Should You Offer Unpaid Time Off?

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Unpaid time off refers to an employee’s time away from work that they do not get paid for. Many employers are required by law to provide unpaid leave to employees for specific circumstances. 

Federal law governing unpaid time off is managed by the U.S. Department of Labor and its Family and Medical Leave Act (FMLA). The FMLA requires employers with at least 50 employees to give employees up to 12 weeks of unpaid leave per year for the following reasons:

  • Birthing a baby or caring for a baby up to their first birthday
  • Adopting a child or caring for an adopted or foster child for up to one year after placement
  • A covered family emergency or caring for a family member with a health condition
  • A health condition the employee has that affects their ability to work

If an employee’s family member is a service member with a health condition, the employee may take up to 26 weeks of unpaid leave without repercussions under the FMLA. 

What You Need to Know About FMLA Requirements

If you own a business, you might wonder if an employer can deny unpaid time off. The short answer is yes. However, employers may only deny unpaid time off for a few reasons, including if the employee’s reason for having time off doesn’t fall under the reasons outlined by the FMLA. 

Another reason to deny unpaid time off is if the employee has not worked for the company for at least 12 months. Additionally, an employee must have worked at least 1,250 hours with their employer in the past 12 months to qualify for unpaid time off under the FMLA. If the employee does not meet these requirements, they may be required to use their accrued paid time off, if available, in lieu of unpaid time off. 

Employees can refer to the Employee’s Guide to the Family and Medical Leave Act to determine whether an employer must approve a request for unpaid time off. 

State Requirements

Each state outlines specific laws regarding paid and unpaid time off for employees. Because unpaid time off regarding family leave is federalized, state laws focus more on vacation, holiday, bereavement, jury duty, and other types of leave. 

Here are a few examples of state laws regarding unpaid and paid time off:

  • Pennsylvania: Pennsylvania does not require employers to pay or allow employees to take unpaid time off from work when they’re sick, celebrating a holiday, or taking a vacation. However, employers can create their own employee leave policies and must abide by their policies.
  • New Jersey: New Jersey employees can earn up to 40 hours of sick time per year, which must be paid by the employer, in addition to the federal FMLA requirements. However, there are specific circumstances an employee can use their earned sick time, including taking care of children when school closes for an emergency or caring for their own physical or mental health.
  • Illinois: Illinois requires employers to allow employees time off for jury duty without repercussion if the employee gives proper notice and verification. However, employers do not need to pay employees for jury duty leave.

Check with your state’s labor laws if you’re unsure where your unpaid leave responsibilities lie as an employer. 

What About Companies with Less Than 50 Employees?

If your company has fewer than 50 employees, it does not fall under FMLA regulations, meaning that your employees may not be entitled to unpaid time off. However, be sure to take your state’s laws regarding unpaid leave into consideration.

Many companies out of range for FMLA coverage still choose to offer unpaid time off to their employees. The Bureau of Labor Statistics reports that 78% of workers had unpaid time off available to them in 2018. Unpaid leave is often an essential benefit for employees, as it allows them to take time off in emergency or unexpected situations.

When crafting your leave of absence policy, be sure to consider how unpaid time off fits into your employee benefits package.

How We Recommend Handling Unpaid Time Off

Because there aren’t blanket regulations for unpaid time off aside from the FMLA, companies can ultimately decide how they handle unpaid time off outside FMLA rules. However, we still recommend that companies offer unpaid time off regardless of whether their state requires it. 

Here are a few steps to take as you navigate unpaid time off in your company.

Step 1: Have a Solid PTO Policy in Place

Your PTO policy is one of the most important parts of your business. Not only does it outline everything your employees are entitled to so they can refer to it when necessary, but it also reminds your executives and human resources department what your company’s responsibilities are regarding employees taking time off.

Although unpaid time off differs from paid time off, you can easily delineate what time off an employee can and can’t get paid for when you have a transparent, clear PTO policy. Additionally, a PTO policy that prioritizes the well-being of employees is likely to appeal to new applicants and seasoned employees of your company. 

At the very least, we recommend that most companies offer at least three weeks or 15 days of paid personal time off per year. This can include vacation, sick days, mental health days, and time off for anything else you’d like to combine into your company PTO. Some companies have separate policies for jury duty, bereavement, and other forms of leave, which we’ll get into in a moment. 

If you’re making over your current PTO policy, consider surveying your employees to learn more about what they desire regarding PTO. Then, check your state’s laws regarding paid time off through your state’s Department of Labor. These resources can help you craft a policy that’s reasonable for your company, meets compliance, and benefits your employees. 

Once your PTO policy is in place, you can work on defining any unpaid time off you are legally required or want to provide to your employees.  

Step 2: Define Jury Duty, Bereavement, and Parental Leave at Your Company

Many circumstances can affect an employee’s ability to work. Some of them are unforeseen and can be long-lasting, like losing a family member or participating in jury duty for a long-term trial. In these cases, it’s important to outline what you offer to your employees as far as unpaid leave.

As I mentioned, the FMLA only requires businesses with 50 or more employees to abide by FMLA law. However, I always encourage companies with fewer employees to consider implementing an unpaid time off policy, even if they aren’t required to do so. You never know when an employee will need time off, and it’s best practice to allow at least some unpaid time.

You can choose to combine different forms of leave with your paid time off policy, but if you’re not paying employees for them, be sure to specify:

  • Each type of leave included in your unpaid time off policy
  • How long an employee can take off without facing termination
  • An employee’s responsibility to request unpaid leave, such as the length of time you require and the process for requesting time off
  • How frequently an employee can take unpaid time off within a 12-month period

Some companies also choose to dive deeper into parental leave, further defining what it offers employees in addition to FMLA regulations. For instance, a company might choose to extend the FMLA’s 12-week requirement to 24 weeks or offer pay for at least a few weeks of parental leave. 

Step 3: Understand How FMLA Relates to Your Business

Finally, employers should thoroughly understand how FMLA relates to their company if they’re required to abide by the law. The U.S. Department of Labor’s FMLA guidebook for employers is a helpful resource to get you started. It outlines covered employers, such as schools and government agencies, and explains unpaid leave responsibilities for employers. 

Even if your company isn’t required to comply with FMLA, this guidebook can serve as a roadmap for the type of unpaid leave policy any employer should consider implementing. 

I recommend that business owners connect with an attorney that’s well-versed in FMLA law to ensure that they comply, even if it’s just for an initial consultation to go over the basics.

Exempt vs. Non-Exempt Unpaid PTO

An exempt employee is not eligible to receive overtime compensation, like a salaried worker. In contrast, non-exempt employees usually work for an hourly wage and are, therefore, eligible for overtime pay. 

In the case of unpaid time off, non-exempt workers simply don’t earn a paycheck when they take time off that isn’t paid, whether it falls under FMLA guidance or company policy. However, because exempt workers typically earn a salary regardless of the number of hours worked, their unpaid time off works differently.

FMLA states that employers can deduct a portion of an exempt employee’s salary if they take unpaid time off. However, these employees still remain exempt workers.

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