Unpaid time off

Unpaid time off (UTO) is employer-approved leave when an employee is absent from work and receives no pay for that time. It is typically used when paid leave balances are exhausted or when job-protected leave like FMLA does not apply.

UTO can range from a few hours to several months. Employers set eligibility, notice requirements, and caps in policy — some allow discretionary unpaid leave while others restrict it to specific situations or employee groups.

What is unpaid time off?

Unpaid time off is a form of leave where an employee's absence from work is permitted by the employer but not compensated. It differs from paid time off (PTO) in that the employee receives no wages for the hours or days they are away.

UTO matters because it affects payroll, benefits, and job protection. Unpaid hours must be recorded for accurate wages and tax withholding, and employers must consider whether unpaid leave triggers protections under laws such as the Family and Medical Leave Act (FMLA), Americans with Disabilities Act (ADA) accommodations, or state paid leave programs.

Why unpaid time off matters

• Payroll impact: Fewer hours worked means lower gross pay for that period, which changes tax withholdings and deductions.
• Benefits eligibility: Extended unpaid leave may affect health insurance, retirement contributions, or PTO accrual depending on the employer's policy and local law.
• Legal protections: Some unpaid leave is legally protected. FMLA, for example, provides up to 12 weeks of unpaid, job-protected leave for eligible U.S. employees. State laws may add further protections or require paid leave instead.
• Employee wellbeing: UTO gives employees flexibility to handle personal, medical, or family situations that fall outside their paid leave balance.
• Employer risk: Without clear policies, inconsistent UTO approvals can create discrimination claims or compliance issues.

How unpaid time off works

Payroll and taxes:

When an employee takes unpaid time off, payroll records fewer hours worked. Gross pay decreases for that period, and tax withholdings, benefit deductions, and any hourly-based calculations adjust accordingly. Employers must correctly reduce pay without affecting exempt-status classification for salaried employees — consult FLSA guidelines for partial-week deductions.

Calculating deductions for salaried employees:

1. Determine the daily rate. Divide the employee's annual salary by the number of working days in the year (typically 260 for a standard 5-day workweek).
2. Multiply by days absent. Multiply the daily rate by the number of unpaid days taken.
3. Deduct from gross pay. Subtract the result from the employee's regular gross pay for that period.

Example calculation: An employee earning $78,000 per year has a daily rate of $300 ($78,000 ÷ 260). If they take 3 unpaid days, the deduction is $900, and gross pay for that period is reduced by $900.

Benefits and accrual impacts:

• Health insurance premiums may still be owed during unpaid leave. Employers should clarify who covers the employee's share during extended UTO.
• PTO accrual may pause during unpaid leave depending on the employer's policy.
• Retirement plan contributions stop for the period without pay, which may affect matching or vesting timelines.

Legal protections for unpaid leave

• FMLA (U.S.): Eligible employees at covered employers can take up to 12 weeks of unpaid, job-protected leave per year for qualifying medical or family reasons. The employer must maintain health benefits during FMLA leave.
• ADA accommodations (U.S.): Unpaid leave may be required as a reasonable accommodation for employees with disabilities, even beyond FMLA entitlement.
• State laws (U.S.): Several states have their own paid or unpaid leave laws that may provide additional protections or require paid leave for situations that would otherwise be unpaid.
• International requirements: Many countries mandate paid leave for medical, parental, or personal situations. Employers hiring globally should check local labor law before defaulting to unpaid leave.

Drafting an unpaid time off policy

Eligibility and limits:

• Define who qualifies for UTO — all employees, only full-time, only after a probation period.
• Set a maximum number of unpaid days per year or per request.
• Specify whether UTO is available only after paid leave is exhausted.

Request and approval workflow:

• Require written requests with a minimum notice period (e.g., 5 business days for planned leave, as soon as possible for emergencies).
• Designate the approver — direct manager, HR, or both.
• Document every request and decision for compliance and consistency.

Manager discretion and consistency:

• Give managers clear guidelines for approving or denying requests.
• Apply rules consistently across teams and locations to avoid discrimination claims.
• Review and update the policy annually to reflect legal changes.

How Deel helps manage unpaid time off

For globally distributed teams, managing UTO across jurisdictions can be complex. Deel's platform helps by centralizing time-off requests, automating approval workflows, and integrating leave records directly with payroll — so deductions are calculated accurately and compliance requirements are tracked across countries.

Learn more about simplifying leave management in Deel's blog on how to simplify your time-off workflow, or explore Deel's compliance solutions for managing leave policies across borders.

Key facts

• Definition: Leave with no wage payment for the hours or days absent.
• Employer discretion: Employers can generally approve or deny UTO unless a law like FMLA requires job-protected leave.
• FMLA (U.S.): Provides up to 12 weeks of unpaid, job-protected leave for eligible employees. State rules may add protections or paid leave.
• Payroll impact: UTO affects hours worked, tax withholdings, and may affect benefit eligibility or accruals.
• Policy essentials: Should state eligibility, maximum days, notice and approval process, and effects on benefits.

Example

An employee uses all accrued PTO for medical appointments but needs two additional weeks to recover from a procedure. They request unpaid time off, the manager approves based on company policy, payroll deducts two weeks' pay from the next cycle, and HR documents the leave so benefits status and rehire eligibility remain accurate.

FAQ

What is unpaid time off? Leave approved by an employer where the employee does not receive pay for the hours or days absent.

What does unpaid time off mean? It means time away from work for which the employer does not provide wages. Eligibility and rules are set by the employer or applicable law.

What is the difference between unpaid leave and PTO? PTO is paid. Unpaid leave provides no pay and may be discretionary or legally required depending on circumstances.

Can an employer deny unpaid time off? Yes — unless the leave is protected by law (such as FMLA) or covered by contract, employers generally have discretion to approve or deny UTO.

How does unpaid time off affect payroll and taxes? Payroll records fewer hours worked, taxes and withholdings change for that pay period, and employers must correctly adjust gross pay and benefit deductions.