What is Unpaid Leave? A Complete Guide for Employers

While paid sick leave and annual leave are discussed with team members upfront, unpaid leave often takes a backseat. However, it’s still important to understand it if you want to remain compliant and offer the most comprehensive employee benefits.

For one, unpaid, job-protected leave is required by law in many countries, so it’s essential to be prepared to offer it should your employees request it. What’s more, unpaid leave that isn’t required by law can still be a useful tool for improving retention and boosting productivity and morale as it allows workers to take leave on top of their standard paid allowance.

What Is Unpaid Leave?

Unpaid leave is a leave of absence during which an employee takes time away from their job without receiving pay. During this period, the employee typically retains their position at work and may also retain their usual benefits. This is often called job-protected leave.

Unpaid leave is given to employees who wish to take extra days off work above their paid time off allowance, either as a mandatory employee benefit or a discretionary perk. For example, an employee may request unpaid leave for childcare purposes, due to illness, or because they want to take an extended vacation.

Types of Unpaid Leave

Just as your company may differentiate between other types of paid leave, it’s important to understand some of the distinctions between the various types of unpaid leave too.

Unpaid Parental Leave

Parents often take time off work when they have a new child, whether through maternity leave, paternity leave, or another type of parental leave. In many countries, this leave is paid or partially paid for a certain period of time.

However, regulations for pay or the lack thereof will differ by country, so it’s important to consult with local experts or partner with a global employment provider like Omnipresent to remain fully compliant. Countries that do mandate paid parental leave for a set period sometimes offer the option to extend the leave period without pay beyond that time. For example, in the UK, employees are entitled to 39 weeks of paid maternity leave but can extend their leave for 13 more weeks without pay if they choose to do so.

In contrast, the U.S. has no legal provision for maternity leave, but the Family Medical Leave Act (FMLA) provides eligible team members with up to 12 weeks of unpaid leave each year if they have a baby or adopt a child. This is comparable to unpaid maternity leave.

Unpaid Medical Leave

Unpaid medical leave is a type of sick leave. It’s most commonly used in the U.S., where there currently are no federal requirements for paid sick leave. Team members in the U.S. may be entitled to unpaid sick leave or medical leave through the FMLA if they:

Are caring for a seriously ill family member.
Are dealing with a serious health condition of their own.
Need to make arrangements for qualifying military exigencies, such as when a family member is deployed into active military duty.
Are acting as a military caregiver.

During unpaid sick leave, team members in the U.S. retain their employment and health benefits.

Voluntary Leave

Medical and parental leave are two of the most significant reasons an employee might need to take an extended amount of time away from work. However, there are several other reasons team members might want to take a period of unpaid leave, such as:

Continuing education
Sabbatical
Moving house
Bereavement leave
A long vacation, such as a honeymoon

This type of voluntary leave isn’t always mandated by local labor laws; rather, it’s typically seen as a perk, offering team members the opportunity to tend to various personal matters.

Allowing voluntary unpaid time off can be an effective method for retaining crucial team players while accommodating their complex lives and providing them the necessities to reach their individual goals.

Mandatory Unpaid Leave

Mandatory unpaid leave, which is commonly referred to as a furlough, is a type of leave imposed upon team members by a company. Furloughs can benefit employers by limiting the amount of time an employee is on the clock, allowing them to save salary costs for financial reasons. This was common at the beginning of the COVID-19 pandemic.

While furloughs reduce the amount of time an employee works, the employee still retains their job. However, employers should keep in mind that putting team members on unpaid furlough can lead them to question their job security and how their employer values them.

Additionally, reducing the amount of time an employee works and—by extension—how much they earn can have a significant impact on their finances and savings. Employers should be sure they have a plan to mitigate and address team members’ concerns when considering furloughs.

Unpaid Administrative Leave

If an employee is alleged to be involved in misconduct or other cases, they may be placed on unpaid administrative leave while their employer carries out an investigation. However, placing an employee on unpaid administrative before a review takes place can have an adverse impact on their income, and could potentilly lead to claims of discrimination.

For these reasons, it’s best to consider alternatives such as paid leave or closely monitoring the individual’s interactions until a determination can be made.

Unpaid Leave FAQs for Employers

Below we answer more of your frequently asked questions about unpaid leave.

How Does Unpaid Leave Work?

An employee will request a leave of absence when necessary. However, for any successful unpaid leave program, it’s important to have a standardized request process in place. You should also have clear and well-documented policies outlining expectations and procedures for the absence and the process of returning to work.

A leave of absence may be needed in several different scenarios, so your policies should reflect that. For example, if an employee is having a child, you will probably have ample time to make arrangements for their time away. But if an employee’s family member suddenly becomes extremely ill, you will have less time to prepare.

In most cases, an employee will request unpaid leave through a meeting and then follow up in writing.

Who’s Entitled to Unpaid Leave?

Unpaid leave rights usually depend on local regulations, company policies, and factors such as the type of leave and the length of the individual’s employment.
Common reasons staff might request unpaid leave include:

Having a baby or adopting a child.
Caring for family members.
Dealing with a serious health condition or receiving medical treatment.

For reasons like this, you may be legally obligated to grant the employee’s request for unpaid leave. However, for unpaid leave related to sabbaticals or other reasons, employers will typically have discretion in granting unpaid leave requests. Keep in mind that it’s important to apply the same standards when evaluating each employee’s request for unpaid leave to remain fair.

Because of the nuance in entitlement to unpaid leave from country to country, it’s recommended that global businesses partner with an expert in unpaid leave like Omnipresent to ensure the business remains compliant.

How Much Time Is Given for Unpaid Leave?

The amount of time given for unpaid leave depends on the type of leave requested and the country’s legal requirements. For example, team members in the U.S. taking unpaid leave through the FMLA are legally entitled to up to 12 weeks of unpaid leave each year, or up to 26 weeks in the case of military caregiver leave.

When it comes to team members taking a sabbatical, pursuing additional education, or otherwise taking unpaid time off, the time given will be agreed upon by the employee and the employer. For recreational sabbatical leave, a month may be a commonly agreed upon time, whereas a sabbatical in pursuit of additional credentials or a degree may last as long as a year.

Is Unpaid Leave Required by Law?

In cases relating to leave for medical reasons, unpaid leave may be required by law. It’s important that businesses understand international labor regulations when establishing a global team to ensure they remain compliant with local leave laws.

In most instances, unpaid leave for sabbaticals or other personal reasons isn’t legally required, but offering unpaid leave of this kind can be a valuable recruitment and retention tool.