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State-By-State Guide For PTO And Vacation Payouts

The Fair Labor Standards Act generally treats vacation benefits as a matter of agreement between the employer and employee. Therefore, there is no federal requirement that employers provide paid vacation or PTO, or pay out unused vacation when an employee leaves the company.

Instead, state law takes precedence, but state rules for PTO and vacation pay are not uniform. Some states treat accrued vacation as earned wages that must be paid when employment ends, while others allow the employer's written policy to determine whether unused vacation or PTO is paid

Employers should note that PTO and vacation payout laws vary substantially from state to state. To assist, below are a few court case overviews to help you identify problems that you can avoid. This is followed by details for each state.

Court Cases Involving PTO and/or Vacation Payouts

• Suastez v. Plastic Dress-Up Co., 31 Cal. 3d 774 (1982).

  The California Supreme Court held that vacation pay is a form of deferred wages earned through an employee's services. The court determined that an employee's right to vacation pay vests as the employee performs work. Therefore, when employment ends, the employee is generally entitled to payment for the proportionate amount of vacation that has been earned.

  The court also held that an employer may not establish a policy that forfeits vested vacation benefits when an employee's employment terminates. The case is an important authority concerning accrued vacation payouts and "use it or lose it" policies.

• Boothby v. Atlas Mechanical, Inc., 6 Cal. App. 4th 1595 (1992).

  This case addressed an employer's ability to place a limit on the amount of vacation an employee can accumulate. The court recognized that an employer may establish a reasonable cap on vacation accrual, but the policy cannot unlawfully cause an employee to forfeit vacation that has already vested.

  The case is useful when analyzing whether an employer's PTO or vacation policy properly limits the amount of leave an employee can accumulate.

• Henry v. Amrol, Inc., 222 Cal. App. 3d Supp. 1 (1990).

  The court considered an employer's vacation policy and the employee's right to payment for accrued vacation. The decision reinforced the principle that earned vacation benefits are treated as wages and generally cannot be forfeited after they have vested.

  This case is particularly relevant to disputes involving employer policies that attempt to eliminate accrued vacation benefits when an employee leaves the company.

• Paton v. Advanced Micro Devices, Inc., 197 Cal. App. 4th 1295 (2011).

  This case involved accrued vacation benefits and the application of California's rules concerning vacation pay. The court discussed the principle that vacation benefits constitute deferred compensation and that an employee's entitlement to earned vacation is affected by the employer's vacation policy and applicable California law.

  The case can be useful when examining how an employer's written vacation policy affects an employee's right to receive payment for accrued benefits.

• Suastez v. Plastic Dress-Up Co., 31 Cal. 3d 774 (1982) — PTO relevance.

  Although Suastez involved vacation rather than a modern combined PTO bank, its reasoning is relevant when an employer combines vacation and other paid leave into a single PTO program. The important question is whether the benefit represents compensation that employees earn through their work and whether applicable state law requires the employer to pay the accrued balance when employment ends.

General Rules

As mentioned above, there is no general federal requirement under the Fair Labor Standards Act (FLSA) that requires employers to pay employees for unused vacation or PTO when employment ends.

Whether unused PTO or vacation must be paid out generally depends on the applicable state law, the employer's written policy, an employment agreement, or a collective bargaining agreement. States may require payout of accrued vacation, permit employers to establish a forfeiture policy, or allow the employer's written policy to determine whether unused PTO is paid at termination.

To keep thinkgs clear, employers should consider distinguishing between vacation, general PTO, and paid sick leave, as different state laws may apply to each type of leave.

