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Unpaid Time Off: How to Build a Clear Policy and Manage It Effectively

Unpaid Time Off: How to Build a Clear Policy and Manage It Effectively

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Manage your paid time off all in one place with Vacation Tracker.

Summary

  • Unpaid leave is becoming more common due to burnout, caregiving responsibilities, and personal needs that go beyond standard PTO.
  • Clear, well-documented policies are essential to avoid confusion, ensure fairness, and stay compliant.
  • Automating leave requests and tracking improves visibility and helps teams manage unpaid leave more consistently.

Last updated on June 6, 2025

Frequently asked questions

Unpaid time off (UTO) is when an employee takes leave from work without pay. It covers situations not handled by regular paid leave. In practice, it’s used after PTO is exhausted or for leaves (like extended family care or study breaks) that a company doesn’t pay for. 

Paid Time Off (PTO) is paid leave (vacation, sick days, etc.) granted by the employer. Unpaid leave is separate, it gives additional time off but with zero compensation. 

Only in certain cases. In the U.S., for example, the Family and Medical Leave Act (FMLA) legally requires covered employers to grant up to 12 weeks of unpaid, job-protected leave for qualified family or medical reasons. Other laws, like USERRA for military service, some jury-duty laws, and state family leave laws, mandate specific unpaid leaves. But most unpaid leave policies beyond these legal protections are voluntary benefits. 

It can. While on unpaid leave, many paid benefits (like paid vacation accrual or bonus eligibility) can be paused. Health insurance rules vary. Under FMLA an employer must continue benefits if the employee pays their share, but beyond FMLA or for shorter leaves, employers may not be required to pay benefits during unpaid leave. You should clarify in policy how things like insurance premiums, retirement contributions, and other perks are handled. Often, employees on unpaid leave will have to pay their portion of premiums to keep coverage. 

A strong policy is clear and comprehensive. It should define who can take unpaid leave and for what reasons, outline the request-and-approval process, set any time limits, and state the impact on benefits or job status.