There are all sorts of reasons employees may need to take time off of work—and, depending on the reason, there are a few different avenues for them to take that time off.
And one of those avenues? Taking unpaid time off—also known as UTO, unpaid leave, or time off without pay.
But what, exactly, is unpaid time off? How does it differ from paid time off (PTO)? And as an employer, are you obligated to offer unpaid leave to your employees—and, if so, under what circumstances?
What is Unpaid Time Off?
Unpaid time off is any time an employee takes off from work that is not compensated by the employer. This includes when an employee is absent from work outside of the employer’s established paid time off policy—for example, sick leave or vacation time.
Employees may request time off without pay for a variety of reasons. For example, an employee may need to take time off—but has already exhausted all of their vacation days and sick days. Or, an employee may need to take a day off—but for whatever reason, isn’t eligible for the company’s PTO benefits (for example, part-time employees with a limited work schedule).
Some other reasons employees may request unpaid time off include:
- To manage a medical issue
- To grieve the loss of a loved one and/or attend a funeral
- To attend an appointment
- For personal time
- To fulfill jury duty requirements
- To take care of a family member or dependent
- To manage a personal emergency
- To take a career break and restore work-life balance
- To relocate to a new home and/or area
- To pursue educational opportunities, like taking a course or attending a conference
- To volunteer/participate in a community service project
- To recover from a personal trauma, like domestic violence or sexual assault
How is Unpaid Time Off Different from Paid Time Off?
The major difference between unpaid leave and paid leave boils down to compensation. With paid leave, employees are compensated for their time out of work. When they take unpaid time off, they’re not compensated for their time away from the office.
Generally, employees are only eligible for unpaid time off once they’ve exhausted their paid time off benefits.
For example, let’s say, under your company’s PTO policy, employees get five days of sick time each year and five days of vacation time—and one of your employees gets struck with a flu that has them out of the office for two weeks.
In that situation, the employee would use their entire five days of sick leave. Whether the remaining number of days would be considered paid leave or unpaid would depend on the employees’ remaining paid time off benefits.
For example, if they had only used two of their vacation days for the year—and had three days of vacation time remaining—the company may require them to use those vacation days before taking unpaid time off.
So, for their time out of office, eight days would be covered by their PTO benefits (five days of sick leave and three days of vacation leave)—and the remaining two would qualify as unpaid days.
Are Businesses Required to Give Employees Unpaid Leave?
Companies aren’t required to grant all employee requests for unpaid time off. There are, however, times when you are required to provide time off.
Below are the types of leave protected by U.S. law. Note that states have further regulations regarding pay for these categories as well, so be sure to check your local laws.
Family and Medical Leave Act
If your company employs more than 50 people, under the Family and Medical Leave Act (FMLA), certain employees are eligible to take up to 12 weeks of unpaid leave per year when dealing with covered circumstances, including:
- For the birth and care of the newborn child of an employee
- For placement of a child for adoption or foster care
- To care for an immediate family member (i.e., spouse, child, or parent) with a serious health condition
- To take medical leave when the employee is unable to work because of a serious health condition.
During this job-protected leave of absence, employees also retain their medical benefits.
In order to qualify for a leave of absence under FMLA, employees must meet certain eligibility requirements, including:
- Have worked for the employer for at least 12 months
- Have worked at least 1250 hours over the past 12 months
- Work for a company that employs at least 50 employees within 75 miles
In addition to the Family Medical Leave Act, 11 individual states (California, Connecticut, Hawaii, Maine, Minnesota, New Jersey, Oregon, Rhode Island, Vermont, Washington, and Wisconsin) and the District of Columbia also have their own laws around family and medical leave—many of which require employers to provide more unpaid time off to employees.
Jury Duty
Employers are legally required to provide time off for employees to attend jury duty. Whether that time off is paid or unpaid will depend on the state; some states have laws that require employers to pay employees while serving duty—while others have laws prohibiting employers from forcing employees to use PTO to cover time off used for jury duty.
Military Leave
Under the Uniformed Services Employment and Reemployment Rights Act (USERRA), employers must provide employees with unpaid leave to fulfill military duties. They must also continue to provide medical benefits to employees while they fulfill their military duties.
Voting
While there are no federal laws requiring employers to give employees time off to vote, there are many state laws around time off for voting—and depending on where your business operates, you may be required to provide unpaid or paid leave to employees to give them time to vote.
Other Instances Where You May Be Required to Grant UTO
Depending on where your business operates, you may be required to grant unpaid leave to employees in other circumstances, including:
- Domestic violence
- Pregnancy
- Miscarriage
- Sexual assault
- Bereavement leave
- Holidays
If you’re unsure of whether you need to provide unpaid leave to your employees—and, if so, when you’re required to give them time off without pay—it’s best to speak to an attorney that specializes in employment law in your state.
The Benefits and Drawbacks of Unpaid Time Off
As mentioned, there are certain circumstances where you, as an employer, are required to offer unpaid leave to employees.
But outside of those required circumstances, what are the pros and cons of offering UTO to your employees?
Some of the potential benefits of unpaid time off include:
- Increased retention: When you give employees the option to take unpaid time off when they need it, it shows them you’re invested in them and their well-being. This can increase loyalty to the company—which can ultimately help with retaining top talent.
- Better relationships with employees: In the same vein, when employees feel their employers are invested in their well-being, it can lead to stronger relationships—and stronger relationships can lead to a more positive work environment.
- Increased productivity: If an employee is dealing with a personal or health issue—but still has to come to work—their attention and focus can take a hit. When you give employees UTO, they can take the time to deal with those issues—and return ready to focus and get work done.
