Updated: December 16, 2024
Unpaid time off (UTO) is when employees take time away from work without receiving pay. Some employees may need to turn to this option after using up their allotment of paid time off, which differs from how PTO works, where employees continue to receive their regular wages while away from the workplace. Furthermore, employees do not accrue wages or salaries when taking UTO and often use it for personal reasons.
In this guide, we’ll discuss unpaid time off, how companies can create clear policies, and some key considerations that both employers and employees should be aware of.
Legal obligations surrounding UTO
First, while legal obligations regarding unpaid time off vary from state to state, the chief national policy is the Family and Medical Leave Act (FMLA).
This federal act requires employers with 50 or more employees to provide eligible workers with up to 12 weeks of unpaid leave each year for family- and medical-related reasons. These reasons can include childbirth or adoption, caring for an ailing family member, personal health conditions of a serious nature, or the need to support a spouse, child, or parent on covered activity duty in the military.
Employers must maintain the employee’s health benefits during this period of leave.
State-specific regulations
In addition to the federal FMLA law, states have different time-off policies for personal matters, health conditions, and other issues. What is unpaid time off will differ slightly from state to state.
In Minnesota, for instance, eligible employees can take up to 16 hours of unpaid leave each year to attend school activities for their children. Nine other states also have varying laws for parents related to school conferences and other educational activities.
Hawaii employers are required to allow seven unpaid days off for employees of one year or more to serve as a bone marrow or stem cell donor or 30 days per year for those who are serving as an organ donor.
And in New York, employers must grant unpaid leave to volunteer firefighters or volunteer ambulance service members that are engaged in related volunteer duties in response to a declared emergency.
Moving on, let us look at some key elements many employers consider when setting up a policy.
Creating and implementing UTO policies
When developing UTO policies, it is critical to focus on clarity and consistency.
Key elements of a UTO policy
A solid unpaid time off policy will incorporate the following elements:
- Eligibility rules: Who is eligible for unpaid time off in your organization? Make sure the delineation is clear and easy to understand.
- Time limits: How long can employees take unpaid time off? Can this period be extended for special circumstances?
- Process: How should employees request UTO, and who can approve it? Is there a way to appeal a decision?
- Communication: Are employees responsible for staying in touch during their leave? Do they need to confirm a return-to-work date?
Finally, make sure that employees understand that UTO will not impact their benefits or result in retaliation.
Communicating policies to employees
You can share new or updated policy information as it comes out. Otherwise, it is a good idea to remind employees of unpaid time off and other HR policies annually and to ensure that the information is available in multiple formats, from printed to online policies. Overcommunication is always better than confused or misinformed employees.
Employer’s rights regarding UTO requests
In general, employers can approve or deny UTO requests at their discretion, with the exception of meeting the requirements of the Family and Medical Leave Act. Nevertheless, it is important to consider both company policies and state-specific laws when making a decision to avoid potential discrimination.
Grounds for denying requests
Employers have the right to deny unpaid time off requests based on insufficient notice or lack of accrued time off, staffing issues or peak seasons, failure to meet eligibility criteria or anything that would notably disrupt company operations. Again, if you are communicating this clearly in your policy, this should not surprise employees.
Advantages of offering unpaid time off
There are positives for companies that offer unpaid time off. While it does not come with the same price tag as PTO, having this option can increase employee satisfaction and happiness, which correlates with a 13% boost in productivity.
Enhanced employee trust and loyalty
Flexible HR policies serve to enhance employee trust and loyalty. In accordance with this, 70% of employees say they would more likely accept an offer from a company that places a premium on overall employee well-being. The takeaway is that employees appreciate getting flexible options like UTO from their employers, even if it goes unused.
Flexibility in employee management
In addition, unpaid time off provides managers with another tool to work with employees under them. Being able to offer UTO as another option can support stronger teams and give managers the autonomy they need to succeed in their roles. Employees can use their time off for everything from bereavement to mental health breaks, creating a strong corporate culture and helping you retain top talent.
Disadvantages of unpaid time off
There are a few potential drawbacks to UTO, which your policy should take into account.
Impacts on workload and productivity
While happy workers are generally more productive, extended UTO can make it hard for employees to jump back into their positions. Also, if you have many employees on leave at the same time, this can negatively impact productivity and efficiency throughout the company.
In addition, some employees might struggle with the unpaid nature of their time off, feeling frustrated that they are not getting paid despite undergoing hardship. Finally, some employees may need to earn more to cover the cost of other benefits while away from the office.
Potential for misuse of UTO
Without clear guidelines for granting UTO, some employees may take advantage of the policy, leading to an excessive amount of time off. It can make a lot of sense to add the details to your employee handbook so everyone’s on the same page.
Understanding UTO management makes good business sense
Though most employees want to be able to use unpaid time off as a backup plan for personal time, having access to it can provide peace of mind for those with limited paid leave accrued. By understanding federal requirements plus anywhere you do business, you can craft an unpaid time off policy that works for your organization and its employees.
With OnPay’s online HR and payroll tools, your business can easily adopt and adapt to UTO and other HR processes and procedures. From benefits to payroll, our team can help you streamline your HR to-do list so that you can spend more time on what you do best. Best of luck as you grow your business and we hope to hear from you soon!
This article is provided for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, human resources professionals and accounting advisors for formal consultation.
