Leave Without Pay in New Zealand

At some point, most small businesses will have an employee ask to take leave without pay.

Sometimes it’s for travel. Sometimes it’s for family reasons, study, health, or simply needing time away from work when their paid entitlements have run out.

Whatever the reason, it’s worth getting your approach right. Leave without pay can be a useful (and fair) option for both you and your team - but if it’s handled informally, it can create confusion around pay, annual leave, return-to-work expectations, and even lead to disputes.

Below, we break down how leave without pay works in New Zealand, what the law expects from you as an employer, and the practical steps you can take to protect your business from day one.

What Is Leave Without Pay (And Is It A Legal Entitlement In NZ?)

Leave without pay (often shortened to “LWOP”) is exactly what it sounds like: an approved period where an employee is away from work and you don’t pay them for that time.

It’s important to understand that in New Zealand, leave without pay is often not an automatic entitlement in the same way annual leave and sick leave are. In many everyday situations, it’s something you and the employee agree to.

However, there are circumstances where employees can have rights to unpaid leave under specific laws (for example, certain unpaid parental leave-related entitlements, and other types of statutory leave in particular situations). So it’s worth checking whether the request is linked to a specific legal entitlement before treating it as “purely discretionary”.

In practice, leave without pay might come up when:

the employee has used up their annual leave or doesn’t want to use it
the leave requested is longer than what their paid entitlements can cover
the reason for leave doesn’t fit neatly into sick leave or bereavement leave
you’re trying to accommodate personal circumstances and keep the employment relationship on foot

Because leave without pay is often by agreement, the key risk for employers isn’t “whether you’re allowed to approve it” - it’s whether you’ve been clear and consistent about the terms.

Leave Without Pay vs Annual Leave

Employees often ask for leave without pay when they don’t want to “use up” annual leave. That’s fine - but you should check you’re not unintentionally stepping into territory where leave should be treated differently.

For example, there are strict rules around annual leave, including situations where employers may want to direct employees to take annual leave. If that issue is relevant in your business, it’s worth reading annual leave guidance so you don’t take a shortcut that later backfires.

Leave Without Pay vs Sick Leave

Sometimes a leave request is framed as “I just need a few weeks off” when the underlying reason is health-related. If you’ve got any reason to believe it’s illness or injury, it’s safer to treat it through a sick leave lens first (including medical certificates where appropriate), and only move to leave without pay once sick leave is exhausted or doesn’t apply.

This comes up often with mental health-related absences too - and you’ll want to think carefully about privacy, discrimination risk, and what support you can reasonably offer. (If this is on your radar, mental health leave is worth understanding from an employer compliance perspective.)

When Should A Business Approve Leave Without Pay?

There isn’t a single “correct” answer, because every workplace is different.

What matters is that your decision-making process is:

consistent (you apply similar principles across your team)
reasonable (you genuinely consider the request)
in good faith (you communicate and don’t mislead)
documented (so there’s no confusion later)

Some common situations where approving leave without pay can make sense include:

extended travel (e.g. visiting family overseas)
study or professional development (especially where you may benefit from the skills gained)
carer responsibilities (e.g. caring for a family member)
personal circumstances where paid leave isn’t available, but you want to retain the employee
temporary incapacity once sick leave is exhausted (handled carefully, and often with medical input)

When It’s Reasonable To Say “No”

Even if leave without pay isn’t an entitlement in the particular situation, you generally shouldn’t “auto-reject” requests without considering them.

That said, you can usually decline if the leave would cause a genuine operational problem - for example:

you can’t cover the role during a peak period
the employee’s absence would create health and safety risks
the request is too last-minute and you can’t manage staffing
you suspect the request isn’t genuine or is tied to misconduct concerns

The big takeaway: you’re allowed to manage your business, but you should still communicate the decision properly and explain the “why”. That’s where disputes are often avoided.

What Does The Law Say About Leave Without Pay In NZ?

Leave without pay sits across a few employment law areas. You don’t need to memorise legislation, but you do need to understand the “moving parts” so you can make decisions confidently.

Employment Relations Act 2000 (Good Faith Obligations)

In New Zealand, employment relationships are governed by good faith. That means you and your employee must be open and communicative, and you can’t mislead or act in a way likely to deceive.

For leave without pay, this usually means:

you should consider the request genuinely (not just shut it down)
you should communicate conditions clearly (dates, return expectations, contact during leave)
you should avoid ambiguous arrangements (“take time off and we’ll see”) that later turn into a dispute

Holidays Act 2003 (Annual Leave Accrual And Payments)

The Holidays Act is where things can get tricky.

Even though leave without pay isn’t annual leave, it can impact:

annual leave accrual and entitlements (for example, in some cases, periods of unpaid leave of more than a week can affect what is counted as “continuous employment” for annual holiday entitlement purposes)
the employee’s anniversary date for annual holidays (this can shift in certain situations depending on the length/timing of unpaid leave)
average weekly earnings or other pay rate calculations used for leave payments later

Exactly how these rules apply can depend on the employee’s work pattern and the length/timing of the unpaid leave, and payroll systems don’t always handle it perfectly by default. This is one of the reasons it’s smart to keep HR and payroll aligned and to confirm in writing what’s happening during the leave period. If the leave is significant, it’s worth getting payroll or legal advice before you approve it.