UTO has some definite benefits—but it could also have drawbacks, including:
- Staffing issues: When employees can take time off without pay, that can lead to issues with staffing—and, more specifically, not having coverage when you need it.
- Abuse of UTO policies: While you want to trust your employees to be honest, there may be employees that abuse your UTO policy and rack up a high volume of absences.
As an employer, it’s important to weigh the pros and cons of UTO—and decide what kind of stance on UTO is the best for your business and employees.
Tips for Creating Your Company’s UTO Policy
Whether you’re planning on offering time off without pay only when required by law—or you’re planning to offer employees additional UTO as needed—the best thing you can do? Add unpaid leave to your collection of company policies.
An unpaid leave policy clearly outlines your company’s stance on employees taking time off without pay. It will get you and your employees on the same page—and ensure that everyone understands if and when they’re eligible to take time off without pay.
But how, exactly, can you maximize the effectiveness of your UTO policy? Here are some tips to keep in mind as you craft your organization’s policy on employees taking time off without pay:
Clarify What Kind of UTO You’re Going to Offer Employees
As mentioned, there are certain circumstances where, as a business, you’re legally required to provide unpaid time off to your employees. But what about outside of those circumstances? Are there any other instances where you want to offer time off without pay—and, if so, what are those instances?
For example, in addition to the circumstances where you’re required to offer employees unpaid time off, you may opt to offer your employees other types of UTO (like time off to relocate to a new city or to grieve the loss of a close friend).
The point is, before you create your policy around UTO, make sure to clarify exactly what kind of UTO you’re planning to offer your employees; that way, the policy will be clear—and employees will know when they can (and can’t) request UTO.
Outline the Who, When, How, and How Much
In order for a policy to be effective, it needs to be clear—and that includes policies around time off without pay.
When creating your company’s UTO policy, make sure to outline:
- Who: Who is eligible for UTO? Make sure to clarify which employees are eligible for unpaid time off (including full-time employees vs. part-time employees and exempt vs. non-exempt employees).
- When: When—and under what circumstances—can employees request UTO? Make sure to outline all the different scenarios when employees are eligible to request unpaid leave (for example, medical leave, bereavement leave, or requesting personal time off).
- How: If employees want to request UTO, what’s the process for doing so? Make sure to outline how to request UTO (for example, by submitting a form to human resources) and how far in advance employees will need to submit their request. We recommend requiring approval for each instance of UTO, which allows you to manage it on a case-by-case basis.
- How much: How much UTO can employees request? Make sure to outline how much UTO employees can request at one time, how much time off without pay they can request in a certain period (for example, in a pay period or in a calendar year), and when the UTO policy renews each year (for example, after the New Year).
In addition to outlining details for employees, you’ll also want to outline key details for your human resources team around how to track employees’ time off without pay.
With Hourly, you can easily track employee time off, both paid and unpaid—and the platform will automatically adjust your tax withholdings and workers’ comp payments to accurately reflect that time off.
Host an All-Hands Meeting to Discuss the Policy
If your UTO policy is new, chances are, your team is going to have questions—and if you want your new policy to be successful, you’ll need to answer those questions.
Host an all-hands meeting to discuss the new policy. Review the details and leave time at the end to address your employees’ FAQs. Make sure that all of your employees understand the UTO policy—and how it applies to them—before you wrap up the meeting.
The more time you set aside to answer your employees’ questions about your UTO policy, the better they’ll understand it—and the more likely they’ll be to follow it (for example, by submitting UTO requests in accordance with your policy or not requesting anything that falls outside of your policy), which will save you time, energy, and hassle down the line.
Include Your Unpaid Time off Policy in Your Onboarding Process
New employees should understand your UTO policy from the get-go—and that means including it in your onboarding process.
Make sure to review your UTO policy with all new hires as part of their employee onboarding. Carve out time to answer any questions—and make sure to include the policy in all new employee handbooks.
Frequently Asked Questions About UTO
Still have questions about UTO? Let’s take a look at some FAQs about the topic:
How much unpaid time off is too much?
As mentioned, there are certain circumstances when you’re required to provide UTO to your employees—and in those circumstances, you’ll need to provide at least the amount of time required by law.
But what about outside of that? If you’re going to offer your employees additional UTO, how much should you offer—and how much is too much?
Unfortunately, there’s no one-size-fits-all answer; how much UTO you offer your employees will depend on your business and the situation. The best thing you can do is figure out how much time you can afford to have your employees away from your business without productivity or output suffering—and then develop your UTO policy around that.
How do you ask for unpaid time off?
Employees may have questions about requesting UTO—and as an employer, it’s important you inform them of the right process for requesting unpaid leave when they leave it.
Make sure to include clear instructions for how to ask for UTO in your UTO policy. This includes who to reach out to, how to submit the request (for example, by filling out a specific form), how much notice to give, and how much time it will take for the employee to have their UTO reviewed and approved.
How can you find out if you’re required to provide UTO to employees?
If you’re not sure whether you’re legally required to provide UTO to your employees, the best thing you can do is consult with an employment attorney in your state. They can advise you on any federal and state laws around UTO that impact your business—and give you a definitive answer for if and when you need to provide unpaid leave to your employees.
Create the Right UTO Policy for Your Small Business
As an employer, knowing if and when to offer employees unpaid leave can be confusing. But with this guide, you’re armed with the information you need to better understand unpaid time off and how it applies to your employees—information you can use to craft the right UTO policy for your business.
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