Assess Requests Fairly

Evaluate each request on its merits, considering:

• Business needs: Can the role be covered without disruption?
• Employee circumstances: Is the request reasonable, e.g., for significant personal events?
• Precedent: Have similar requests been approved for others?

Document decisions to demonstrate fairness, especially if refusing a request, to comply with the Fair Work Act. For instance, denying LWOP for a discriminatory reason, like pregnancy, could breach anti-discrimination laws.

Communicate Clearly

Inform employees of the decision in writing, detailing:

• Approved duration (e.g., 1 July 2025 to 31 August 2025).
• Impact on entitlements, such as no superannuation contributions.
• Return-to-work arrangements, like resuming the same role.

For example, a Canberra consultancy might email an employee confirming one month’s LWOP for study, noting no annual leave accrual during the period.

Monitor Impacts on Entitlements

LWOP typically pauses accrual of annual leave, personal leave, and long service leave, as these are based on continuous service. Superannuation contributions are not required unless stipulated by an award or agreement. For clarity, consult the ATO at https://www.ato.gov.au/Business/Super-for-employers/ or the Fair Work Ombudsman at https://www.fairwork.gov.au/employment-conditions/leaves-and-holidays.

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Example Scenario

A graphic designer in an Adelaide marketing agency requests three months’ LWOP to complete a course. The employer:

1. Reviews the request against staffing needs and finds a temporary replacement is feasible.
2. Approves the leave, confirming in writing that no superannuation or leave will accrue.
3. Agrees to a return date of 1 October 2025, ensuring the same role is available.
4. Documents the process to comply with Fair Work requirements.

This approach balances employee needs with business operations.

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Common Challenges and Solutions

• Challenge: High demand for LWOP disrupts operations. Solution: Set a cap on simultaneous LWOP approvals, e.g., 10% of staff, as used by a Queensland retail chain in 2024.
• Challenge: Employees expect automatic approval. Solution: Communicate that LWOP is discretionary and subject to business needs, as outlined in your policy.
• Challenge: Unclear impact on entitlements. Solution: Provide a fact sheet with LWOP terms, referencing ATO and Fair Work guidelines.

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Q&A

Is leave without pay a legal entitlement in Australia?

No, LWOP is not an entitlement under the National Employment Standards. It is granted at the employer’s discretion or as per awards, agreements, or contracts.

Does leave without pay affect superannuation?

Generally, no superannuation contributions are required during LWOP unless specified in an award or agreement. Check with the ATO at https://www.ato.gov.au/Business/Super-for-employers/.

Can an employer refuse a leave without pay request?

Yes, if it’s not mandated by an award or agreement. Refusals must be reasonable and non-discriminatory, as per the Fair Work Act.

How long can leave without pay last?

There’s no legal limit, but policies typically cap LWOP at 3-12 months. Specify duration in your policy or agreement.

Does leave without pay affect long service leave?

LWOP may not count toward continuous service for long service leave, depending on state laws or awards. Consult the Fair Work Ombudsman at https://www.fairwork.gov.au/employment-conditions/leaves-and-holidays.