Leave Without Pay Policy Template (LWP and LOP Rules)

A leave without pay (LWP) policy covers time off when an employee has no paid leave left, or needs more time than paid leave allows. Payroll often calls it loss of pay (LOP). The policy explains when LWP can be approved, how the salary deduction is worked out, how LWP affects leave accrual, statutory contributions and service-linked benefits, and how unauthorised absence is treated.

When to use it: Use it when employees exhaust paid leave during a long illness or a family emergency, when LOP deductions are calculated differently each month, or when unauthorised absence needs a clear consequence. HR drafts it with payroll, and the HR head and finance head approve it.

Leave without pay policy template

Copy the text below and replace everything in square brackets with your company details.

1. Purpose

This policy sets out when employees of [Company Name] may take leave without pay, how it is approved and how it affects salary, leave and other benefits.

2. Scope

It applies to all employees. Long unpaid breaks for study or personal development fall under the Sabbatical leave policy or the Study leave policy.

3. When LWP may be granted

The employee has used all applicable paid leave, including earned leave, and still needs time off.
The reason is genuine, such as a long illness, a family emergency, care of a sick family member or a personal matter that cannot wait.
LWP is approved by the reporting manager and HR, and a spell of more than [15] days also needs the department head's approval.
Approved LWP will not normally exceed [60] days in a leave year.

4. Unauthorised absence

Absence without approved leave is recorded as leave without pay, whether or not paid leave is available, and may also lead to action under the Attendance policy. Recording such absence as LWP does not mean it has been approved.

5. Salary deduction

Pay for LWP days is deducted as monthly gross salary divided by [calendar days in the month, 30 or 26], multiplied by the number of LWP days.
Example: with a gross salary of ₹31,000 in a 31-day month on the calendar-day basis, one LWP day reduces pay by ₹1,000.
Half-day LWP is deducted at half the daily rate.
Weekly offs and holidays between LWP days are treated under the Sandwich leave policy, and deductions stay within the rules on deductions from wages.

6. Effect on other benefits

PF and ESI contributions are worked out on the wages payable for the month after the LWP deduction.
LWP days are not days worked, so leave that accrues on days worked may be lower for that month.
LWP of more than [30] days in a year may move the employee's increment or confirmation date by the same period.
Group health insurance continues during approved LWP.

7. Procedure

The employee applies for LWP in the leave system with the reason and dates.
For LWP of more than [5] days, the employee provides supporting documents where relevant, such as medical records.
Payroll takes LWP days from the attendance closed for the month.

8. Responsibilities

Employees: use paid leave first, apply in advance where possible and return on the agreed date.
Managers: approve LWP only for genuine needs and plan cover.
HR and payroll: apply the deduction formula consistently and explain the effect to the employee before approval.

9. Review

HR and payroll review LWP usage and the deduction basis every [12] months, and whenever the salary structure changes.

What to include

Paid leave first

State that LWP is available only after applicable paid leave is used. Otherwise employees keep paid leave for encashment while taking unpaid days, which raises exit costs.

One deduction basis

Fix the loss of pay basis: calendar days, working days or a fixed number such as 30 or 26. Switching bases from month to month causes salary differences that employees notice immediately.

Unauthorised absence is also LOP

Say that unapproved absence is recorded as loss of pay but stays unapproved for disciplinary purposes. Keep the two separate, because mixing them weakens both the payroll and the conduct rules.

Effect on accrual and contributions

Explain that LWP reduces days worked for leave accrual and that PF and ESI are worked out on the reduced wages. Employees should hear this before approval, not discover it on the payslip.

Limits on long LWP

Set a yearly limit and extra approval for long spells, and say whether long LWP moves increment or confirmation dates. Beyond a point, a sabbatical or another arrangement fits better.

Common mistakes to avoid

Approving LWP while the employee still has earned leave, then encashing that leave at exit.
Switching between calendar-day and 26-day deduction bases from month to month.
Treating unauthorised absence as approved LWP, which removes any basis for disciplinary action.
Deducting LWP after the attendance month has closed, which forces salary recoveries.
Not telling the employee how long LWP will affect increments or confirmation.

Run it in ZeniaHR

LWP is one of the default leave types in the ZeniaHR Leave Ledger. Unpaid days reach Direct Payroll because paid days are taken from the finalized attendance month, and the payroll deduction policy sets the loss of pay basis: working days, calendar days, or a fixed 30, 26, 24 or 22 days, with branch overrides. Leave rules decide whether LWP can sit next to named leave types, and the live preview tells the employee exactly how many days will be charged before the request is sent.

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Frequently asked questions

What is the difference between LWP and LOP?

They describe the same thing from two sides. Leave without pay (LWP) is the leave status of the day, and loss of pay (LOP) is the salary deduction that follows. Some companies also use LOP for unauthorised absence, while LWP usually means unpaid leave that was approved.

How is LWP deduction calculated?

Divide monthly gross salary by the number of days your policy uses, such as calendar days in the month, working days or a fixed 30 or 26, then multiply by the LWP days. For example, ₹26,000 on a fixed 26-day basis gives ₹1,000 per LWP day, so 3 days reduce pay by ₹3,000.

Does LWP affect PF and ESI contributions?

Yes. PF and ESI contributions are worked out on the wages payable for the month, so an LWP deduction usually lowers them for that month too. Tell the employee before approving long LWP, because it also reduces the days counted for leave accrual.

Can an employer refuse leave without pay?

Yes. LWP is granted at the company's discretion once paid leave is exhausted, and a manager can refuse it when the team cannot spare the employee. A refusal should give a reason, and HR should look at alternatives such as splitting the leave into shorter spells or moving the dates.