What Is Unpaid Time Off? Definition, Examples & Guide

What Is Unpaid Time Off?

Unpaid time off (UTO), also called unpaid leave or leave without pay, is a period during which employees are absent from work without receiving wages or salary. Unlike paid time off (vacation, sick leave, holidays), employees take unpaid leave for reasons exceeding their available paid leave balances or for purposes not covered by paid leave policies.

Unpaid time off falls into two categories: legally protected leave (like FMLA, ADA accommodations, or state-mandated leave) that employers must grant when requirements are met, and discretionary personal leave that employers can approve or deny based on business needs.

Quick Answer

Unpaid time off is leave without wages, including legally protected FMLA (12 weeks job-protected for medical/family reasons) and discretionary personal leave. Employers must grant protected leave but can deny discretionary UTO based on business needs.

According to U.S. Department of Labor data, over 13 million workers take FMLA leave annually, with 55% taking unpaid leave due to insufficient paid leave accruals. An additional 8–12 million workers take discretionary unpaid personal leave for reasons not covered by FMLA or state laws.

What Are the Types of Unpaid Time Off?

Family and Medical Leave Act (FMLA)

Legally protected leave covering:

• Serious health condition: Employee’s own medical condition preventing work
• Family care: Caring for spouse, child, or parent with serious health condition
• Childbirth and bonding: Birth and care of newborn, adoption, or foster placement
• Military family leave: Qualifying exigencies or care for covered servicemember

Protection: Up to 12 weeks (or 26 weeks for military caregiver leave) with job protection and benefits continuation

Eligibility: Employees who worked 1,250 hours in preceding 12 months for employer with 50+ employees within 75-mile radius

Organizations tracking FTE should ensure accurate FMLA eligibility calculations.

Americans with Disabilities Act (ADA)

Reasonable accommodation may include:

• Unpaid leave as accommodation for disability
• Extended unpaid leave beyond FMLA when reasonable
• Intermittent unpaid leave for medical appointments or treatments

Protection: Job protection during reasonable accommodation period

Requirement: Interactive process determining whether unpaid leave is reasonable without undue hardship

State and Local Leave Laws

Examples of state-specific unpaid leave mandates:

Many states have family leave laws parallel to FMLA with lower employee thresholds or broader coverage.

Discretionary Personal Leave

Employer-granted unpaid leave for:

• Extended vacation beyond paid accrual balances
• Personal matters not covered by FMLA
• Educational pursuits or sabbaticals
• Religious observances beyond floating holidays
• Family emergencies not qualifying for FMLA
• Career breaks or personal development

No legal protection: Employers can deny requests based on business needs, may not guarantee job protection or specific position upon return.

Organizations managing seasonal employment should clarify whether off-season periods constitute unpaid leave.

When Must Employers Grant Unpaid Time Off?

FMLA-Qualifying Reasons

Employers must grant unpaid leave when:

• Employee has serious health condition preventing work (surgery, hospitalization, chronic conditions requiring treatment)
• Employee needs to care for qualifying family member with serious health condition
• Employee has newborn, newly adopted child, or foster placement
• Employee has qualifying military family exigency or needs to care for covered servicemember

Employer obligations:

• Cannot deny FMLA leave to eligible employees
• Must continue health insurance coverage during leave
• Must restore employee to same or equivalent position upon return
• Cannot retaliate against employees for taking FMLA leave

ADA Accommodations

Unpaid leave as reasonable accommodation when:

• Employee has disability covered by ADA
• Unpaid leave would enable employee to return to work after medical treatment or recovery
• Leave does not create undue hardship for employer
• Interactive process determines leave is appropriate accommodation

Example: Employee with cancer diagnosis exhausts 12 weeks FMLA but needs additional 4 weeks unpaid leave to complete chemotherapy and recover. Under ADA, employer must engage in interactive process to determine if 4 additional weeks is reasonable accommodation.

State-Mandated Leave

Compliance requirements:

• Grant leave when state law requires (even if employer not covered by FMLA)
• Provide greater protections when state law exceeds federal FMLA requirements
• Track concurrent state and federal leave usage

Organizations with employee directories spanning multiple states should document location-specific leave requirements.

Other Legal Obligations

Additional protected leave:

• Jury duty: Federal law and all states prohibit discharge for jury service (typically unpaid except in some states)
• Military leave: USERRA requires unpaid military leave up to 5 years with reemployment rights
• Voting: Some states mandate paid or unpaid time off for voting
• Domestic violence leave: Some states require unpaid leave for domestic violence situations

When Can Employers Deny Unpaid Time Off?

