How do you people use this expression, if you use it at all?

I first heard it used in this sense: "The car rental company wouldn't cover the damage to the emu, so I had to pay for it out of pocket." In this case, it means "out of my own funds" or some such - I bear the cost personally.

I now hear it used differently by people in a particular couple of offices (it seems to have spread among them, and has in fact infected a couple of colleagues here in my office). They use it to mean that they'll be away from the office and thus unavailable, as in "I'll be out of pocket for the second half of June."

A few questions:

Is this totally incorrect usage?
Would I be justified in killing them when they use it this way, or should the punishment be lighter?

The proper punishment is death after torture. And, as far as I know, the first usage is correct.

Would I be justified in killing them when they use it this way, or should the punishment be lighter?

It sounds totally wrong to me, too. Perhaps there are alternatives to killing them, though. Maybe bring in some Merle Haggard cds? Or perhaps sing something, yourself? Oh, or just bring in that brand new baby right around feeding time (or diaper changing time).

Do you think perhaps your coworkers are simply referring to unpaid vacation time?

<<Is this a totally incorrect usage?>>

It's certainly novel--and perhaps even charming (so that death by torture would indeed seem appropriate, jimthedog). "He thinks he has me in his pocket, but I'll be out of [his] pocket for a week or two [doing what I want, expensing up his expense account]." Or perhaps the reference is to billards/cubicles. And I think Mandy (welcome, Mandy) is on to something big where she mentions vacations.

Anyway, what is totally incorrect usage where it concerns colloquialism?

I was really surprised while reading this thread that no one mentioned the primary use of 'out of pocket' that I know.
Examples:
'John has paid for everyone's drinks on his own; he's out of pocket so let's pay for his taxi home.'
'Since starting to pay my student loan off I'm a couple of hundred Euros(!) out of pocket every month.'

As for the absent/away meaning,.. very dodgy! I like Island Pete's reasoning as to why (i.e. in/out of someone's pocket), but I would, nevertheless, not touch it with a barge pole!

The other clear implication of the original meaning is surely that the 'out of pocket expenses' will be reclaimed at some point in the future, isn't it?

So the adapted context could be "I'll be out of the office next week, so will have to catch up with you after that"...?

An employee saying he would be "out of pocket" might suggest to his boss that he was expendable.

Never heard the phrase used except to mean you had to pay for something (usually when you didn't expect to have to) and there is no hope of getting the money back from another source(s).
This seems to be another case of a phrase tickling the fancy of people then becoming popular, then being reconfigured to fit whatever the speaker wants. The speaker being delighted with him/her self and the left of us left grinding our teeth.
Ah, well!
Of course I've never done that. You do believe me don't you?

I'm afraid I'm going to have to buck the trend here and support this imaginative neophraseologism, which was clearly coined with a view to tying up both the familiar meaning of the term (noting that if you go on vacation, you'll surely be out of pocket, from a pecuniary perspective), and its implicit subsidiary sense, viz. the opposite of 'in each other's pockets' (so, while on vacation, you'll be physically, socially and professionally separated from your colleagues, thus affording all concerned temporary respite from each other's regular claustrophobic company).

Rusty is afraid he's going to have to buck the trend here

Don't be afraid, Rusty.

Blechh! I think this is certainly a capital offence, Hyla. Not only are there perfectly serviceable phrases for being out of the office (how about "on vacation"?), but using "out of pocket" to mean "out of the office" creates confusion because it is already a fairly common phrase in the business world. While the rationales and explanations put forth by my esteemed colleagues are reasonable and even understandable, why muddy the waters with such a mis-used phrase? I've also never heard the phrase used as BY explained, I'd say "out of cash" or "short" instead.

That said, Hyla, I hope you are "out of pocket" on paternity leave by the time I post this!

Flatlander thinks this is certainly a capital offence.

And I suppose you would also object to someone referring to a missive hand-written in ink on a piece of paper, placed in an envelope and sent through a postal service as a brick and mortar letter.

"perfectly serviceable phrases for being out of the office"

There are many office workers who are "out to lunch" all day.

And I suppose you would also object to someone referring to a missive hand-written in ink on a piece of paper, placed in an envelope and sent through a postal service as a brick and mortar letter.

No, I wouldn't. It's somewhat redundant, as I would never think that someone who said, "I sent you a letter" was talking about an email, but to me, "brick and mortar" has gained the metaphorical definition of "real world, as opposed to the Internet." Saying "brick and mortar letter" is extending the metaphor, not changing its meaning. You may now consider it an officially approved Phlatlander Phrase.