Unpaid time off (UTO) is exactly what it sounds like: time away from work without receiving wages. Unlike vacation or sick leave, where employees continue receiving their regular pay, unpaid time off means the employee's paycheck reflects only hours actually worked.
When Unpaid Time Off Comes Into Play
Exhausted PTO: Your retail employee has used all 80 hours of her paid time off but needs another week off for a family issue. She requests unpaid time off.
Ineligible for FMLA: Your restaurant server has only worked for you for 6 months. She doesn't qualify for FMLA protection because she hasn't hit the 12-month eligibility requirement. She requests unpaid time off to care for her sick parent.
Extended leave needs: Your warehouse worker needs 8 weeks off for a medical issue. FMLA covers 12 weeks, but he's already used 4 of those weeks earlier in the year. The remaining 4 weeks must be unpaid personal leave.
Personal situations: An employee wants to travel for a month, attend a family reunion abroad, or help a relative move across the country. None of these qualify for protected leave, but the employee is willing to forgo pay to take the time.
No PTO policy: Some businesses (particularly small ones) don't offer paid time off at all. All time off requests are unpaid.
Unpaid vs. Protected Unpaid Leave
There's a critical difference:
Protected unpaid leave (FMLA, state family leave, etc.): Your job is legally protected. The employer must return you to the same or equivalent position. They can't retaliate for taking this leave.
Discretionary unpaid time off: The employer can approve or deny the request. There's no job protection. You might return to find your position filled (though the employer can't use time off as a pretext for discrimination).
Your line cook requests 3 weeks unpaid time off to visit family in another country. You're not legally required to grant this request, but if you do, you're also not legally required to hold his position open. (In practice, most businesses do if the employee is valuable and gives adequate notice.)
Creating an Unpaid Time Off Policy
Even though you're not legally required to offer discretionary unpaid time off, having a clear policy prevents confusion and favoritism claims.
Define Request Process
"Employees requesting unpaid time off must submit their request in writing at least 30 days in advance for absences longer than 3 days. Requests should include dates and reason for absence. Approval is subject to operational needs and manager discretion."
Set Expectations
"Unpaid time off is granted at the company's discretion and is not guaranteed. Factors affecting approval include: staffing levels, timing, employee performance, and length of requested absence."
Clarify Benefits Impact
"During unpaid time off:
- Health insurance coverage continues for up to 30 days. The employee is responsible for their portion of premiums.
- PTO does not accrue during unpaid leave.
- Holidays falling during unpaid leave are not paid.
- Extended unpaid leave (more than 30 days) may affect benefit eligibility."
Address Job Protection
Be honest: "While we make every effort to return employees from unpaid time off to their previous position, we cannot guarantee position availability, particularly for absences exceeding 4 weeks. Employees on extended unpaid leave may be contacted about position changes or alternative roles."
Managing Unpaid Time Off Requests
Consider the Circumstances
Emergency vs. planned: A sudden family emergency deserves more flexibility than a planned vacation request during your busiest season.
Employee value: Your longest-tenured, most reliable server requests unpaid time off. You're more likely to accommodate her than a new hire with spotty attendance.
Duration: Two weeks unpaid is different from three months unpaid. Shorter absences are easier to cover.
Timing: Unpaid time off during slow season is easier to approve than during holiday rush.
Balance Business Needs and Compassion
You're not legally required to approve unpaid time off requests, but rigidly denying all requests damages morale and retention. Your auto shop employee whose father is dying wants 2 weeks unpaid to be with him. Denying that request might be legal, but it's likely to cost you a good employee permanently.
Conversely, you can't hold positions open indefinitely. If an employee requests 6 months unpaid to backpack through Europe, you're justified in saying "We can give you 4 weeks, but we'll need to fill your position if you need longer."
Partial Unpaid Time Off
Sometimes employees need unpaid time but can't afford to lose an entire paycheck. Consider:
Reduced schedule: Employee works 3 days per week instead of 5, unpaid for the 2 days off.
Intermittent unpaid days: Employee takes every Friday off for a month, unpaid.
Combination of paid and unpaid: Employee uses all accrued PTO, then adds unpaid days to extend the leave.
Your salon stylist needs 6 weeks off for a personal issue. She has 2 weeks of accrued PTO. You approve 2 weeks paid followed by 4 weeks unpaid.
Tracking Unpaid Time Off
Your payroll system needs to accurately reflect unpaid absences:
Hours worked: Only pay for actual hours worked. If an employee usually works 40 hours but took 16 hours unpaid time off, you pay only 24 hours that week.
Benefits deductions: Health insurance premiums and other benefit costs still apply. If the employee usually has $100 deducted per paycheck for benefits but earns only $400 instead of $1,200 due to unpaid time off, they owe $100 from $400 (25% instead of the usual 8%).
PTO accrual: Most policies pause accrual during unpaid time off.
Legal Considerations
At-Will Employment
Most states in the US offer at-will employment, meaning you can generally terminate employment for any legal reason, including an employee's inability to return from unpaid leave when expected. However, beware of:
Discrimination: Denying unpaid time off to employees of a protected class (race, religion, age, etc.) while granting it to others creates legal risk.
Retaliation: If unpaid time off relates to a protected activity (reporting harassment, filing workers' comp claim, jury duty, military service), denying it or terminating the employee could be retaliation.
Implied contracts: If your employee handbook or past practice suggests unpaid time off will be granted in certain circumstances, you might be bound by that.
FMLA Considerations
If an employee requests unpaid time off for something that might qualify for FMLA (serious health condition, caring for sick family member, new baby), you should investigate and provide FMLA paperwork even if they didn't explicitly request FMLA leave.
Your hotel housekeeper requests 4 weeks unpaid time off because her mother is "very sick." That might be an FMLA-qualifying event (caring for a parent with a serious health condition). You should provide FMLA eligibility notice and medical certification forms, even though she didn't say "FMLA."
Alternatives to Unpaid Time Off
Before approving lengthy unpaid absences, consider:
Flexible scheduling: Can the employee work reduced hours instead of full absence?
Remote work: Could some duties be performed remotely if the employee is traveling?
Job sharing: Could the employee share their position with another part-time worker during their absence?
Seasonal layoff: For predictable absences (employee spends 3 months in another state every winter), structure it as a seasonal position.
Your retail employee wants 8 weeks off in summer to help on their family farm. Instead of 8 weeks unpaid absence, you offer: work 2 days per week remotely handling inventory and scheduling. The employee earns some income, you maintain some support, and it's easier than fully backfilling the position.
Returning from Unpaid Time Off
Confirm Return Date
Get confirmation a week before expected return: "Just confirming you're planning to return to work on Monday, June 15th as discussed. Please let us know if anything has changed."
Sometimes employees' situations change and they can't return as planned. You need to know this before the scheduled return date.
Reintegration
Employees returning from extended unpaid leave may feel out of the loop. Brief them on any company changes, new employees, or policy updates. Don't expect them to jump right back in at full speed on day one.
Address Any Changes
If you had to fill their position or restructure during their absence, communicate this clearly before they return. "While you were out, we promoted Sarah to assistant manager. Your position as shift lead is still available, but the reporting structure has changed slightly."
The Bottom Line
Unpaid time off is a tool for flexibility when employees have needs beyond their paid time off balances or legal leave protections. It's not legally required in most cases, so you have discretion to approve or deny based on business needs. That discretion should be exercised thoughtfully, balancing operational requirements with employee needs and fairness.
Clear policies, consistent application, and compassionate judgment make unpaid time off work for both employer and employee. Sometimes letting a valuable employee take 3 weeks unpaid is what keeps them from leaving permanently, saving you costs in the long run.