Discretionary Personal Leave

Legitimate reasons to deny:

• Business needs: Critical projects, deadlines, or operational requirements
• Staffing constraints: Insufficient coverage or too many simultaneous absences
• Timing conflicts: Multiple employees requesting same period
• Short tenure: Employee hasn’t established performance record or reliability
• Pattern of absences: History of excessive absenteeism or attendance issues
• Insufficient notice: Last-minute requests without emergency justification

Example: Retail manager requests 3 weeks unpaid leave during November (holiday shopping season). Employer can deny based on business needs during peak period, though should offer alternative dates.

Exhausting Other Options

Before granting discretionary UTO:

Employers can require employees to exhaust available paid leave (vacation, sick time, personal days) before approving unpaid leave, ensuring consistent treatment.

Documentation and Consistency

Best practices when denying:

• Document legitimate business reason for denial
• Apply criteria consistently across all employees
• Offer alternative dates or shorter durations when possible
• Avoid patterns suggesting discriminatory motives

Organizations should coordinate denial decisions with disciplinary infractions policies to ensure fairness.

How Does Unpaid Time Off Affect Benefits?

Health Insurance

FMLA leave: Employers must maintain health insurance coverage on same terms as if employee actively working. Employee pays normal employee portion of premiums.

Discretionary unpaid leave: Employers can:

• Suspend coverage after specific period (e.g., 30 days of unpaid leave)
• Require employee to pay both employee and employer portions of premium
• Offer COBRA-like continuation at employee expense

Example policy: “During discretionary unpaid leave exceeding 30 days, health insurance coverage will be suspended unless employee elects to continue coverage by paying the full premium cost (employee + employer portions) monthly in advance.”

Retirement Contributions

Impact on 401(k) and pension plans:

• Employee contributions: Cannot contribute during unpaid leave periods with no wages
• Employer match: Most plans suspend employer match during $0 wage periods
• Vesting: Unpaid leave may or may not count toward vesting depending on plan terms
• FMLA protection: Cannot count FMLA leave as break in service for vesting purposes

Paid Time Off Accrual

Common approaches:

Example: Employee taking 8 weeks discretionary unpaid leave stops accruing vacation time during leave period, resumes accrual upon return to work.

Seniority and Tenure

Service credit questions:

• FMLA protection: Must treat FMLA leave as continuous employment for seniority, raises, and benefits eligibility
• Discretionary leave: May or may not count toward tenure depending on policy (document clearly)
• Anniversary dates: Clarify whether unpaid leave affects anniversary dates for raises, additional PTO accrual, or other tenure-based benefits

Organizations offering floating holidays should clarify whether extended unpaid leave affects next year’s allocation.

What Is the Difference Between Unpaid Leave and Paid Leave?

When Employees Prefer Unpaid Leave

Scenarios favoring UTO:

• Extending leave beyond paid PTO balances for once-in-lifetime trip
• Preserving paid leave for future needs while taking unpaid leave for current need
• Sabbaticals or career breaks not covered by paid leave policies

When Employers Require Using Paid Leave First

Many employers require employees to exhaust paid leave before granting unpaid leave for discretionary personal reasons, ensuring fair treatment and preventing paid leave hoarding.

Organizations managing working off the clock violations should ensure unpaid leave is truly unpaid with no work performed.

What Are Best Practices for Managing Unpaid Leave?

Create Clear Policies

Essential policy elements:

• Types of unpaid leave: FMLA, ADA, state-mandated, discretionary personal
• Eligibility requirements: Tenure, hours worked, or other criteria
• Request procedures: Advance notice requirements, forms, approval workflow
• Duration limits: Maximum duration for discretionary leave
• Benefits treatment: How health insurance, retirement, and PTO accrual are affected
• Job protection: Which leaves guarantee same/equivalent position vs which don’t
• Return procedures: Notice requirements, medical clearances, reinstatement process

Establish Request Procedures

Streamlined process:

1. Employee submits request: Written request specifying dates, duration, and reason
2. Manager evaluates: Assesses business impact, staffing, and leave type (protected vs discretionary)
3. HR reviews: Confirms eligibility, leave type, and legal requirements
4. Decision communicated: Written approval or denial with explanation
5. Documentation: Maintain records of request, decision, and reasoning

Train Managers

Supervisor education on:

• Recognizing FMLA-qualifying situations (avoid denying protected leave)
• Understanding state-specific leave requirements in multi-state operations
• Conducting interactive process for ADA accommodation requests
• Applying consistent criteria for discretionary leave decisions
• Avoiding retaliation or negative treatment of employees taking protected leave

Communicate Proactively

Transparency measures:

• Include unpaid leave policies in employee handbook
• Explain FMLA rights during onboarding
• Provide written confirmation of approved leave terms (duration, benefits status, return date)
• Set clear expectations for communication during leave
• Outline return-to-work procedures and requirements

Organizations using scheduling software should integrate leave tracking for both paid and unpaid absences.

