Global HR 8 min

How to create an unpaid leave policy for remote employees

Written by Barbara Matthews
June 25, 2024
Barbara Matthews


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Offering leave helps improve employee satisfaction and retention. But when your employees work from home full-time, managing unpaid leave can be confusing.

In this article, we explore how to create an effective unpaid leave policy tailored for distributed teams. With the right approach, you can optimize your leave management policy for optimal productivity.

What is unpaid leave?

Unpaid leave, also called a leave of absence (LOA), is a period of absence from work where the employee isn’t given any compensation. 

As an employer, you can offer leave for various reasons, like family care or medical needs. Employees may also need time off to handle personal matters, recharge, and avoid burnout.

If an employee has exhausted the amount of time they’re allowed for paid leave, they can opt for unpaid leave instead. In this case, the person may take a longer break than usual, depending on the reason for the leave.

Unpaid leave definition and features

What are the benefits of unpaid leave?

Offering unpaid leave has several benefits.

  • Builds goodwill and loyalty: Unpaid leave allows valued team members to handle important personal matters without having to leave the company.

  • Shows employer care: An unpaid leave policy provides flexibility to accommodate employee needs when paid options have been depleted or aren’t legally required.

  • Reduces turnover costs: An unpaid leave policy helps retain talented personnel who may otherwise have to resign due to pressing personal circumstances.

  • Enhances motivation and productivity: It gives employees a chance to recharge and return to work feeling motivated and productive.

By balancing the needs or your employees and organization, you can shape an unpaid leave policy that supports your team members.

Designing an unpaid leave policy: factors to consider 

If unpaid leave is not mandatory under local laws, you can create your own policy to leverage the benefits. So, what should you keep in mind when designing an unpaid leave policy?

  1. First, your policy should clearly set the expectations and parameters (both for the employee and you, the employer) around unpaid time off. 

  2. Second, make sure the policy is implemented properly. With proper implementation, employees can enjoy flexible schedules while your business can maintain operations. 

Here’s what you should consider when designing and evaluating your own unpaid leave offering.

HR professionals need to first understand international employment laws when developing an unpaid leave policy. This can include federal, state, and local regulations. A policy that’s more restrictive than legal standards risks noncompliance, lawsuits, and fines.

For example, here are some US laws that are relevant to leave of absence for you to craft your unpaid leave policy.

Four laws to consider when crafting an unpaid leave policy
  • Family and Medical Leave Act (FMLA): ​​Requires up to 12 weeks of unpaid, job-protected leave for medical and family reasons in a 12-month period. 

  • Emergency Family and Medical Leave Act (EFMLA): Provides 12 weeks of partially paid leave to care for a child due to a COVID-19-related school or childcare facility closure.

  • Americans with Disabilities Act (ADA): Prohibits discrimination based on disability and may require unpaid leave as a reasonable accommodation.

  • ADA Amendments Act (ADAAA): Includes an expanded ‌definition of disability under the ADA, potentially increasing the leave required as an accommodation.

Define the available types of leave in the policy

You can classify unpaid leave by voluntary and involuntary leaves.

The two types of unpaid leave

Voluntary unpaid leave is employee-initiated. In other words, an employee applies for it when their paid time off is over. Voluntary unpaid leave often requires employer approval, and they’re guaranteed job protection.

Employees may take voluntary unpaid leave for the following reasons:

  • A medical condition (this could be an acute condition, like stroke or cancer; a chronic condition, like diabetes or asthma; recovery from a serious accident; or a physical or mental condition)

  • To care for a family member

  • For personal needs (bereavement, moving, honeymoon, etc.) 

  • For education/training purposes

  • For religious observances

  • For public service

Involuntary unpaid leave, on the other hand, is employer-initiated. It usually applies to groups of employees and isn’t available at an employee’s discretion. Employers require employees to take unpaid leave for business reasons. These could include the following reasons.