Your Employment Agreement Still Matters

Even where the law doesn’t provide a specific entitlement, your employee’s contract might.

Some employment agreements include clauses about:

how to request leave without pay
approval criteria
how long leave without pay can be approved for
what happens to benefits (like vehicle use, allowances, phone plan reimbursement)

If you haven’t looked at your agreements in a while, it’s often worth tightening them up - a clear Employment Contract can save you a lot of stress later.

How To Approve Leave Without Pay Properly (A Practical Process For Employers)

Small businesses don’t have time for red tape - but a quick, consistent process is still essential.

Here’s a practical approach you can implement straight away.

1. Ask For The Request In Writing

It doesn’t have to be formal. An email is usually fine.

You want a written record of:

the dates requested
the reason (at least broadly - you don’t always need personal details)
whether they want to use any paid leave first (annual leave or otherwise)

2. Check Paid Leave Options First

Before approving leave without pay, check whether another leave type is more appropriate. This is where businesses often get caught out - an employee might request LWOP, but legally and practically, the leave should have been treated as sick leave or annual leave.

If you’re exploring alternatives to unpaid time away, you might also consider options like time off in lieu (where appropriate and correctly documented).

3. Consider Operational Impact

Ask yourself:

Can we cover the work?
Do we need to hire a temp or redistribute duties?
Are there health and safety risks if we run short-staffed?
Is this request setting a precedent we can live with?

If you’re in a situation where work levels are fluctuating and staffing is tight, it’s also worth thinking more broadly about workforce planning. In some cases, employers look at changes like reducing staff hours - but that’s a separate process with its own legal risks, so it’s important not to mix the two up.

4. Confirm The Arrangement In Writing (Always)

This is the step that protects you.

Your written confirmation should cover:

start and end date of the leave without pay
whether the employee is expected to return on a specific date (and what happens if plans change)
whether they will remain employed (they usually will) and any expectations around communication
how benefits are treated (e.g. phone, vehicle, allowances)
any agreed use of annual leave before or after the unpaid period

If you regularly approve leave without pay, it’s usually a sign you should formalise your approach in a Workplace Policy so your managers aren’t reinventing the wheel each time.

5. Keep Good Records For Payroll And Compliance

Leave without pay can affect payroll processing and leave calculations. Make sure your records clearly show:

the dates and hours that were unpaid
what (if any) paid entitlements were used
any deductions or changes to benefits during the leave period

This also helps if there’s ever a disagreement later about what was approved, or if you need to show you acted consistently across staff.

Common Risk Areas (And How To Avoid Problems)

Leave without pay sounds simple - but the risks usually come from misunderstandings.

Risk 1: The Employee Thinks The Leave Is “Approved” But You Think It’s “Not Confirmed Yet”

This happens when managers have informal chats like: “Yeah, should be fine” or “We’ll see how we go.”

If the employee books flights and then you later decline, you’re in a messy situation - and it can quickly turn into a grievance.

Fix: Train your managers to use clear language and always follow up in writing.

Risk 2: Inconsistent Decisions Across Employees

If you approve leave without pay for one employee but decline another similar request, you might face allegations of unfairness or discrimination (especially where the request touches on family responsibilities, disability, or health issues).

Fix: Use consistent criteria and document your reasons. A properly drafted Staff Handbook can help set expectations and reduce “why did they get it and I didn’t?” disputes.

Risk 3: Confusion About Holidays Act Impacts

Extended leave without pay can affect annual leave calculations and entitlements. If you treat it casually, you may accidentally underpay annual leave later (or overpay, which isn’t ideal either).

Fix: Coordinate with payroll and confirm how leave balances will be treated. If the leave is long or complicated, it’s worth getting advice before you approve it.

Risk 4: The Leave Turns Into An “Unspoken Resignation”

Sometimes an employee takes leave without pay and then doesn’t come back, or keeps extending the leave. If you don’t manage this properly, you can end up in a grey area where neither party is clear on whether employment has ended.

Fix: Put a clear return date in writing, and set a process for requesting extensions (with timeframes).

Key Takeaways

Leave without pay is often not an automatic entitlement in New Zealand, but it can be agreed between you and your employee (and some specific laws provide unpaid leave rights in particular circumstances).
You should assess leave without pay requests consistently and reasonably, and communicate decisions clearly to meet good faith expectations.
Always confirm leave without pay arrangements in writing, including dates, return-to-work expectations, and how any benefits will be treated.
Leave without pay can have flow-on effects under the Holidays Act 2003 (including annual leave calculations and, in some cases, anniversary dates), so make sure payroll records are accurate and get advice if the leave is extended or complex.
A clear Employment Contract and supporting Workplace Policy help you handle leave requests confidently and reduce disputes.
If the leave request relates to health, mental health, family responsibilities, or other sensitive issues, it’s worth getting tailored advice before you decide.

If you’d like help setting up employment documents or managing a leave without pay situation the right way, get in touch with Sprintlaw for a free, no-obligations chat on 0800 002 184 or email us at team@sprintlaw.co.nz.

Leave Without Pay In New Zealand: Employer Rules And Obligations