Unpaid time off can be a confusing minefield. It includes any absence from work not covered by existing employee benefits such as sick leave, paid vacations and paid time off. Although there is no legal obligation to agree to unpaid leave, many companies offer a leave of absence in the event of exceptional circumstances such as moving house or attending a funeral.
In this post we will discuss what an unpaid leave of absence is, and how offering it to employees could benefit your company. We will look at employee eligibility, legal issues. and unpaid time off laws. We will also share a few tips for creating an effective absence management policy and answer a few frequently asked questions.
- Personal Time Off
- What is Unpaid Leave?
- Part Time vs Full Time
- Time Off Calculations
- Applying For Unpaid Leave
- Exempt Employees
- Employee Furlough
- Employment Laws
- Policy Samples
- Essential FAQs
Personal time off or Paid time off (PTO) refers to time away from work that is compensated by the employer. It can include sick leave, accrued time and vacation days. Other forms of employee leave can include maternity/paternity leave, FMLA leaves, furlough and unpaid leave.
Employees usually request Unpaid Time Off (UTO) for the following reasons:
- To care for dependents
- For medical appointments (doctor or dentist)
- To attend a funeral
- As an extension of parental leave
- To attend a course/professional development
- As a career break
- For voluntary work
- To carry out public duties such as jury service
- New employee relocations, or time off to move house
- Leave related to domestic violence
- Jury duty in certain states (although most require it to be paid time off)
Employers have a responsibility to pay for time off taken under certain circumstances. This can include sickness, medical leave, accrued time off, and vacation time. These benefits are regulated at a federal level and they are a basic requirement of an employment contract.
If an employee is absent for any other reason, it is up to the company to decide whether the time will be paid or not. Many employers choose to create a Paid Time Off (PTO) policy so that employees can apply for time off under certain conditions (funeral, moving house, personal obligations, etc.).
A PTO policy clearly outlines guidelines for requesting time off. It details when employees can request PTO, what the process is, and if there is a limit (such as a maximum of two days per year for moving house).
If your company doesn’t have a PTO policy in place, then these absences will be classed as Unpaid Time Off. Employers can offer UTO in addition to or instead of paid time off. They can offer it to hourly workers, part-time employees, or the entire staff. If your company has decided to take this route, then it is important to find out where you stand from a legal point of view.
The Fair Labor Standards Act (FLSA) provides no specific definition for part-time employment. However, the Affordable Care Act (ACA) defines part-time workers as employees who work fewer than 30 hours per week. Part-time positions usually consist of fewer responsibilities, and more limited benefits, including paid time off, although this can vary by company. Generally speaking, distinguishing full-time vs. part-time employees comes down to the benefits you offer.
Full-time employees are more likely to receive the following benefits:
- Vacation time
- Paid Time Off Employee benefits & compensation
- Unpaid Time Off benefits
- Health insurance
- Employer retirement plans
- Overtime pay for non-exempt employees
As a company, you may decide to limit your PTO policy to full time staff. If that is the case, then you need to outline this in your time off policy. You also need to clarify whether part time employees are entitled to request unpaid time off off work, or whether this benefit will be limited to full time staff only, too.
Payroll calculations for time off paid and unpaid can be confusing. As a company, you need to establish calculations for all absences, including sickness, vacations, UTO and PTO.
If a non-exempt employee takes an unpaid leave of absence, the number of days they are absent from work needs to be reflected on their payslip. As non-exempt employees work on an hourly basis, usually managed with timesheets, and they are usually not entitled to PTO, then adjusting their wages and payslip for unpaid time away from work should be pretty straightforward.
Exempt Employee Calculations
In the case of exempt employees, this can be a little more complicated. If your company has a PTO policy that covers the absence, then no adjustments need to be made. However, if you decide that time off will not be paid by your company then you have a few options. You might decide to enforce the use of accrued time or vacation days for absences due to personal reasons, or you might decide that absences of this type will be classes as Unpaid Time Off.
In this case, in the event of an absence, you would need to calculate the employee’s hourly rate by dividing their gross salary by the number of hours worked each month. You would then need to calculate the actual hours worked in that specific month, then multiply it by the employee’s calculated “hourly rate”. This adjusted gross amount would then be subject to the usual tax deductions. Keep in mind that when an employee works fewer hours and earns lower wages, their tax liability decreases.
If you have decided to include an unpaid leave policy in your internal procedures then you need to clearly define the process for applying for unpaid time off. Your policy should address how employees can request time off, how much notice they need to give, how many days they are entitled to in a given period, and what happens if two people from the same department request UTP at the same time.
As a guide, the general process should be as follows:
- An employee submits a written request for unpaid time off, within the required notice period. This would usually be done through a direct manager or supervisor and using the process or system defined in the absence or time off policy.
- The manager or supervisor consults with HR and/or department heads. The impact of the absence is assessed (will it cause staffing or production issues?)
- The manager or HR approves or denies the request. Requests are prioritized based on a first-come, first-served basis.
- The employee ensures all their duties will be covered during their absence, arranging cover and/or training if necessary.