  • Furloughs for budgetary purposes

  • Disciplinary suspensions

  • Plant or office closures

  • Slow business periods

In simple terms, voluntary leave allows individual employees to take unpaid time off as needed, while employers can impose involuntary leave for operational or financial purposes. Both result in unpaid time away from work.

Build a structured approval process

Craft an effective procedure for your employees to enjoy their unpaid leave. You can consider the following factors when building an approval process for unpaid leave.

  • Eligibility

Set clear eligibility guidelines and outline the types of leave available to minimize confusion. Define which employees qualify for unpaid leave based on factors like their length of service, their hours worked, and the reason behind the leave. 

For example, you may want to set a minimum period of employment, such as 12 months, before an employee can qualify for unpaid leave.

  • Notice and certification

Specify how much notice employees must provide to be granted the leave, the required documentation (e.g., a medical certification), and the procedure for requesting leave. This makes unpaid leave administration easier. Don't forget to leave room to be flexible for emergency situations.

  • Compensation

Explain that employees who take unpaid leave receive no pay, but they may substitute accrued paid time off. Additionally, address how leave affects benefits like health insurance so that expectations are clear.

  • Job protection

Guarantee the same or an equivalent job upon the employee’s return, and detail any exceptions or conditions that are compliant under relevant laws.

  • Leave increments 

Indicate if employees must take leave in a single, continuous block or if they can opt for smaller increments.

  • Return to work protocol

Include the process for employees to notify you of their return date and any fitness for duty requirements. This helps to make the transition as smooth as possible.

Evaluate operational impact

While unpaid leave has important benefits, it can also present challenges for employers and HR professionals. Operational impacts to consider when designing an unpaid leave policy include the following.

  • Employees on long unpaid leave can slow projects and stall time-sensitive initiatives

  • Hard to budget and plan when unpaid leave needs arise unexpectedly, like family medical emergencies

  • ​​Staff may need to take on extra duties to cover employees on unpaid leave

  • Staff may perceive unpaid leave as preferential treatment and resent the extra workload they’re given

  • Temporary decreased productivity

  • Replacement and training costs, including hiring and training temp workers or contractors to fill vacancies

  • Administrative burden

Know how to handle compensation for unpaid time off 

Here are the points you can check when calculating unpaid time off for an employee.

  1. Determine if the employee is eligible for unpaid leave based on company policy and regulations like the FMLA.

  2. Look at the employee’s paid time off balance. Unpaid leave typically begins once accrued vacation and sick time is exhausted.

  3. Calculate the amount of unpaid leave needed, including whether the employee requires consecutive days, intermittent days, partial days, etc.

  4. Track the employee’s unpaid time separately from their paid time-off accruals. This doesn’t reduce the employee’s earned paid leave balance.

For example, let's imagine your employee Jane requests two weeks (10 business days) of medical leave for surgery. She has five vacation days accrued.

Her leave is five vacation days, followed by five unpaid days off. HR deducts five days from her vacation balance for the paid portion. The additional five unpaid days are tracked separately and don’t impact Jane’s balance.

Review your policy regularly 

Unpaid leave policies shouldn’t remain static. Regular reviews and updates make your policy relevant to your organization and your employees. 

Here’s what you can do to evaluate your unpaid leave policy.

  • Track utilization rates, costs, and complaints to identify any problem areas within the policy

  • Get input from managers and employees on their experience for improvement opportunities

  • Assess any new regulations that require policy adjustments to maintain compliance

  • Adjust eligibility, allowances, processes, and communication as company and employee needs evolve

  • Periodically revise the policy and circulate updated versions to all staff

Proactive and ongoing policy reviews optimize the benefits of unpaid leave for both the employees and the organization.

Manage unpaid leave for a global workforce 

Implementing effective unpaid leave policies gets more complicated when managing global teams across countries, time zones, and remote working arrangements. Personal days while working remotely require special attention to coverage and availability.

Fortunately, Remote HR Management can help track and coordinate unpaid leave among your employees. It also helps you run payroll, taxes, compliance, and benefits that reflect unpaid leave.

To see how Remote can help you manage unpaid leave for your global team, chat with us today.

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