What Is Unpaid Leave? Everything Employers Should Know

Introduction

As you expand your global team, remaining compliant is one of the main challenges you’ll face. Irrespective of the country you’re hiring from, there are laws to guide working hours, taxes, leave benefits, and other employment aspects.

When it comes to leave benefits, everyone knows about paid leave. It simply refers to the time an employee takes from work for which they receive compensation. Unpaid leave, on the other hand, is a little less well-known and can be complicated. This article expounds on everything you need to know about unpaid leave.

What is unpaid leave?

As the name suggests, unpaid leave is time off from work that the employer does not compensate for. Employees who take unpaid leave retain their position in your company and may get other benefits, but they receive no salary.

In most cases, employees take short unpaid leaves for reasons such as medical appointments, childcare purposes, jury duties, volunteer work, and relocation. Also, unpaid leave is a legal requirement in some countries, so you may need to offer it to your employees to remain compliant.

And even in those countries where it’s not required by law, offering it can be critical for improving employee morale and productivity as well as retaining top talent.

Types of unpaid leave

Just like there are different types of paid leaves, there are different types of unpaid leave, as shown below:

Unpaid parental leave

If one of your employees has a newborn baby, they may need to take some time off to care for their child. In many countries, employees take paid or partially paid maternity or paternity leaves.

In some countries, employers are not legally required to provide paid parental leave, meaning they can decide to offer either paid or unpaid time off. In the U.S., for example, no federal laws require employers to provide parental or any other types of leave to their workers. However, the Family and Medical Leave Act (FMLA) requires employers to provide eligible members up to 12 weeks of unpaid time off if they have a newborn baby or have adopted a child.

In Australia, a new parent is entitled to a paid parental leave of up to 18 weeks. This is for both parents who have given birth to a child and those who have adopted. After that, a person is entitled to up to 12 months of unpaid parental leave and an extra 12 months if requested.

Keep in mind there are other conditions to meet in order to qualify for paid or unpaid parental leave. For example, one needs to have worked for an employer for at least 12 months before the expected date of birth to qualify for unpaid parental leave.

Overall, the decision to offer paid or unpaid parental leave will depend on where you’re hiring from. Go through the employment regulations of the relevant country to ensure you are compliant. Alternatively, you can partner with a global employment provider like Skuad to handle payroll and leave benefits on your behalf.

Furlough

A furlough, also called mandatory unpaid leave, is a temporary layoff or involuntary leave that a company imposes on its employees for a specified duration. The worker on mandatory unpaid leave remains an employee of the company, but they don’t receive any salary.

Often, businesses impose furloughs when they don’t have enough work or money to support their employees’ payroll. For example, a company may reduce costs during an economic downturn by requiring employees to take several unpaid days off per week.

Layoffs can also be seasonal. A company that provides lawn care services may furlough its employees during winter since there is minimal or no activity during that season. Once the specified period for the furlough ends, the employees can revert to their normal working schedule.

Furloughing employees can have multiple benefits. You can reduce staffing costs when your company struggles financially without laying off workers. The employees also have a job they can return to when the leave ends.

However, you should also be careful with furloughing employees, as it can have negative implications. Furloughed workers can feel insecure about the company’s future, leading them to look for new jobs elsewhere. When the employees return to work, their efficiency and productivity may be impaired, and they may need some time to get to their previous levels of productivity.

Unpaid sick leave

Many countries have laws requiring employers to offer paid sick leave to their employees. However, you can provide unpaid sick leave in countries with no legal requirements for paid sick leave.

In the U.S., employers covered by FMLA can offer their employees up to 12 weeks of unpaid sick leave. For an employee to get this type of leave, they need to meet the following conditions:

• Have a severe health condition
• Be the caregiver of a family member who is seriously ill
• Be the caregiver of a military member who is ill
• Be employed by their employer for at least 12 months, with at least 1,250 hours worked during that period
• Be an employee of a public agency or a private-sector employer that employs 50 or more workers

Employees who want to extend their unpaid medical leave beyond the 12 weeks of FMLA should be guided by their company’s unpaid leave policy. The employer is expected to retain employment and health benefits for employees who are on unpaid sick leaves.

Unpaid administrative leave

If your employee is involved in misconduct or disciplinary issues, you can place them on unpaid administrative leave to allow room for investigations. Many countries don’t have any unpaid administrative leave laws, so the decision to offer or not to offer pay and benefits to employees on this type of leave will depend on your company’s policies.

However, beware that placing an employee on unpaid administrative leave before carrying out proper investigations to determine if they are guilty of what they are accused of can lead to discrimination claims. Ideally, unpaid administrative leave should only be considered when the investigations are expected to be short or when the employer is certain that the employee has violated company policies or the law.

Administrative leave without pay is more common with hourly nonexempt workers than exempt workers. That’s probably because the former are unlikely to raise discrimination claims when placed on this type of leave, as they are only paid for their work hours.

Voluntary leave

Voluntary leave is considered an employee perk. In most cases, it’s up to the employer’s discretion and doesn’t offer the same job protection as the leaves provided under FMLA. If your company decides to offer voluntary leave benefits, consider updating your employee handbook or company policies with specific guidelines regarding who can and cannot qualify for it.  

In some companies, employees must exhaust their paid time off before requesting a voluntary leave. Decide what works best for you.

Some of the common reasons employees take voluntary leaves include:

• Pursuing higher education
• Sabbatical
• Divorce or family upheaval
• Bereavement
• Moving house

Although voluntary leaves are not a legal requirement in many countries, offering them has multiple benefits to your company, from increasing workforce morale to enhancing employer-employee relationships and improving talent retention rates.

Unpaid military leave

Military leave is a type of leave granted to employees who play active or inactive roles in the U.S. military, including the Reserve of the Armed Forces and the National Guard. Employers aren’t legally required to pay employees who are on military leave. Military leave is unpaid.

However, an employee should be reinstated to their former position or role upon returning from duty. Reinstatement should include compensation and benefits comparable to their peers at the same level of seniority.

In addition, the military leave policy indicates that if a person works even for a small part of the week at the civilian job, they are entitled to a salary for the entire week. If a person works for two days a week, for example, and is called to active duty, they should be compensated for the whole week.

Does the law require unpaid leave?

Unpaid leave may be required by law, especially in cases where one is taking time off for medical reasons. But in most countries, unpaid leave is not a legal requirement if one takes it for sabbaticals, moving houses, or other personal reasons. To establish a global team, ensure you understand the relevant employment regulations to avoid compliance issues.

Who is entitled to unpaid leave?

Entitlement to unpaid leave will depend on various factors such as the type of unpaid leave, company policies, length of the individual’s employment, and local regulations. Therefore, an employee may be eligible for unpaid leave in one company but be ineligible in another.

In general, employees are often legally obligated to get unpaid leave when:

• Dealing with serious health issues
• Having a baby or adopting one
• Taking care of close loved ones

For unpaid leaves related to other reasons, employers have discretion in granting them.

Provide compliant leave policies with Skuad

Managing unpaid leave benefits for a global team can be complicated because of the differences in local employment laws. You need to know each jurisdiction’s leave policies to maintain compliance and offer benefits packages that attract the best talent.

Thankfully, you don’t have to navigate the process alone. When you partner with a global employment provider like Skuad, we will handle all employment administration aspects, including payroll, onboarding, and benefits, leaving you to focus on other priorities.

Book a free demo today to learn more.