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State Rules for PTO and Vacation Payouts

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Alabama

Alabama does not generally require employers to pay out unused vacation or PTO at separation. The employer's written vacation or PTO policy generally determines whether unused leave must be paid

Alaska

Alaska generally allows the employer's vacation or PTO policy to determine whether unused time is paid at separation. An employer's established policy or agreement can create an obligation to pay accrued vacation

Arizona

Arizona does not generally require employers to pay out unused vacation or PTO under a universal statutory rule. Employers should follow the terms of their written policy or employment agreement

Arkansas

Arkansas generally does not require payout of unused vacation or PTO solely because employment ends. An employer's established policy or agreement may determine whether accrued leave is payable

California

California generally treats earned vacation as wages. Accrued vacation generally must be paid when employment ends, regardless of whether the employee quits or is terminated. Employers generally cannot impose a forfeiture policy that takes away vacation that has already been earned

California employers may generally establish reasonable accrual caps, but a policy cannot simply cause already-earned vacation to disappear

Colorado

Colorado generally treats earned vacation pay as wages. Employers generally must pay accrued and unused vacation when employment ends. An employer's policy cannot simply forfeit vacation that has already been earned

Connecticut

Connecticut generally allows an employer's written policy or agreement to determine whether unused vacation is paid at separation. Employers should follow the policy they have established and communicated to employees

Delaware

Delaware generally does not impose a universal requirement to pay unused vacation or PTO at separation. The employer's policy, agreement, or established practice may determine whether accrued leave is payable

Florida

Florida does not generally require employers to pay out unused vacation or PTO when employment ends. The employer's written policy generally determines whether unused leave is paid

Georgia

Georgia does not generally require employers to pay unused vacation or PTO at separation. Employers should follow their established vacation or PTO policy and any applicable employment agreement

Hawaii

Hawaii generally allows the employer's established vacation policy to determine whether unused vacation is paid at termination. Employers should carefully review their written policy and any applicable agreements

Idaho

Idaho generally does not require a universal payout of unused vacation or PTO. The employer's policy or agreement generally determines whether accrued leave is payable

Illinois

Illinois generally requires employers to pay earned and unused vacation when employment ends if the vacation benefit is provided under the employer's policy or agreement

Illinois also distinguishes between general paid leave and vacation or PTO banks. Paid leave provided solely under the Illinois Paid Leave for All Workers Act generally does not have to be paid out at separation unless the leave is credited to a vacation or PTO bank or otherwise falls within the state's vacation payout requirements

Indiana

Indiana generally allows the employer's written vacation policy to determine whether unused vacation is paid at separation. If an employer has promised accrued vacation as a benefit, the policy can create an obligation to pay it

Iowa

Iowa generally allows the employer's vacation policy to determine whether unused vacation is paid when employment ends. Employers should follow the terms of their established policy

Kansas

Kansas generally allows employers to establish policies governing unused vacation. A payout obligation may arise from the employer's written policy or agreement

Kentucky

Kentucky generally treats vacation benefits according to the terms of the employer's policy or agreement. Employers should review their policy to determine whether unused accrued vacation must be paid when employment ends

Louisiana

Louisiana can require payment of earned vacation when an employer's policy or practice provides vacation benefits that have been earned by the employee. Employers should carefully review the terms of their vacation or PTO policy

Maine

Maine has specific requirements governing earned vacation. For covered employers, vacation accrued on or after January 1, 2023, generally must be paid when employment ends

Exceptions can apply to employers with 10 or fewer employees, public employers, and situations covered by a collective bargaining agreement

Maryland

Maryland generally allows the employer's written policy to determine whether unused vacation is paid at separation. Employers should clearly communicate any forfeiture provisions and follow their established policy

Massachusetts

Massachusetts generally treats earned vacation pay as wages. When an employee leaves employment, accrued vacation generally must be included in the employee's final compensation

Michigan

Michigan generally does not impose a universal statutory requirement that all employers pay unused vacation at termination. The employer's policy or agreement generally determines whether accrued vacation is payable

Minnesota

Minnesota generally allows the employer's policy to determine whether unused vacation is paid at separation. Employers should follow the terms of their established policy and any applicable employment agreement

Mississippi

Mississippi generally does not require employers to pay unused vacation or PTO at separation under a universal statutory rule. The employer's policy generally controls

