Unpaid Time Off: What You Need to Know

Andrew Buck August 11, 2021

We usually talk about paid time off (or PTO), when we’re on the topic of vacation days, annual leave, and personal days.

However, there are also some situations where employees may take unpaid time off. These situations have a lot in common with the reasons people take paid time off. And although your company is not paying for this time, you still need to consider these situations and account for unpaid absences in your absence calendar.

Read on for all you need to know about unpaid time off, and how to work it into your company’s leave policy.

What is Unpaid Time Off (UTO)

Unpaid time off (UTO), as the name suggests, is leave without pay.

Your employees take UTO with the expectation that the position will still be there for them when they get back to work.

Unpaid time off is a catch-all term that can cover several different types of leave. Any leaves that aren’t covered under your paid time off policy can fall under the unpaid time off category. 

A few examples of unpaid time off can include things like bereavement leave, sick days, vacation days, or family leave days.

Even if some of those leave types are covered under your paid leave policy, you could still provide unpaid days off once the number of paid leave days runs out.

Unpaid time off can also include a leave of absence or sabbatical, which are instances when employees take extended time off for personal reasons.

Paid Time Off vs. Unpaid Time Off

In contrast to unpaid time off, paid time off is the time you provide for your team members to be away from work while they get fully compensated as usual.

The details of how many leave days are paid vs. unpaid would depend on your time off policy.

Some states in the U.S., as well as some jurisdictions around the world mandate that you provide a certain number of sick days for your employees, as we’ll discuss in more detail below. 

But beyond what is required by law, you might choose to provide further paid vacation days to promote employee wellness and happiness, which has been shown to have a positive effect on their productivity and recuperation.

But any leave days that aren’t covered under paid time off according to your policy would fall under unpaid time off.

Your leave policy would still state how many unpaid leave days an employee gets, and also the types of leaves that would be approved for unpaid time off.

Further reading: How Important is Taking Time Off From Work?

When You Might Need to Provide Unpaid Time Off

Let’s take a look at a few scenarios when you might approve unpaid time off for your team members.

When An Employee Has Used Up Paid Time Off

As we explained before, your leave policy might indicate that an employee gets a certain number of paid leave days per year. 

The paid time off could be for sick days, vacation days, or another type of leave.

Your leave policy might also specify that an employee gets unpaid time off, on top of the paid leave days. 

When a team member uses up all of their paid leave days, but they need additional time, you can approve it as unpaid time off.

You could also allow your team members to specify whether they are requesting paid or unpaid time off when they request leave. 

A vacation tracking software is the simplest way for you to keep track of your team’s remaining paid/unpaid leave days for a calendar year. 

When An Employee Doesn’t Yet Qualify for Paid Time Off

Your leave policy might state that an employee only qualifies for paid time off after a certain period at work, or after they’ve completed a specific number of hours. 

For example, employees might only qualify for paid time off after 6 months at work.

But situations might arise where you have to provide time off before their qualification date. They might need to take sick leave, take time off to relax and recharge, or it could be an unexpected family situation. 

In such cases, you could still approve time off, but not pay them while they’re away from work.

When Your Company Doesn’t Provide Paid Time Off

Maybe your leave policy does not provide time off.

But you still need to let your team members take time away from work, whether because it’s required by law, or because you want to promote employee wellbeing.

In this case, you would categorize all employee leave as unpaid time off.

Unpaid Time Off Laws

When considering your company’s stance on unpaid time off, one of the first things you should think about is if there are any laws regulating the minimum number of leave days you must provide for your employees.

You need to be familiar with the labor laws not only where your company is based, but also any other jurisdictions where you have employees.

Anything you’re required to provide by law will always be the baseline of your time off policy. Once you cover what is legally required, then you can further optimize your vacation package to attract top performers, promote employee wellbeing and productivity, etc.

Let’s take a brief look at what the unpaid time off policy looks like in the U.S. 

If you’re based outside the U.S. check with your local authorities to learn about any time off requirements so you can create your policy accordingly. 