In many cases, unpaid time off will only be granted if all accrued time has been used up. Exceptions to this can include:
- Disability leave
- Parental leave
- Leave related to domestic violence, sexual assault, or stalking
- Leave designated as FMLA
- A PFML leave of absence (Paid Family and Medical Leave)
Make sure you clearly define all this information in your internal policy.
Before you write your policy, you also need to establish if your employees are exempt or non-exempt. Asking the question of whether unpaid time off for exempt employees is going to be key. Under the FLSA, an employee is considered exempt if they are paid a salary and receive a minimum of $455 per week. An employee is also considered exempt if they perform executive, administrative, or professional duties.
Whilst exempt employees receive a full salary for any week in which they work regardless of the hours or days worked, non-exempt employees receive an hourly wage so they only get paid when they work. This means that any time off should, theoretically, be paid for exempt employees. If time off is not paid, a company runs the risk of contravening paid time off laws such as the FLSA. Often, a company will insist that exempt employees used accrued time and vacation days to get around this problem. The Department of Labor (DOL) favors this option.
Employee furlough is a temporary, involuntary leave of absence. Furloughs are most commonly used in the seasonal industry to allow a company to close business during quiet periods. However, they have become common practice in many other sectors around the world since the start of the current Covid-19 pandemic.
A company can furlough its employees for days, weeks or months, and employees usually return to their positions after the furlough period has ended. Most employees that are furloughed do not get paid, but they do keep employment benefits such as health insurance. Many companies use furloughs as temporary cost-saving solutions that are an alternative to permanently laying off employees.
Generally speaking, it is up to you as the employer to decide whether employees are offered paid and/or unpaid time off. However, there are certain situations where a company is legally required to abide by the employment laws, at a state or federal level, to authorize time off.
Here are a few examples of employment and wage and hour laws:
- The Fair Labor Standards Act (FLSA) does not require payment for time not worked in the private sector, such as vacations, sick leave or federal holidays. These benefits are provided at the discretion of each company.
- The Family and Medical Leave Act (FMLA) requires companies with a staff of over 50 to give employees unpaid time off for intermittent leave, or to care for a family member. If an employer qualifies for FMLA, employees can take up to 12 weeks of unpaid time off work.
- Federal law requires federal government employers to allow their employees to take paid/unpaid time off on designated holidays such as New Year’s Day and Memorial Day.
- Employees that attend jury duty are protected by most states. And in states such as Massachusetts, Nebraska, and New York, employees must be paid for their time off.
- Maine passed a new sick leave policy in 2019 to cover paid sick leave and other personal time off. It will require companies with a staff of over 10 to provide employees with paid time off for any reason. The new law takes effect on January 1, 2021, and it means employers in Maine may no longer be able to offer unpaid time off to employees.
Research has shown that employers with detailed time off policies experience lower levels of employee absence from sickness, vacation and personal days. This suggests that a corporate culture with clear guidelines for taking time off, whether paid or unpaid, fosters an environment with increased employee motivation, wellness and loyalty. Using unpaid time off policy samples to get you started is a great way to speed up the process of managing these requests.
However, before offering employees unpaid time off, you need to know if you legally can. And whether you decide to offer employees UTO, PTO, or both, you need to have a clear absence policy in place.
The unpaid time off policy should specify:
- If you offer paid and unpaid leave. If you offer both, you need a separate policy for each category.
- Which employees have access to paid and unpaid time off. For example, if you are offering PTO to some employees (full time employees) and UTO to others (part time employees).
- The number of unpaid days employees can take.
- How employees can request time off.
- Whether there is a cap for paid and unpaid days away from work.
- What happens when an employee reaches that cap (for example, if an employee uses up their allocated PTO, are they entitled to UTO?).
- How employee hours and absences will be tracked (access cards, timesheets, attendance software, etc.).
- If PTO and UTO will affect an employee’s attendance record.
If you use employee attendance tracker software you can integrate your policy to help streamline your processes. For example, if your policy defines how many days off can be taken each year (paid and/or unpaid) then you can share this information with employees through the software. This could reduce potential conflict and make employees accountable for their absences.
Here are a few answers to common questions. Let us know in the comments if you have any other questions.
Do I need an unpaid time off policy in my company?
Whether you decide to pay employees for time off is up to your company. Although there is no legal obligation, many companies decide it is a good practice under certain conditions. If you do decide to offer unpaid time off, then you need a clear UTO policy that sets out your internal guidelines and procedures.
How much time off should new employees receive?
In the U.S., most employers give new employees an average of ten paid days of time off per year (once they have completed their probationary period). If you offer PTO, you need to establish whether you will allocate days at the start of each year, or if employees must accrue them.
How far in advance should employees request time off?
Again, this will depend on your company’s time off policy and the process for requesting time off. Keep in mind that the more notice you require, the longer your managers will have to assess the impact of the absence and approve or refuse the request.
What if an employee reaches the cap for paid time off?
If you have a PTO policy then you need to decide if there is a limit to how many days off an employee can request. And if they reach their PTO cap, will they be entitled to UTO? Or will they have to take it from their vacation days or accrued time?
What is the best way to manage time off requests?
Written by Cat Symonds.