How unpaid leave affects annual leave

ANSWER ID:11369

When an employee takes unpaid leave in excess of one week during the year, this can be managed in three ways:

1. The employer can choose to extend the time required before the employee becomes entitled to annual holidays by the period of unpaid leave in excess of 1 week. That is, if an employee takes 2 weeks unpaid leave, they become entitled to annual holidays 1 week after the anniversary of the starting date of employment. MYOB does not recommend this option.
2. The employer and employee can agree that an employee's average weekly earnings calculation will be modified to reflect the number of whole or part weeks greater than 1 week that the employee was on unpaid leave. For example, if an employee takes 2 weeks unpaid leave during the year, it can be agreed that the annual holiday pay is calculated on the basis of a 51-week year, not on the basis of 52 weeks.
3. The employer and employee can agree that the unpaid leave will have no effect on the employee's annual holiday entitlement. The first week of unpaid leave does not affect either the date on which the employee becomes entitled to annual holidays or the divisor of 52.

Time while an employee is on ACC, parental leave, or leave for voluntary military service should not affect the anniversary date for annual holiday purposes as it is treated as continuous employment.

The most common option of those described above is option 2. By recording the unpaid leave each pay period, the divisor is reduced and the integrity of the annual leave calculation is preserved. If you have forgotten to process the unpaid leave, you can still do this provided the leave dates apply to the current tax year. Each pay period MUST be entered singularly on the correct pay date. This may entail moving your PAYE period back to process the unpaid leave.

The other option available if you have not processed the unpaid leave, is to go to Prepare Pays > Enter Pays, select the employee and click Leave, then click the ellipsis (...) button by the divisor and override the number of weeks. This is a temporary option as once the Annual Leave Rate calculation has been changed by the override in the divisor and the pay processed, the following pay period will reset the divisor to its original number.

If you decide to treat the unpaid leave as described in option 1, go to Maintenance > Maintain Employees, select the applicable employee then click the Leave Details tab and adjust the Annual Leave Anniversary Date at the top left of the window. MYOB does not recommend this option. Also, the Annual Leave Anniversary Date cannot be changed if you are using a Common Anniversary Date.

Don't confuse the above leave options with parental leave which is treated differently by the Holidays Act 2003.