Paid Time Off vs. Unpaid Leave

May 23, 2022 | posted by Abacus Payroll

In the turbulent times these past few years, more and more people have been needing paid time off. Most businesses have limits regarding paid time off for their employees. So, what are the other options?

Another opportunity for time off is Unpaid Leave. However, these options have different requirements, details, and procedures so it is important to know the differences and how/when they are each used.

Paid Time Off vs. Unpaid Leave

Paid Time Off (PTO)

Paid Time Off is time that an employee can take as personal time spent out of the office and not working while still receiving pay for their regular wages. The specifics and policies regarding PTO are often structured differently according to the company or business’s specific size, structure, and industry.

Unpaid Leave

Unpaid leave is time off from work where the employee does not receive pay, but retains their job. This is typically used when the employee’s time off from work is not covered under an employer’s existing benefits; like sick leave, paid vacation, paid holidays, and paid time off.

Options When PTO is Exhausted

If an employee runs out of paid time off, can employers allow unpaid leave?

In most cases, yes. In general, you can offer the option of unpaid leave when an employee has used all of their paid leave time.

A few things to keep in mind:

They may be legally entitled to unpaid leave.
In some situations, such as under the Family and Medical Leave Act, the employee may be legally entitled to unpaid leave. In those cases, you would need to approve the unpaid leave (at least) to the extent required by law.
Additional unpaid leave may impact employee benefits.
For employees enrolled in your company benefit offerings, the length of the unpaid leave may impact their ability to continue to participate in benefits if the time away isn’t covered by FMLA or a similar law. Check your internal policies and benefit plan documents for details on eligibility.
Be consistent.
If—in the absence of legal requirements—you have historically granted employees unpaid time off for personal reasons or family emergencies, you should continue to do so unless you want to make a permanent change in policy. Inconsistency can lead to discrimination claims.

Be sure to double-check that the employee isn’t owed any paid leave beyond what they’ve already taken. It is also important to review state and local leave laws where the employee works for any requirements.

Sample Company Policy for Unpaid Leave of Absence

From the HR Support Center:

“Regular full-time employees who have been with the Company for more than six months may request a personal leave of absence without pay. The employee must submit their request in writing and state the date they would like the leave to begin, the date they expect to return, and the reason for the leave. The Company will consider all factors, including the necessity of the leave and the impact on business operations, and provide written approval or denial of the request at its sole discretion .

If approved, employees must use their leave of absence for the approved purpose. Sick leave, vacation time, seniority and other benefits will not accrue during an unpaid leave of absence. Holidays that occur during the leave of absence will not be paid. If an employee fails to return to work on the scheduled date of return, the Company will assume the employee has resigned.“

HR Support and Guidance

There are so many administrative responsibilities policies, and laws related to leaves and employee time off, that the HR Support Center has an entire section dedicated to Leave & Accommodations. Starting at just $11/month, helpful resources for small business owners include:

Administration checklists for ADA, Pregnancy, and FMLA baby bonding
FMLA Paperwork Packet
Forms templates for personal leave request, time off requests, vacation request, reasonable accommodation requests, and medical inquiry form
Downloadable Leaves of Absence Mandate Overview guide
Sample leave policies covering parental leave, unpaid leave, FMLA, bereavement, temporary disability, jury duty, military leave, and more
‘Pros and Cons of PTO’ infographic
State-related guidance
and more

For more resources regarding different kinds of Time Off, check out the resources below.

If you have further questions regarding unpaid leave and navigating employees requesting time off for your business, do not hesitate to call Abacus Payroll for more information!

About the Author: Abacus Payroll

Abacus Payroll, Inc. is a leading provider of payroll solutions for businesses of all sizes. Whether yours is a family-owned small business or a national corporation, we provide payroll, tax and other financial services on time and at an affordable price. Unlike other payroll providers, Abacus Payroll will assign your very own payroll specialist who will understand your payroll needs inside and out. So no more speaking to a different person each time, no more sitting on hold for hours and most importantly no more missed deadlines! Contact us today to see how we can help your business. You can count on us.