Unpaid leave

What it means

Unpaid leave is time off without pay that the employer grants at the employee’s request. The Labour Code expressly regulates it only for certain obstacles to work, such as caring for a child beyond the benefit period; otherwise granting unpaid leave is a matter of agreement. The employee has no automatic entitlement to it.

During unpaid leave the employment continues, but the employee does not work and the employer pays no wage. With no wage, no social insurance contributions are paid either, which leaves gaps in both sickness and pension insurance.

Health insurance, however, remains compulsory. For unpaid leave the minimum assessment base applies, and contributions must be paid on it even for a period when the employee has no income. Who pays them and how should be settled when the leave is approved.

How it works in practice

We recommend handling requests for unpaid leave in writing, with dates and the employer’s approval. In payroll the leave is recorded as a special type of absence, and for longer leave the reporting duties to the Social Insurance Agency and the health insurer must be met.

Unpaid leave also affects other entitlements. Annual leave is usually not reduced for short unpaid leave but may be reduced for longer periods. Days of unpaid leave do not count towards the period used to calculate average earnings, which may shift as a result.

Unpaid leave is often used for long trips, studies, caring for relatives or, by agreement, as a short-term response to a drop in work. For caring for a young child, however, there are better arrangements such as parental leave, during which the state pays the contributions.

What to watch out for

The most common mistake is leaving health insurance unresolved. If contributions on the minimum assessment base are not paid, arrears arise that the insurer finds in the annual reconciliation, and the employee or employer must pay them with interest.

Unpaid leave must not be imposed unilaterally. If the employer has no work for the employee, it is an obstacle on the employer’s side for which wage compensation is due. Sending an employee on “unpaid” without their request breaches the Labour Code, and the compensation will have to be paid after an inspection.