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What is Unpaid Leave for Small Businesses and Startups?

Unpaid leave is a way of offering your team the chance to take some time off work on top of their normal allowance, but without receiving a salary.

Everyone understands the idea of paid leave – this is simply your employees’ annual holiday allowance. Unpaid leave, however, is a little more complicated.

In this blog, I'll walk you through the different types of unpaid leave and their legal implications. You'll also be able to download two examples of unpaid leave policies to use as templates to create your own.

What are the reasons for taking unpaid leave?

In the UK, there are a few different circumstances when you may want to offer your team some unpaid time off:

  • After they’ve become a parent
  • After they’ve suffered the loss of a relative or friend
  • If they wish to go on a sabbatical
  • To carry out public duties such as jury service for example
  • If they wish to take additional holiday on top of their paid leave allowance
  • If they need to be out of the office for an emergency or for looking after a loved one

What does the UK law say about unpaid leave?

Unpaid leave is a pretty wide-ranging concept. There are no hard and fast rules simply because every type of unpaid leave is slightly different.

Let's try to unpack each type of unpaid leave and the law surrounding them.

1- Unpaid parental leave

Every employee in the UK is entitled to a certain amount of unpaid parental leave once after they have become a parent. That’s on top of any paid leave covered by your parental leave policy.

All UK employees have a statutory right to 18 weeks of unpaid leave after they have become parents (or adopt a child).

These 18 weeks are available to be taken up until the child’s 18th birthday, with a maximum of four weeks permitted over any one calendar year.

It’s important to note that parental leave applies to each child, not each job. So if a new employee is asking if they can take unpaid parental leave, it’s worth checking with them to see how much of their allowance they have left for that year.

2 - Unpaid bereavement leave

Bereavement leave is taken after a team member has suffered the loss of a loved one so that they can grieve or spend time with family.

The law around bereavement leave is a little less clear-cut. Unlike parental leave, there is no designated UK legislation designating a specific right to bereavement leave (or ‘compassionate leave’). However, the Employment Rights Act 1996 does give employees the right to take time off for emergency situations – and that includes the death of a dependant.

3 - Work sabbatical

The work sabbatical is a relatively new development in the UK – it describes an arrangement where a team member takes an extended period of time off from work, on the understanding that they return to their jobs afterwards. In the interim, the employee will retain their employment status, along with any benefits.

At Charlie, we offer our team a combination of paid and unpaid time off for their sabbatical. You can download our sabbatical policy, and use it as an example to create your own.

Charlie-Sabbatical-Policy-CTA

There is no legal UK entitlement to a work sabbatical or career break. If one of your team members wants to take a career break, then they will need to discuss and agree on the exact arrangements with you, their employer. You aren’t bound by any legislation to consider or agree to a request for a work sabbatical.

4 - Unpaid holiday

You may want to offer your team the possibility to take additional unpaid time off on top of their paid holiday allowance.  

This solution is ideal if you wish to offer your team plenty of flexibility, without going as far as offering unlimited holiday.

We spoke to Maria Campbell, previously Head of People at Monzo and now VP of People at Permutive, about building an unpaid leave policy to benefit both your team and your business.

You can download our unpaid holiday template, based on Monzo's, as an example for creating your own.

Click here to donwload our unpaid leave policy

Similarly to sabbaticals, there is nothing in UK law about unpaid holiday. It is entirely up to you to decide whether to offer this benefit and to which extent.  

5 - Other types of unpaid leave

Life is unpredictable, and it may happen that a team member needs to take time off outside of their planned holidays for an emergency. Offering unpaid leave can help your team cope with these unexpected events, whether they need to take care of a loved one or deal with other urgent matters.

All employees in the UK are entitled to take time off if they need to take care of dependants – taking a child to the doctor, for example. There is no legal limit to how much unpaid leave an employee can take off for this, but they do have a duty to give you as much warning as can be reasonably expected.

6 – Going beyond the law

The specific law surrounding the many different types of unpaid leave can be difficult to keep track of (if you really do need a precise legal answer, maybe we can help here).

Often, the benefits to you as an employer for simply being flexible around unpaid leave far outweigh the negatives.

Your employees are unlikely to ask for unpaid leave unless they really need it – and in that case, there might not be any great reason to stand in their way. If you are flexible and understanding of your employees’ life circumstances, then the goodwill that engenders will often pay you back twice over.

Work sabbaticals are a great example of this. Sure, career breaks are not protected by any UK legislation, but before you dismiss any such application out of hand, ask yourself this:

“Is there any reason not to offer career sabbaticals?” Of course, in some industries, it won’t be an option, but in many, it might well be possible. Are you able to turn a provision for unpaid career breaks into a competitive advantage when it comes to recruitment? Could you drastically improve your company’s morale by adopting a more flexible approach to unpaid leave?

Why is unpaid leave important for your small business or startup?

Unpaid leave is a wide topic. So by all means, get acquainted with the law – but if you’re running a small business then time is a precious resource, and perhaps allowing more flexibility in your business is your answer.

By allowing your team members to take unpaid leave, you will benefit from it:

  • Ensure you retain the best talent at your business by allowing them the flexibility to take unpaid leave when needed
  • Manage your team's time off with clear policies on what can be taken as unpaid and what cannot
  • Provide guidance to iterate your policies as you go along and make sure you report on your team's time off to do so

If you're not sure how to report on your team's time off, you can always use HR software to help you.

With built-in reports accessible in one platform and downloadable as CSV, you can keep on top of absences without having to use spreadsheets with complicated formulas.

Time off reporting in CharlieHR screenshot

And if you're worried about what the impact unpaid leave can have on your business, you can also take advice from CIPD qualified HR professionals.

With the appropriate help, you'll get the chance to discuss what policies you'd like to implement and how best to tackle them at your business.

And if you can't afford a full-time hire or don't have enough work for them, it's time to outsource HR and perhaps invest in a service like the one we offer at Charlie.

Just speak to us – a team of qualified HR advisors – to find out more about what your unpaid leave policy should look like. We can also help you with tons of other issues you might be struggling with such as how to make your business fully compliant and build the right HR policies for your business.

3 tips to support your unpaid leave policy

Let me also share a few tips on what you can do to support that policy at your business.

At the end of the day, it's not just about the rules you put into place, but the support you offer your team members outside of your unpaid leave policy to make sure they get the best opportunities regarding the challenges they face:

  • Offer flexibility by perhaps putting flexible hours into place so your team can deal with the unexpected such as medical appointments or a sick child
  • Run your decisions by your team if you're planning on changing policies to gather feedback and do what's right for your business
  • Train managers to catch up with team members regularly and identify issues to give adequate support before it escalates  

Hopefully that guide has helped you understand more about unpaid leave. If you'd like to find out more, perhaps have a look at our guide on time off tracking.