Unpaid Time Off Laws in the United States

For the most part, the time off agreements between you and your team will be decided by your leave policy in the U.S.

The Fair Labor Standards Act (FLSA) does not mandate private sector employers to provide paid time off for their employees.

But there are some specific situations where there can be federal or state level regulations that require you to provide paid or unpaid time off. 

Here are a few examples.

Paid Sick Leave

The following states and jurisdictions in the U.S. require employers to provide a certain number of paid sick days. 

If you’re based in any of these states, or you have employees there, be sure to check the specific labor laws in that state to learn more about the minimum paid sick days requirements.

Family and Medical Leave Act (FMLA)

If your company employs over 50 people, then your employees might be eligible for unpaid time off under the Family and Medical Leave Act (FMLA), if they’ve already spent a certain amount of time working for you.

Qualifying employees can take up to 12 weeks of unpaid time off for maternity leave, paternity leave, or to take care of another family member. 

Check out the Family and Medical Leave Act (FMLA) website for more details if you have over 50 employees.

Jury Duty

If your employee gets selected for jury duty, you have to at least provide them unpaid time off in most states. 

In these following states, you must provide paid time off for jury duty. 

How to Create Your Unpaid Time Off Policy

Your unpaid (and paid) time off policy should be clear to all your team members to promote a sense of fairness and transparency. 

Everyone should be clear on the following.

Providing clarity on all of these topics would remove any sense of ambiguity or favoritism, and it would lead to a more positive and harmonious workplace.

Paid Time Off Allowance

Before you move on to unpaid time off, you need to decide on how many paid vacation days you’ll provide for each employee, and for what reasons.

As previously explained, you need to first make sure that your time off policy covers the minimum that is required by law in your jurisdictions, if there are any and your company qualifies.

Once you cover the minimum, you can then move on to provide additional paid time off. 

If you’re wondering why you would provide more paid days off than necessary, here are a couple of things to keep in mind.

Vacation time ranks only behind healthcare when it comes to the most desired employee benefits

Providing a generous paid time off package can help you attract top performers and gain an edge over the competition. 

And if you’re concerned about the loss of productivity, the evidence seems to suggest the opposite. 

According to Harvard Business Review, “taking more vacation results in greater success at work as well as lower stress and more happiness at work and home.”

Here are some of the leave types that can fall under paid time off.

When Unpaid Time Off Will Be Approved

But when should you approve leave without pay? What if there is remaining time left under paid vacation days? Should an employee be allowed to take unpaid time?

Again, this would depend on your leave policy, but here is something to consider – in many cases, you might be required to pay out any unused paid vacation days if an employee quits or you have to fire them. 

So you might decide that you would require your team members to use all their paid time off before moving on to unpaid leave requests. 

But this would only apply to leave types that are covered under paid time off. 

So, for example, if your paid time off only covers vacation days and sick days, and an employee needs bereavement leave, then you can still approve bereavement leave under unpaid time off.

Here are some additional things to include in your unpaid time off policy.

Who can request unpaid time off – Do they have to be full-time employees? Is there a length of employment requirement before time-off requests? 

How many days of unpaid time off can one request at a time? Do they need to request time off a certain period in advance?

How to request unpaid time off – How do they submit their time off request? Is it by email, Slack, or do you have a more efficient system like a leave tracking software? 

Who receives the request, and what criteria do they use to make a decision? How do you track the team leave calendar to make sure you’re adequately staffed at all times?

Final Thoughts on Unpaid Time Off

Your time off policy, both paid and unpaid, is a vital HR process that will impact several aspects of your business.

Set aside some time over the coming days to evaluate which types of unpaid leave it makes sense to provide for your employees, how many days, etc. 

Then create a leave management process that makes it simple for your employees to request leave, and for your HR manager to approve/deny those requests. 

Managing the leave calendar effectively will prevent situations where you end up short-staffed and it promotes a sense of fairness in the workplace that contributes to employee satisfaction and increased productivity. 

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