What is Leave of Absence and How It Affects Your Pay and Taxes

Leave of absence (LOA) is a period of time an employee takes off work due to extraordinary circumstances, while maintaining their employment status. Both employers and employees need to understand LOA, since it affects payroll management, HR administration, and recordkeeping.

Also, knowing about the different types of leave of absence and their impact can help you understand the pay and tax implications. We’re going to analyze the most common types of leave of absence and their effect on payroll. Furthermore, we’ll show you how to take it and how to track it with appropriate documentation.

Key Takeaways

• Leave of absence is an extended period of time during which an employee doesn’t work but maintains their employment status.
• There are two main categories of leave of absence, i.e., mandatory leave (governed on a federal level) and voluntary leave (offered by the employer).
• Different types of leave of absence include paid and unpaid leave, sick leave, family and medical leave, sabbatical, jury duty, and military leave.
• When an employee takes a leave of absence, their earnings and tax withholding (or the lack thereof) are reflected on their pay stubs and Form W-2.

8 Common Types of Leave of Absence

There are two main categories of leave of absence:

1. Mandatory leave, which is mandated by law and governed on a federal level.
2. Voluntary leave, which is offered by the employer at their discretion.

However, there are many different types of leave of absence, depending on the circumstances under which employees take the time off work. Let’s see some of the most common situations in which this occurs.

1. Paid Leave

Paid leave is a specific type of leave of absence where an employee continues to receive their wage (or a portion of it) as if they were still working. This type of leave is referred to as paid time off (PTO), and it is not required by federal law.

Instead, employers set their own policies, usually allowing employees to use paid time off for vacation or sick leave, as well as personal days. In some cases, a company may require an employee to spend all of their PTO days before taking other forms of leave of absence.

It’s important to note that, while PTO is not mandated by a federal law, some states and jurisdictions can mandate paid sick leave or offer medical leave programs, offering workers partial wage replacements (e.g., PFML in Massachusetts).

2. Unpaid Leave

During unpaid leave, employees don’t receive their regular salary. This type of employee leave of absence typically comes into effect once an individual has exhausted all other types of paid leave benefits.

An employee on unpaid leave won’t be compensated for the duration of it, but their position in the company is protected. Once they return, they are taken back into the same role or a similar role to the one they held.

Moreover, employees on unpaid LOA also don’t accrue new time off, and they won’t be taxed, since they aren’t earning income.

3. Sick Leave

Employees take sick leave when they are ill or need to take care of a sick family member. While some employers offer paid sick days, if an illness lasts for an extended period of time and an employee exhausts those days, they can ask for a longer leave of absence.

In some cases, sick leave is governed at the federal level by the Family and Medical Leave Act (FMLA). Plus, some states may have additional medical leave laws that can provide support to employees in need.

4. Family and Medical Leave

Family and medical leave is a specific type of sick leave that is enabled by the Family and Medical Leave Act (FMLA). It falls into the mandatory leave category, and it provides employees with up to 12 weeks of unpaid leave per year, during which their job stays protected.

The specific reasons for leave vary and can include:

• Birth of a child and care for a newborn (maternity/paternity leave).

• Adoption or foster care for the newly placed child.

• Serious health conditions that affect the employee.

• Care for a sick spouse, child, or parent.

• Qualifying exigency related to a covered family member in the military.

For an employee to be eligible for FMLA, the following criteria need to be met:

• An employer must have at least 50 employees in a 75-mile radius.

• An employee must have worked for the employer for at least 12 months and at least 1,250 hours in the last 12 months.

5. Jury Duty Leave

When an employee is summoned for jury duty, employers are legally obligated to grant them leave. However, the Fair Labor Standards Act (FLSA) doesn’t mandate employers to provide payment during that time off; it only protects employees from being fired or facing other repercussions.

On the other hand, many state laws are stricter than the FLSA and mandate that employers provide payment for jury duty leave. That’s why both employers and employees must familiarize themselves with rules and regulations in their state, as they can vary significantly.

In addition to that, companies can also set their own policies regarding this type of leave, and they can provide payment at their own discretion.

6. Sabbatical

Sabbatical leave is associated with academic professions, as it represents extended time off for the purposes of study or travel. It can often last for a year or more, making it less common than other types of leave of absence.

There are no laws that make a sabbatical mandatory. Companies set their own policies for this type of leave, usually as a tool to attract and retain talent. As a result, it’s up to the employer’s discretion as to whether a sabbatical is paid or not, how long it can be, for which purpose it can be taken, etc.

7. Military Leave

Military leave is governed by the Uniformed Services Employment and Reemployment Rights Act (USERRA). It makes employees who are members of the uniformed services eligible for FMLA leave.