Missouri

Missouri generally allows the employer's vacation policy to determine whether unused vacation is paid when employment ends

Montana

Montana generally treats earned vacation as a wage-related benefit when an employer provides vacation. Earned vacation generally cannot simply be forfeited, and employers should carefully review state requirements and the terms of their vacation policy

Nebraska

Nebraska generally treats earned vacation as wages when an employer provides a vacation benefit. Unused earned vacation generally must be paid when employment ends

Nebraska can also treat certain unused PTO as vacation when the employee earns the time through service and has an unrestricted right to use it for any purpose

Nevada

Nevada generally allows employers to establish policies governing vacation and PTO payout. Employers should review applicable state requirements and the terms of their written policy

New Hampshire

New Hampshire generally allows the employer's written policy to determine whether unused vacation is paid at separation. Employers should follow the policy that was communicated to employees

New Jersey

New Jersey generally does not require a universal payout of unused vacation or PTO. An employer's established policy or agreement generally controls

New Mexico

New Mexico generally allows the employer's policy to determine whether unused vacation is paid when employment ends. Employers should follow their established policy and applicable wage-payment requirements

New York

New York generally allows employers to establish policies governing vacation payout. If an employer has a written policy that provides for forfeiture of unused vacation, the policy may control if it satisfies applicable requirements

North Carolina

North Carolina generally does not require a universal payout of unused vacation or PTO. However, an employer's written policy can create an obligation to pay accrued vacation

North Dakota

North Dakota generally requires payment of accrued vacation in many separation situations, but specific statutory exceptions can apply

For certain voluntary separations, an employer may avoid paying accrued vacation when specific conditions are satisfied, including providing written notice of the limitation at the time of hiring, the employee having less than one year of service, and the employee providing less than five days' notice

Ohio

Ohio generally allows the employer's written vacation policy to determine whether unused vacation is paid at separation

Oklahoma

Oklahoma generally does not impose a universal requirement to pay unused vacation or PTO. Employers should follow the terms of their established policy

Oregon

Oregon generally allows employers to establish policies governing vacation payout. If the employer's policy provides for payment of accrued vacation, the employer generally must follow that policy

Pennsylvania

Pennsylvania generally allows the employer's policy or agreement to determine whether unused vacation is payable at separation. Employers should review their written policy and established practices

Rhode Island

Rhode Island has specific requirements governing accrued vacation. When an employee has completed at least one year of service, vacation pay accrued or awarded under a company policy, agreement, or collective bargaining agreement generally becomes wages payable at separation

South Carolina

South Carolina generally does not require employers to pay unused vacation or PTO at separation. The employer's established policy generally controls

South Dakota

South Dakota generally allows the employer's vacation policy to determine whether unused vacation is paid when employment ends

Tennessee

Tennessee generally does not require a universal payout of unused vacation or PTO. Employers should follow their established written policy

Texas

Texas generally allows the employer's written policy to determine whether unused vacation is paid at separation. If the policy provides for payout, the employer generally must follow its terms

Utah

Utah generally does not impose a universal statutory requirement to pay unused vacation or PTO at separation. The employer's policy or agreement generally controls

Vermont

Vermont generally allows employers to establish policies governing unused vacation and PTO. Employers should review their written policy and applicable wage-payment requirements

Virginia

Virginia generally allows the employer's policy to determine whether unused vacation is paid at separation. Employers should follow the terms of their established policy

Washington

Washington generally does not require employers to pay unused vacation or PTO at separation under a universal statutory rule. The employer's policy generally controls

West Virginia

West Virginia generally allows the employer's policy to determine whether unused vacation is paid when employment ends. Employers should follow any written policy or agreement governing vacation benefits

Wisconsin

Wisconsin generally does not impose a universal requirement to pay unused vacation or PTO at termination. The employer's policy or established practice generally determines whether payment is required

Wyoming

Wyoming generally allows the employer's policy or agreement to determine whether unused vacation is paid at separation

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Important Considerations for Employers

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Don't Make Assumptions!

