What Is Unpaid Time Off (UTO)?

Unpaid Time Off is when an employee does not perform “time worked” (defined as the assigned duties of the job) for an assigned shift or previously agreed time and does not receive paid time off; in short, it is time away from work which has no compensable wages. In this article, we will not talk about the Family and Medical Leave Act specifically, but rather focus on UTO in general.

Pros of Unpaid Time Off

Unpaid Time Off can be a fair middle ground for employees and employers in the following ways.

  • Work/life flexibility. Employees desire an element of flexibility with their work schedule to accommodate vacation, illness or other life events. For example, imagine an exempt salaried employee is new to a company and has not accrued enough PTO for a previously planned vacation. Instead of forcing the employee to cancel the trip or delay their start day, UTO can allow the employee to go on the trip without forcing the employer to pay the employee’s wage for work not completed.
  • Empowerment to choose. Part of an employee’s desire for flexibility is the power to choose for themselves. By giving employees clear options, they can choose whether to work, use PTO, or use UTO.
  • Lower payroll cost to the employer. Allowing employees to use UTO saves  payroll costs. Since the time spent away from the job is not compensable, employers do not pay wages or payroll taxes for that time.

Cons of Unpaid Time Off

Although there are advantages to offering UTO, companies need to be aware of the following factors.

  • Negative employee feelings for lost wages. When employees request UTO, they may be hoping for the employer to say something like “Don’t worry about it, take the time off without using PTO and we will pay you!” When this does not occur, employees may feel frustrated at the loss of their wages. Although these feelings could be mitigated when UTO is for a vacation, the same feelings could be enhanced if UTO was for something that is not their fault, like taking a car in for repairs or a painful dental procedure.
  • Complicated payroll procedures. Complications can occur when salaried employees use too many hours of UTO. This can affect the employee’s ability to cover their portion of the cost for benefits. If an employee takes UTO for an entire pay period, they need to pay for their benefits out of pocket. Unless your HRIS has the ability to track UTO and automatically deduct that amount from the paycheck, the accounting will need to ensure the proper payout of compensable work.
  • Lowered production. If employees take a lot of UTO, the company may be less productive.  It risks lacking the proper staff to complete orders or provide services.

States With Laws Regarding Unpaid Time Off

The federal Family and Medical Leave Act requires covered employers to give job-protected, unpaid leave for medical and family reasons. This act applies to all 50 states.

Some states also have laws about UTO. According to the Society for Human Resources Management, “California, Connecticut, Hawaii, Maine, Minnesota, New Jersey, Oregon, Rhode Island, Vermont, Washington and Wisconsin, as well as Washington, D.C., each has their own family and medical leave laws.”

There are no current federal or state laws regarding voluntary and mutually agreed UTO policies at the time of this writing.

How to Create an Unpaid Time Off Policy

As work/life balance becomes more emphasized, companies need to create a UTO policy for the use and consistent application. Here are the basic considerations in creating such a policy.

Step 1: Understand Business Needs

When businesses know where they can be flexible with employees, they can create a better policy. For example, if a call center knows it must maintain 25 representatives to fulfill its calls for a shift, then managers know how many employees may take UTO at one time.

Step 2: Create Written Policy

Now you are ready to write a policy that can be consistently implemented for the entire company. Questions that should be answered include: How many hours of UTO will employees be allotted per 12 months? Will front-line staff and executives have the same amount of allotted hours? How many days or hours in advance must employees request UTO? Will you track the amount of UTO used, and if so, how? How will you enforce this policy?

Step 3: Implement the Policy

Company handbooks should house the policy so employees can reference it as needed. In addition to handbooks, supervisors and HR must answer questions about the policy in a consistent manner. By creating a procedure and system employees will use to request UTO, you can manage it consistently and fairly.

How Can Employees Apply for Unpaid Time Off?

There are several systems you can use to allow employees to request UTO.

Apply Through HRIS

HRIS stands for Human Resources Information System. If your company has invested in this software, it should be able to track requests for unpaid time off. This feature is often found under the “Time and Pay” or “Report Leave” of these systems.

Documented Request with Human Resources

If your company does not have an HRIS in place, you could create a form that employees can fill out that includes their name, the dates requested, employee signature and supervisor signature. This could be stored in a common folder or the employee’s folder.

Option 3: Verbal/Undocumented Requests

If your company has few employees or less formal policies, employees can simply ask their supervisor or those in charge of keeping track of payments to use UTO. We recommend you adopt a more formal approach, as confusion can easily occur, leading to inaccurate tracking of UTO and allowing undocumented requests to become common for other workplace practices.