Monitor for Compliance

Audit practices:

• Review unpaid leave denials quarterly for patterns suggesting discrimination
• Verify FMLA leave is properly designated and job protection honored
• Ensure benefits continuation during FMLA as required
• Track return-to-work reinstatements to same or equivalent positions
• Document all interactive process discussions for ADA accommodations

What Happens When Employee Doesn’t Return from Unpaid Leave?

Resignation vs Abandonment

Determining status:

• Agreed return date passed: If employee doesn’t return or communicate by agreed date, follow job abandonment policy (typically 3 days no-call/no-show)
• Communication breakdown: Employee may intend to return but failed to notify properly
• Extended leave request: Employee may request additional unpaid leave

Best practice: Contact employee when return date passes without showing, giving opportunity to explain before treating as resignation or abandonment.

Job Protection Expiration

When positions aren’t held:

• FMLA exhausted: After 12 weeks, job protection ends and employer may fill position
• Discretionary leave exceeded: If leave extends beyond approved period without additional approval
• Undue hardship: When holding position creates legitimate business hardship

Notification requirement: Inform employee if position cannot be held, provide opportunity to return to different available position.

The Bottom Line

Unpaid time off (UTO) is leave without wages, including legally protected leave like FMLA (12 weeks job-protected for serious health conditions, family care, childbirth, or military family reasons) and discretionary personal leave granted at employer discretion. Employers must grant protected leave to eligible employees but can deny discretionary unpaid leave based on business needs, staffing constraints, or timing conflicts.

FMLA requires employers to maintain health insurance coverage and restore employees to same or equivalent positions after up to 12 weeks leave. For discretionary unpaid leave, employers can suspend benefits, require employees to pay full premium costs, and may not guarantee specific position upon return. Over 13 million workers take FMLA leave annually, with an additional 8–12 million taking discretionary unpaid leave.

Best practices include clear policies distinguishing protected and discretionary leave, streamlined request procedures, manager training on legal requirements, transparent communication about benefits treatment and job protection, and compliance monitoring ensuring consistent application. Organizations should require exhausting paid leave before granting discretionary unpaid leave and document legitimate business reasons when denying requests.

Try ShiftFlow’s scheduling and leave management tools to track both paid and unpaid leave accurately, ensure FMLA compliance, maintain benefits continuation records, and manage return-to-work reinstatements seamlessly.

Sources

• U.S. Department of Labor – Family and Medical Leave Act
• U.S. Equal Employment Opportunity Commission – ADA: Reasonable Accommodations
• Society for Human Resource Management – Leave Management

Further Reading

• Floating Holidays – Flexible paid time off for personal observances
• Voluntary Time Off Programs – Managing voluntary unpaid leave
• FTE Calculation Guide – Impact of unpaid leave on full-time equivalents

Frequently Asked Questions

What is unpaid time off?

Unpaid time off (UTO) is leave during which employees are absent from work without receiving wages. UTO includes legally protected FMLA (up to 12 weeks job-protected) and discretionary personal leave granted at employer discretion without legal protection.

When must employers grant unpaid time off?

Employers must grant unpaid leave when legally required under FMLA (qualifying medical/family reasons), ADA (reasonable accommodation for disabilities), state-specific leave laws, and for jury duty or military leave. All other unpaid leave is discretionary.

Can employers deny unpaid time off?

Yes, employers can deny discretionary unpaid personal leave based on business needs, staffing constraints, or timing conflicts. However, employers cannot deny legally protected leave under FMLA, ADA, or state laws without creating legal liability.

Do you keep benefits during unpaid time off?

Benefits continuation depends on leave type. FMLA requires maintaining health insurance during 12-week leave. For discretionary unpaid leave, employers can suspend benefits, require employees to pay full premiums, or allow continuation at employee expense.

How long can you take unpaid time off?

FMLA provides up to 12 weeks job-protected unpaid leave (26 weeks for military caregiver leave). Discretionary unpaid personal leave duration varies by employer policy, with some setting maximum limits (30 days, 90 days, or longer) based on business needs.

Does unpaid leave count as time worked for benefits?

FMLA leave must count as continuous service for seniority and benefits eligibility. For discretionary unpaid leave, employers can suspend benefit accruals and may not count leave toward tenure, depending on policy terms.

Can you get fired for taking unpaid time off?

Employees cannot be fired for taking legally protected leave (FMLA, ADA, state-mandated leave). For discretionary unpaid leave, employers can deny requests and may terminate if employee takes unapproved leave, though must ensure consistent application.

Do you have to use PTO before taking unpaid leave?

Many employers require exhausting paid leave before approving unpaid leave for discretionary personal reasons. FMLA allows employers to require using paid leave concurrently with FMLA leave, though employees may choose the order in some cases.