Employers should not assume that a state that does not require vacation payout automatically allows the employer to keep all unused PTO. The language of the employer's policy can create a contractual or wage-payment obligation

• Whether the leave is vacation, PTO, sick leave, or another type of paid leave
• Whether the leave has been earned or accrued
• Whether the employee has satisfied applicable eligibility requirements
• The employer's written PTO or vacation policy
• Any forfeiture or use-it-or-lose-it provision
• Whether the policy was properly communicated to employees
• Whether the employee resigned or was terminated
• The state's final-paycheck deadline
• Whether the employee worked in more than one state
• Any applicable collective bargaining agreement or employment contract

PTO vs. Vacation vs. Paid Sick Leave

Employers should distinguish between vacation, general PTO, and paid sick leave. State paid-sick-leave laws can have separate rules governing accrual, carryover, use, and payout

The fact that a state requires paid sick leave does not necessarily mean that unused sick leave must be paid when employment ends. Similarly, a general PTO bank may be treated differently from leave that can only be used for illness or other legally protected purposes

Can Employers Use a Use-It-or-Lose-It Vacation Policy?

Use-it-or-lose-it policies are subject to state law. Some states permit employers to impose forfeiture provisions if the policy is properly written and communicated, while other states restrict or prohibit forfeiture of earned vacation

Employers should review state law before adopting a policy that causes unused vacation to expire or be forfeited

What Should Employers Do When an Employee Leaves?

Before processing the employee's final paycheck, payroll should determine the employee's accrued vacation or PTO balance and review the applicable state law and company policy

• Confirm the employee's final date of employment
• Calculate the employee's accrued and unused leave
• Determine whether the leave is vacation, PTO, sick leave, or another type of paid leave
• Review the employer's written policy
• Determine whether state law requires payout
• Apply any legally valid accrual caps or limitations
• Calculate the amount owed using the applicable rate of pay
• Include required amounts in the employee's final paycheck
• Document the calculation and payment

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Frequently Asked Questions About PTO and Vacation Payouts

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Does an employer have to pay out unused PTO when an employee leaves?

It depends on the state and the employer's PTO or vacation policy. Some states require employers to pay accrued vacation or PTO when employment ends, while other states generally allow the employer's written policy to determine whether unused leave is paid

Does federal law require employers to pay unused vacation?

No. Federal law generally does not require employers to provide paid vacation or PTO or to pay out unused vacation when employment ends. State law and the employer's policy may create a payout requirement

Is unused vacation considered wages?

In some states, earned vacation is treated as wages. In those states, accrued vacation may have to be included in the employee's final compensation. Other states generally allow the employer's policy to determine whether unused vacation is payable

Does an employer have to pay out unused PTO in California?

California generally treats accrued vacation as wages and requires earned, unused vacation to be paid when employment ends. Employers generally cannot forfeit vacation that employees have already earned

Does an employer have to pay out unused PTO in Colorado?

Colorado generally treats earned vacation pay as wages. Employers generally must pay accrued and unused vacation when employment ends, and an employer cannot simply forfeit vacation that has already been earned

Can an employer have a use-it-or-lose-it vacation policy?

It depends on the state. Some states permit properly written and communicated forfeiture provisions, while others restrict or prohibit forfeiture of earned vacation. Employers should review the law of each state where employees work before adopting a use-it-or-lose-it policy

Can an employer put a cap on vacation accrual?

Some states allow reasonable limits or caps on vacation accrual, while others impose restrictions on policies that prevent employees from earning or retaining vacation. Employers should review state law before establishing an accrual cap

Does an employee have to be terminated to receive unused vacation pay?

No. In states that require payout of earned vacation, the requirement can generally apply whether the employee resigns or is terminated. In other states, the employer's policy may establish different rules depending on how employment ends

Can an employer refuse to pay vacation because an employee quit without notice?