When determining eligibility for the leave, employees performing USERRA-covered services are considered to have been employed for the entire time. If the employee meets the 1,250-hour threshold, they can request a 12-week leave of absence under the FMLA.

More than that, family members of a seriously ill or injured service member covered by the USERRA can take up to 26 weeks to care for them.

8. Bereavement Leave

Bereavement leave is granted in cases of the death of a loved one. It’s not mandated on a federal level, but some states have laws that govern it.

In many cases, bereavement leave is a matter of agreement between an employer and employee. For example, the U.S. Chamber of Commerce grants up to 104 hours of sick leave that encompasses leave for bereavement and for care of a family member.

How Leave of Absence Affects Pay and Payroll

How leave of absence affects pay and payroll depends on whether it’s paid leave or unpaid leave.

When it comes to paid leave, the employee continues to receive their full salary or a portion of it regularly. These earnings remain subject to tax withholding, which means the employer keeps withholding federal income tax, Social Security and Medicare tax, as well as state income tax, if applicable.

Following that, the employer continues to make contributions to the employee’s retirement plan and health insurance premiums, and they keep subtracting deductions from an employee’s paycheck as usual. All of this is reflected on the employee’s pay stub and Form W-2, Wage and Tax Statement, at the end of the year.

On the other hand, if the employee is on unpaid leave, they don’t receive any wages and, therefore, there is no tax withholding. This creates changes in payroll tax during leave, as employers stop calculating and withholding federal and state income taxes, and don’t make any FICA tax contributions for pay periods during which the employee is on leave of absence.

However, depending on the type of leave of absence, the employer may be obligated to keep providing group health benefits during the employee’s leave. This is true for family and medical leave under the FMLA, where employees must continue receiving the same health benefits as if they were still actively working.

During your unpaid leave, you might not receive pay stubs at all. Moreover, since you made no income and no taxes were withheld from your paycheck, that is reflected in your Form W-2 at the end of the year.

How to Take Leave of Absence

Before you request to take a leave of absence, you should refer to the company’s HR leave policies,which you can often find in your employee handbook. In many cases, you can find all the information that you need, including what types of leave of absence the company provides, whether you are eligible, and what the procedure is for putting in a request.

As a general rule, you should give your employer or HR department notice as soon as possible, preferably several weeks in advance. Put your request in writing and make sure that you’re clearly and professionally conveying the essential details, like the reason for your request and dates. Your employer may also ask for supporting documentation (e.g., a doctor’s note).

Remember that you can take up to 12 weeks of absence under the FMLA. The duration of other types of LOA may vary and usually depends on the company’s policy and applicable state laws.

Tracking Leave of Absence With Paystub.org

If you’re running a business, you can effortlessly track and document leave of absence using our software generators at Paystub.org. The following tools can help you keep payroll and tax records accurate:

• Pay stub generator allows you to document and report paid, partially paid, or unpaid leave with ease.

• Form W-2 generator makes W-2 leave reporting simple by automatically calculating wages and tax withheld based on your inputs.

Using these tools, you can document paid or unpaid leave periods to ensure HR payroll compliance.

Final Thoughts

Now that you know what leave of absence is, you are able to better understand your rights as an employee and your obligations as an employer. While LOA isn’t legally mandated in some cases, many companies still provide it as a benefit to attract and retain talent.

Remember that there are many types of leave of absence, each with different requirements. If applying for one, employees should always consult their handbook and follow their company’s guidelines while maintaining communication with their employer. On the other hand, employers must follow relevant laws and meticulously document leave of absence, whether paid or unpaid.

What is a Leave of Absence FAQs

1. What is a valid reason for leave of absence?

There are several valid reasons for leave of absence, including having a serious health condition, caring for a sick family member, having a baby, or placing a child for adoption or foster care. Other reasons include military caregiver leave or military exigency.

2. What is the difference between time off and leave of absence?

The difference between time off and leave of absence is in the duration and reason for leave. Time off is typically shorter and is due to vacation, mild sickness, or personal reasons. Leave of absence is a more formal arrangement that lasts longer.

3. How long can a leave of absence last?

Mandatory leave of absence can last up to 12 weeks for employees who qualify under the FMLA. Voluntary leave of absence doesn’t have a set duration, and the decision about its length is left up to the employer’s discretion.

4. How does leave of absence affect my W-2 or paystub?

Leave of absence is reflected on your Form W-2 and pay stubs to show your earnings and tax withheld for the duration. If you continue to receive wages, they are shown regularly on both documents. If you don’t, these pay periods show zero in these documents.