All You Need to Know About Unpaid Time Off

In this article we’ll break down everything employers need to know about Unpaid Time Off or Unpaid Leave, including when it applies, how it fits into the legal landscape, and how to manage it effectively in your business.

We’ll also look at whether unpaid leave is normal, why it’s not the same as a furlough, and the pros and cons of unpaid time off. If you’re a business owner, manager or HR professional, read on and start managing your leave policy more effectively.

What is Unpaid Time Off?

Unpaid time off is just what it sounds like; time off from work, where the employee is not paid as usual.

It’s an alternative to paid time off, such as vacation, paid sick leave, paid parental leave and public holidays, where the employee is excused from work but still gets paid all or part of their regular pay.

The one key thing to note with unpaid time off is that it is an excused absence. Though the employee is not being paid, it’s not the same as if someone simply did not show up for work. 

Taking unpaid time off means the employee’s absence has been noted and approved by their employer.

Most Common Reasons for Unpaid Time Off

There are a number of reasons why someone might take unpaid time off.

Generally, unpaid leave applies either when an employee has used up all the paid time off allowed to them, or for specific leave types which the employer doesn’t provide compensation.

Here are some specific situations where a worker could take unpaid leave:

• Vacation, personal days or sick days where they have used up all their paid quota.
• Sick leave, parental leave or other leave types where the employer is not legally obligated to give paid time off.
• Additional parental leave (most locations provide a set period of paid parental leave, followed by an optional additional period which is unpaid).
• Jury duty (some states/countries require this to be paid, in others it may be unpaid time off).
• Military leave (generally unpaid, but preserving an employee’s contract until they return from service).
• Sabbatical leave (sometimes paid, sometimes unpaid).
• Vacation, personal days or sick days where the employee has not yet become eligible for or accrued paid time off.

Unpaid Leave vs Furlough

Some may consider furloughs to be a form of unpaid leave, but while functionally similar, the two terms mean different things.

A furlough is a temporary, involuntary leave of absence, which is generally unpaid, though employees retain their jobs and benefits.

Furloughs usually happen when a business shuts down temporarily or business slows. For example, seasonal workers may be furloughed during slow times of the year, or furloughs may happen when a business has to temporarily cease operations (as happened to many during Covid-19).

Technically, you could consider this to be unpaid leave (as the person is off work and not paid), but unpaid time off usually only refers to voluntary leaves of absence.

Unpaid Time Off Laws

So how does the law refer to unpaid time off?

Leave laws differ from location to location. However, one law that applies to many US businesses is the Family and Medical Leave Act (FMLA), which entitles eligible workers to unpaid time off for serious illnesses, caring for a newborn or newly adopted child, or caring for family members with serious medical conditions.

The crux of the FMLA is that, even though FMLA leave is unpaid, it is job-protected leave. This means that the employee taking leave is entitled to come back to their same job, with the same seniority and benefits, after their leave has ended.

Additionally, the Uniformed Services Employment and Reemployment Rights Act (USERRA) provides unpaid, job-protected leave for active service members, with the same rules regarding reinstatement and preservation of an employee’s benefits and seniority when coming back from military leave.

Aside from these laws, various states and countries have their own laws related to sick leave, parental leave, bereavement leave and other situations where employees must be allowed to take time off, but such time off is not required to be paid.

Is Unpaid Leave Normal?

It is fairly common for workers to be allowed to take leave without pay.

That doesn’t mean it’s a free-for-all; unpaid time off does not mean employees can simply pick and choose when to come to work and when not. Approval is still required.

But many companies allow employees the flexibility to take time away from work for personal commitments, or illness and injury, if they’re willing to go without pay for it.

Pros and Cons of Letting Employees Take Unpaid Time Off

Other than cases that are required by law (such as the FMLA and USERRA), it’s generally up to a company’s discretion whether to allow employees to take unpaid time off, and how much.

For additional vacation time or sick time, for example, or for time off for personal reasons, the business needs to decide whether to allow employees to take time off without pay, or stick with their regular leave policy and associated limits.

Here are some of the arguments for and against allowing unpaid time off.

Pros

• It saves money for the business.
• Unpaid time off provides flexibility for employees and helps maintain a healthy work-life balance.
• This flexibility can help attract new talent and retain existing talent.
• It can also increase happiness and job satisfaction with your staff, resulting in higher productivity and a better work environment.

Cons

• Being too free and loose with unpaid time off means decreased productivity due to fewer working hours.
• If unpaid time off is the only option (i.e. if you don’t offer paid sick leave, only unpaid), employees are forced to take a financial hit whenever they need to take time off.
• Forcing or encouraging employees to take unpaid time off can lead to discontent in the workplace.

How to Implement Unpaid Time Off

If you want to allow unpaid time off in your business, pay close attention to how you handle it, in order to avoid the downsides listed above.

To start with, make sure you offer ample paid time off to your employees, and don’t try to push employees into taking time off without pay. 

Unpaid time off should be an additional option available to workers, if they exhaust all their PTO or they can’t or don’t want to take PTO for any other reason – it shouldn’t be the only way people can get a day off work.

And, though it doesn’t cost the business in terms of wages/PTO when someone takes unpaid leave, it shouldn’t be without rules. You still need to have approval, and there should be limits for UTO.

If the business can accommodate the employee’s absence, that’s great. But it’s not good for business or other team members if people are taking a day or two off every week (paid or unpaid).

And on top of everything, make sure you’re compliant with any relevant national or state laws when applying unpaid time off. If the law requires you to provide a certain amount of paid time off (vacation, sick leave), make sure you do so, and be careful of applying unpaid time off for reasons that your location’s laws require to be paid (e.g. jury duty or voting leave in a lot of states).

Do You Need an Unpaid Time Off Policy?

You may want to consider creating a specific policy to outline how unpaid time off works for employees.

This policy could cover:

• How much/how often employees can take unpaid leave.
• How to request unpaid time off.
• How the approval process works.
• What reasons or situations employees are allowed to take UTO.
• Who is eligible for UTO (e.g. full-time or part-time employees; seniority, departments. Ensure this is fair and nondiscriminatory).

A policy ensures that all employees are 100% clear on the rules and how it works, and gives you a concrete document to point to whenever someone breaks the rules.

Most companies won’t need a separate unpaid time off policy, but should definitely cover this as part of their regular employee leave policy, or in their employee handbook.

Final Thoughts: Tracking Paid and Unpaid Leave

When you offer unpaid leave (as well as any form of paid time off), it’s essential that you track and manage all cases where someone is off work.

Clear and efficient leave tracking ensures that everyone is in the loop with who is and isn’t available, and that you understand how much leave each employee takes (some may take too much; others not enough).

Flamingo is a great way to track leave in your business. It’s straightforward and easy to understand, and customizable to fit however your team runs your leave policy.

It’s free to try – add it to Slack today and see how Flamingo makes your team work better and more effectively, even when employees take time off.