The answer depends on state law and the employer's policy. Some states restrict forfeiture of earned vacation regardless of whether an employee provides notice, while other states permit certain policy-based limitations

Does unused sick leave have to be paid when an employee leaves?

Not necessarily. Vacation, general PTO, and paid sick leave can be subject to different rules. Many state paid-sick-leave laws do not require employers to pay unused sick leave at separation, although exceptions can apply

Is PTO the same as vacation for payout purposes?

Not always. A general PTO bank that employees can use for vacation and other personal purposes may be treated differently from leave restricted to illness or another specific purpose. Employers should review both the leave policy and applicable state law

Does a PTO policy have to say whether unused time is paid?

Employers should clearly state how unused PTO and vacation are handled at separation. A written policy should address accrual, carryover, forfeiture, eligibility, payout, and any conditions that apply when employment ends

Can an employer change its PTO policy before an employee leaves?

An employer may be able to change its PTO policy prospectively, but state law may restrict changes affecting vacation that employees have already earned. Employers should distinguish between future accruals and benefits that have already vested or been earned

What happens to PTO when an employee is terminated?

The employer should calculate the employee's accrued unused leave and determine whether it must be paid under applicable state law and the employer's policy. The payout, if required, should generally be included in the employee's final compensation according to the state's final-pay requirements

What happens to PTO when an employee resigns?

The employer should review the employee's accrued balance, the applicable state law, and the company's PTO or vacation policy. Some states require payout of earned vacation after resignation, while others permit policy-based forfeiture under certain circumstances

Can an employer deduct used but unearned PTO from a final paycheck?

Employers should be cautious about deducting amounts related to unearned or advanced PTO. Wage-deduction laws vary by state, and a deduction from final wages may be subject to additional restrictions. Employers should verify that any deduction is legally permitted before making it

How is unused vacation payout calculated?

The calculation depends on the employee's rate of pay, accrued balance, and applicable state law and company policy. Employers should determine the number of payable hours and the appropriate rate before including the amount in final wages

Does PTO payout have to be included in the final paycheck?

When state law or an employer's policy requires unused vacation or PTO to be paid, the amount generally must be paid according to the applicable final-paycheck requirements. The timing varies by state and may depend on whether the employee resigned or was terminated

Do all states require vacation payout?

No. Some states require payout of earned vacation, while many states generally allow the employer's written policy to determine whether unused vacation is paid at separation

Which states require employers to pay unused vacation?

States that generally require payout of earned vacation include California, Colorado, Illinois, Massachusetts, Montana, Nebraska, and Rhode Island, among others. However, the specific requirements and exceptions vary by state, and some states distinguish between vacation, PTO, and other forms of paid leave

What records should employers keep for PTO payouts?

Employers should maintain records supporting the employee's PTO or vacation balance and the final payout calculation, including:

• Accrual records
• Leave used by the employee
• Remaining vacation or PTO balance
• The applicable rate of pay
• The employer's PTO or vacation policy
• Any applicable forfeiture or accrual-cap provisions
• The employee's separation date
• The final payout calculation
• The date and method of payment

What should employers do if an employee works in multiple states?

Employers should determine which state's wage and leave requirements apply to the employee and the accrued leave. Multistate employers should not assume that a single PTO payout policy will satisfy every state's requirements

What is the biggest PTO payout mistake employers make?

One of the most common mistakes is treating unused PTO as automatically forfeited without reviewing state law and the employer's written policy. Payroll should determine whether the leave has been earned and whether the applicable law requires payment before withholding it from a departing employee

Employer Takeaway

Before withholding unused PTO or vacation from a departing employee's final paycheck, payroll should review both the applicable state law and the employer's written leave policy. In states that treat accrued vacation as earned wages, an improperly withheld vacation balance can become a wage-payment issue rather than simply an employee-benefit dispute

Because state rules can change and exceptions may apply based on the employer, employee, leave type, and separation circumstances, employers should verify the current requirements before making a final-pay decision

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