What is unpaid time off?
Unpaid time off (UTO) refers to an authorized absence from work where an employee does not receive wages for the time they are away. It’s different from paid time off (PTO), which covers absences such as vacation, personal days, or sick leave where the employee continues to earn pay.
Unpaid time off can be requested for personal reasons, family emergencies, or other needs that go beyond the employee’s allotted PTO. In some cases, unpaid leave may also be mandated by law, such as under the Family and Medical Leave Act (FMLA).
As an employer, how you handle unpaid time off impacts employee satisfaction, workforce scheduling, and labor costs. That’s why tools like Homebase make it easier to track time-off requests, keep clear records, and ensure your team stays organized even when someone is away.
When do employees request unpaid time off?
Employees might request unpaid time off for many reasons, including:
- Personal needs such as attending a child’s school event or taking care of family responsibilities
- Health reasons when an illness exceeds available sick leave or PTO
- Extended vacation beyond accrued PTO balances
- Life events like moving, weddings, or bereavement leave outside your paid policy
- Legal obligations such as jury duty beyond statutory requirements
- Family and Medical Leave Act (FMLA) absences if your business qualifies
Knowing why employees request UTO helps you create clear policies that balance flexibility with business needs.
How unpaid time off affects your business
As a small business owner, unpaid time off can have both advantages and challenges.
Advantages
- Cost savings since no wages are paid during the absence
- Increased employee goodwill by providing flexibility when needed
- Reduced burnout as employees can step away during personal challenges
Challenges
- Scheduling gaps that may require finding last-minute coverage
- Disruption to team productivity if a key employee is absent
- Potential morale issues if UTO requests feel inconsistent or unfair
- Compliance risks if unpaid leave isn’t handled according to labor laws
A strong policy and clear communication can minimize disruption while supporting employee needs.
Legal considerations for unpaid time off
Before approving unpaid time off, it’s essential to understand the legal requirements:
- Family and Medical Leave Act (FMLA) – If your business has 50+ employees, you must provide up to 12 weeks of job-protected unpaid leave for qualifying medical and family reasons.
- State and local laws – Some states have additional requirements for unpaid family or sick leave, even for smaller businesses.
- Discrimination laws – Approving or denying unpaid time off must be consistent and non-discriminatory to avoid legal issues.
- Wage and hour compliance – For non-exempt employees, unpaid leave is straightforward. For exempt salaried employees, you generally cannot deduct pay for partial-day absences.
Always review federal, state, and local laws before finalizing an unpaid leave policy.
Should you allow unpaid time off for any reason?
There’s no single right answer, but many small businesses adopt a case-by-case approach. Offering unpaid time off for legitimate needs can build loyalty, but too much flexibility may lead to scheduling chaos.
Here are three common approaches:
- Strict policy – Only allow unpaid time off for legally required reasons like FMLA or jury duty.
- Limited discretionary policy – Allow unpaid time off for emergencies or rare personal needs, but require manager approval.
- Flexible policy – Encourage open communication and allow unpaid leave for any reasonable request, provided it doesn’t harm operations.
The best approach balances operational needs with employee well-being.
How to create a fair unpaid time off policy
A clear policy prevents confusion and ensures fairness. Your policy should outline:
- Who is eligible for unpaid leave (full-time, part-time, or both)
- How much unpaid time off is allowed per year (if you choose to set limits)
- How requests should be made (written notice, advance timelines, emergency exceptions)
- How unpaid leave interacts with PTO (e.g., employees must use PTO first)
- Job protection details – Will their position be held while they’re away?
- Impact on benefits – Whether benefits like health insurance continue during extended unpaid leave
Providing clear guidelines helps employees understand expectations and reduces last-minute surprises.
Managing scheduling and coverage during unpaid leave
When employees take unpaid time off, you may need to adjust schedules or workloads. To minimize disruptions:
- Cross-train staff so others can step in temporarily
- Use a scheduling tool to find shift coverage quickly
- Communicate early with the team so everyone knows who’s covering responsibilities
- Review workload priorities to ensure critical tasks are still completed
Having a plan ensures the business runs smoothly even when someone is away.
How unpaid time off impacts employee morale
Unpaid time off can actually boost morale when handled well. Employees appreciate flexibility during personal challenges, which can increase loyalty and reduce turnover.
However, inconsistencies—like approving some requests while denying others without clear reasoning—can lead to resentment. Being transparent and applying your policy consistently is key to maintaining trust.
How Homebase can help manage unpaid time off
Managing unpaid time off manually can be overwhelming, especially when balancing shift coverage, timekeeping, and payroll. Homebase makes it easier by:
- Allowing employees to request time off directly through the app
- Keeping all approved and denied requests in one central location
- Helping managers see staffing gaps instantly and adjust schedules
- Tracking unpaid leave separately from PTO for accurate recordkeeping
- Maintaining clear, documented communication between managers and employees
This saves time, reduces confusion, and keeps your team organized even when unpaid leave requests arise.
Explore Homebase Hiring and Onboarding to streamline employee management, simplify time-off tracking, and keep your small business running smoothly.