The Ultimate Guide to Unpaid Time Off

What Is Unpaid Time Off?

Unpaid time off refers to the time period during which an employee is absent from work without compensation. During that time, the employee does not perform their work obligations and, in turn, does not receive regular salary or wages. 

Most commonly, unpaid time off is a voluntary arrangement between the employer and the employee. The reasons for it can vary, meaning there’s no one specific cause for an employee to ask for unpaid time off. 

For the most part, employees will ask for unpaid leave for reasons such as: 

• Needing a short break from work obligations;
• Personal matters;
• Relocating to a new place of residence;
• Needing extra time to recover from an illness;
• Attending a seminar or a course for professional growth and development purposes;
• Various other non-work-related reasons; 

Unpaid time off can be a flexible option for employees who need to take extended time away from work but do not have sufficient vacation or paid leave days available. 

On the employer's side, giving employees unpaid leave is a good way to keep them on the job without incurring costs for salary or wages, which is the case with paid leave.  

Another thing to keep in mind about unpaid time off is that it can result in a temporary reduction of income for the employee, which is less than ideal. 

For that reason, unpaid time off should be considered as an addition to the regular paid time off and should be used in cases when the employee can afford to take a pay cut or deemes it completely necessary.

Unpaid Leave: Rules and Regulations

EU Laws That Regulate Unpaid Leave

Most EU laws, such as the European working time directive, focus on regulating paid leave, work hours, breaks, and similar. Comparatively, laws that regulate unpaid leave are in the minority, but they do exist: 

• Maternity and paternity leave – Directive 2019/1158 ensures workers can take up to four months of parental leave in a single work year. Two out of those four months have to be paid (i.e., they count as paid leave). The remaining two months can be paid or unpaid, depending on the laws of each member state. For example, in Austria, parental leave is fully paid for up to sixteen weeks (all four months).
• Carers' leave – Falls under the same EU directive mentioned above and allows workers to take up to 5 days off in a single work year for the sole purpose of providing care to a family member, loved one, or a dependant. This type of leave is usually not paid.
• Force majeure leave – Work leave that employees are allowed to use for emergencies or unexpected circumstances (such as illness, personal issues, natural disasters, floods, and more). Force majeure leave, according to EU regulations, has to be paid for up to 3 days in a period of 12 months or up to 5 days in a period of 36 months. Anything more than that falls into the category of unpaid leave.

US Laws About Unpaid Leave

In the United States, employers must follow numerous legal obligations and laws when it comes to unpaid leave. Most predominantly, unpaid leave is regulated by one of the major US laws – the Federal Family and Medical Leave Act or FMLA. 

FMLA obligates US employers to give their employees unpaid time off for different reasons. Still, it’s important to note that not every employee is eligible for unpaid leave. According to FMLA, to qualify for leave without pay, employees have to:  

• Work at the company for at least 12 months;
• Have a minimum of 1,250 recorded work hours in the 12 months prior to asking for unpaid leave;
• Perform work duties at a location where the employer has a minimum of 50 employees, all within a 75-mile radius.

Other US Laws That Regulate Unpaid Leave

Apart from the Federal Family and Medical Leave Act, there are some other US laws that regulate various forms of unpaid time off from work.

• The Pregnancy Discrimination Act (PDA) prohibits discrimination based on pregnancy, childbirth, or related medical conditions.
• The Uniformed Services Employment and Reemployment Rights Act (USERRA) provides certain job protections for employees who have joined the military or have military service obligations (this includes military reserves and the National Guard). It also guarantees their rights to be reemployed upon finishing their military service.
• The Jury System Improvement Act is applied on a federal level and imparts job protection for employees who are summoned to or are currently serving as jurors in a federal court.

Unpaid Time Off: How to Start and What to Include in Your Policy?

Once you decide to include unpaid time off in your company, you need to develop a company policy to regulate it. The policy will explain to your employees the whole process of applying for unpaid time off from start to finish. The more streamlined the process is, the less administrative work there will be for everyone involved.

Before you start working on your time off policy, here are some things that you should keep in mind:

• Decide on the length of the notice period. The length will differ depending on your industry and the nature of your business, but most modern companies have a two-week notice for non-emergency leave (i.e., leave unrelated to health or similar issues).
• Determine the maximum number of concurrent days employees can take during unpaid time off.
• Create regulations around whether or not more than one employee from a single department can simultaneously request time off.  
• If the reasons for the leave are not deemed valid by the company/employer, employers can terminate the contract with the said employee, sanction them in various ways, or decide upon legal actions as a last resort.

Benefits and Downsides of Unpaid Leave

Like everything else, unpaid leave comes with its own set of benefits and downsides. Some of the most common are:

Benefits of Unpaid Time Off

Added Flexibility

Unpaid leave provides employees with flexibility and the ability to take time off when they need it. They can use it for personal reasons or for pursuing further professional development. 

The latter can, in fact, greatly benefit the employer, as they’ll be investing in a more qualified employee.

More Job Security

In some cases, taking unpaid leave can help with job security. For example, if an employee needs an extended period away from work (e.g., health emergency), employers are more likely to approve it than paid leave. 

This way, employers won’t incur additional costs and will even save money while their employees deal with their issues without fearing they’ll lose their job.

Improved Work-Life Balance

Unpaid leave, and in fact any sort of vacation or time absent from work, can help prevent burnout, thus improving overall well-being and job satisfaction. 

Time off allows employees to prioritize their personal matters when necessary, which is crucial to maintaining a healthy work-life balance.

Personal Growth or Professional Development

Unpaid leave allows employees to work on their personal or professional development. They can use it to take various business courses and seminars and engage in activities that improve their overall job skills. This can have numerous positive benefits for the employer, who will end with a more skilled worker. 

On the other hand, unpaid time off can also be used by employees to pursue their hobbies, relax, or even volunteer to support causes that are near and dear to their hearts.  

Downsides of Unpaid Time Off

Negative Financial Ramifications

This is by far the most significant downside of unpaid time off. The fact that employees won’t receive their regular salary or wages during this period can lead to a reduction in their income. 

For employers, unpaid time off might mean losing a worker that’s productive and whose work is benefiting the company in a financial way.

Reduced Benefits

Depending on what exactly is included in the specific company’s policy, taking unpaid leave can negatively affect employee benefits, such as health insurance, retirement pay, and others. It’s up to the employer to decide how much and for how long the benefits they provide will be compromised based on the length of leave.

Negative Career Impact  

Taking extended periods of unpaid leave may harm a specific employee's career and job opportunities. Prolonged leave can unfavorably impact various promotion opportunities, raises, and bonuses. This boils down to the fact that employers do not look kindly upon employees who take unpaid time off on a regular basis.  

Unpaid Time Off: Tips for Managers

If you are a manager or an employer responsible for handling time off requests, you obviously have a tough job. Here are some general tips that can help you better navigate this responsibility:

Understand Applicable Federal or State Laws

Any manager or employer dealing with unpaid time off should try to familiarize themselves with applicable federal and state laws. 

The only way to successfully manage time off requests is to know all the intricacies of the applicable laws, as that is the only way to ensure you’re not opening your company up to unnecessary lawsuits.  

Additionally, by knowing the laws, you will be able to create your time off policy around them, which will lower the probability of any successful legal actions being taken against you or your company.

Have Clear Guidelines and Time Off Policy

Create clear and transparent guidelines and procedures for requesting and approving unpaid time off while keeping in mind applicable federal and state laws. 

Communicate these guidelines to your team and ensure they understand the entire process – from start to finish. Also, inform your employees about any and all documentation and administrative requirements they need to adhere to in order to submit a time off request.

Separate Communication Channel

Create an environment of open communication where employees feel comfortable discussing unpaid time off. Encourage them to provide sufficient notice or include the notice length in your company’s unpaid time off policy. 

Try to provide a clear and separate communication channel through which employees can share any unexpected circumstances that may have occurred and require them to take unpaid leave.

Analyze Impact on Workload and Other Team Members

Evaluate the potential impact an employee's unpaid leave can have on the overall workload and team dynamics. Create plans for temporary coverage or redistributing responsibilities to ensure that the team's productivity and performance are not negatively affected.  

You can preempt any issues by cross-training employees to be able to perform multiple jobs inside the specific scope of your business if possible. Alternatively, you can look into hiring temporary workers (temps) or freelancers to fill the gap left by an employee on unpaid leave.

Keep Employee’s Confidence

Respect employee privacy and maintain confidentiality regarding the reasons for their unpaid leave, especially if said reasons are personal. Handle this information with extreme care and discretion and avoid discussing an employee's reasons for unpaid leave with other team members (unless the employee in question has authorized it).

Ease Them Into It

Prepare for a smooth transition and try to ease employees into their responsibilities when returning from unpaid leave. You can also provide them with updates and changes inside the company that occurred during their leave. Make sure they have all the necessary support, especially if they are absent for a longer period of time.

FAQ

Paid vs UnPaid Leave: Main Differences

Paid leave and unpaid leave are two distinct types of time off from work. The most common differences between them are: 

• Compensation – With paid leave, employees continue to receive their regular salary or wages as if they are still working. On the other hand, unpaid leave means that employees do not receive their regular pay during their time off, which can result in a temporary reduction or absence of income.
• Legal differences – At the moment, no employer in the United States is obligated to offer paid leave (on a federal level). Unpaid leave is regulated by FMLA. In the EU, all workers are entitled to at least four weeks of paid leave within the span of a single year. There are many laws and directives that regulate paid leave, such as the EWTD.
• Reasons behind it – Paid leave is more commonly used for vacations, personal leisure time, and non-emergency health issues, allowing employees to have time away from work while still being compensated. Unpaid leave, on the other hand, is often utilized for more specific purposes, such as extended family or medical leave, or when an employee needs to take time off work that exceeds their available paid leave or falls outside the scope of the company’s policies regarding paid leave.
• Benefits – When taking paid leave, employees typically maintain and continue to accrue their benefits (e.g., vacation time or retirement contributions). On the other hand, unpaid leave might negatively impact employee benefits and accruals depending on the specific company's policies and state or federal laws. For the most part, this depends on the employer (whether or not they want to cut or continue paying certain benefits).

What Is the Main EU Law Regulating Paid Leave?

The European working time directive (EWTD) is the EU’s main law regulating labor and work hours/time. The law was passed by the European Parliament in November 2003 and applies to all EU members.  

EWTD was passed for the specific purpose of protecting the health and safety of all employees working inside the EU. This law regulates:  

• Work hours– According to EWTD, no employee can work more than 48 hours (overtime included) within a single week. There are some exceptions for employees in the tourism and hospitality industries that allow for up to 56 working hours per week.
• Work breaks – All employees that work more than 6 hours a day qualify for break time. Each member country individually determines the length of the break/rest. For example, in the Netherlands, employees working 5.5 hours can take one 30-minute or two 15-minute long breaks during that time frame. On the other hand, in France, employees are entitled to 20-minute breaks for every 6 hours of work.
• Annual leave/paid time off – EWTD states that all workers employed inside the EU are allowed to take 4 weeks of paid leave annually. 

We should also note that the EWTD is the minimum-required standard of labor regulations that EU member nations have to follow. If any of the EU countries want to enact more favorable laws that further protect and benefit employees, they are free to do so.