PTO payout laws by state — Guide for 2023

You’ve probably wondered what happens to the unused PTO hours you’ve accumulated during your employment after it ends.

Sad to say, the Fair Labor Standards Act (FLSA) doesn’t oblige employers to offer their employees any paid time off (whether that’s sick leave, vacation leave, etc.). However, employers may choose to provide such benefits to their employees to boost employee productivity and morale.

Moreover, some states have state laws that allow employees to request payment when they want to cash in their unused vacation time upon leaving their job.

To provide you with all the necessary details, we’ll tell you what you can expect when it comes to your unused paid time off in this PTO payout guide by state.

In this guide, we’ll cover the following:

• Basics regarding PTO payout laws in the US,
• PTO payout laws by state, and
• Frequently asked questions about PTO payout laws.

So, let’s begin.

PTO payout laws in the US — The basics

Before we get to the PTO payout laws by state, let’s first cover some basics related to unused paid time off. 

To explain some essential PTO payout terminology, we’ll answer the following questions:

• What is PTO,
• What is PTO payout,
• What is vacation pay and how does it work, and
• What is a use-it-or-lose-it policy.

So, let’s start right away.

What is PTO?

PTO or Paid Time Off is a benefit that enables employees to take leave from work while still getting paid. Employees usually take leave for vacation, sickness, or any other personal matter.

Some of the most common types of PTO include the following:

1. Holiday leave — employees can take time off during holidays. Most employers offer federal holidays as part of the PTO such as Christmas Day, Independence Day, Thanksgiving, etc. 
2. Sick leave — employees use sick leave when they need time off to recover from an injury or illness. 
3. Bereavement leave — employees can use this type of leave due to the death of a family member, close relative, etc. An employee can take this time to come to terms with their loss, make funeral arrangements, and similar.
4. Vacation leave — employees may use their vacation days when they want to take a break from work and, for example, spend time with their family and friends, travel, etc.
5. Family leave — employees can take time off to take care of a family member who is seriously ill or to bond with a newborn or adopted child.
6. Military leave — employees can take time off for performing duties (active or inactive) in the National Guard or as a reserve of the Armed Forces.
7. Jury leave — this type of leave is mandatory for employees who are required to report for jury duty. 

Keep in mind that the above-mentioned leaves of absence are not always paid and do not have to be paid in certain cases. Whether the leave will be paid or not depends on the employer or even the state law.

What is PTO payout?

Depending on the company’s policy and state regulations, the employer may give a PTO payout to an employee for their unused paid time off upon termination. 

PTO payout is based on the accrued vacation time an employee hasn’t used by the end of their employment. Individual companies’ PTO policies define rules such as: 

• How much PTO an employer offers, 
• How PTO is accrued, and 
• How employees can use it. 

What is vacation pay and how does it work?

While PTO covers any paid time away from work, be it sick leave, jury duty, or any other leave listed above in the text, vacation pay refers only to paid time off that an employee uses to take a break with their family, partner, or for whatever personal reasons they have.

In other words, vacation pay doesn’t include sick leave or holidays. For example, employees mostly use vacation pay to get away from the office and enjoy well-earned time off. 

So, for instance, according to the US Bureau of Labor Statistics from 2021, the average number of paid vacation days is 11 days after 1 year of work in private industry and 13 days after 1 year of work in state and local governments. Therefore, how many days of paid vacation you get depends on:

• Your length of service, 
• The industry you work in, and 
• Your employer.

What is a use-it-or-lose-it policy?

A use-it-or-lose-it policy refers to the situation where the employee has to either use their PTO by a certain date (for example, by the end of the year) or forfeit it. In other words, if you don’t use your PTO by a certain date, your employer can take away your unused paid time off. 

A use-it-or-lose-it policy generally doesn’t allow employees to transfer any unused and accrued vacation they accumulated from one year into the next year.

Although these types of policies are illegal in some states, for those states where there are no state laws against them, companies may use a use-it-or-lose-it policy as long as it is clearly explained and presented to all workers.

PTO payout laws by state

PTO payout laws differ from state to state. Not all US states have PTO payout laws, and in most states that do, PTO payout laws only apply to earned vacation time.

Here’s the table with states where the payout of accrued vacation is regulated by law, as well as those states where PTO payout is regulated through the employer’s policy.

State	State Statutory requirements addressing vacation pay	Use-it-or-lose-it policy	Payment of accrued vacation on separation	Employer penalty for failing to pay accrued vacation time
Alaska	Vacation pay is a benefit promised under the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement. In the absence of a policy, the Alaska Department of Labor and Workforce Development considers accrued vacation time earned by the employee.	– Not specified by the state law. – If the employee believes they are owed a promised vacation pay, they can file a claim with the help of the Alaska Department of Labor and Workforce Development.
Arizona	Vacation pay is a “non-wage compensation.”	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	– If the employee believes they are owed agreed-upon vacation pay, they can file a claim with the Industrial Commission of Arizona. – If the employer fails to pay in a timely manner after the claim has been proven valid, they shall be liable for 3x the amount of unpaid non-wage compensation.
Arkansas	Vacation pay is a benefit promised under the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Not specified by state law, but may be regulated by employer’s policy.	– Not specified by the state law. – If the employee believes they are owed agreed-upon vacation pay, they can pursue such payment with the help of the Arkansas Department of Labor and Licensing through a claim. The employee filing a claim must provide a copy of the employer’s policy stating that payment of accrued vacation time is provided upon termination.
California	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	Employers are prohibited from applying the use-it-or-lose-it policy, but they can place a reasonable cap on the amount of earned vacation time that can be accrued.	All accrued vacation time must be included in the final paycheck at the employee’s final rate of pay.	If the employer fails to pay final wages, they shall be liable for an amount equal to the employee’s daily rate of pay for each day the wages remain unpaid, up to 30 days.
Colorado	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No policy or agreement can say that accrued vacation time can be forfeited upon the employee’s termination. However, employers may put caps on accumulated vacation time.	All accrued vacation time must be paid on the next regular payday.	If the employer fails to pay final wages, the employee may send a written demand or even file a claim requiring payment. If such wages are not paid within 14 days following a written demand, the employer shall be liable for the amount of unpaid wages plus a penalty of either 2x the amount of the unpaid wages or $1,000, whichever is greater. If the employee proves that the employer’s failure to pay was willful, the employer shall be liable for either 3x the amount of the unpaid wages or $3,000, whichever is greater.
Connecticut	Vacation pay is a fringe benefit that is compensated to an employee in the form of wages.	No state laws relating to the use-it-or-lose-it policy.	If the employer’s policy provides payment for accrued fringe benefits upon termination, the employee shall be compensated for it.	If the employer fails to pay final wages, they shall be liable for a civil penalty of 2x the amount of unpaid wages plus costs and attorney’s fees.
Delaware	Vacation pay is considered a “benefit or wage supplement.”	No state laws relating to the use-it-or-lose-it policy.	No official information on whether the accrued vacation is paid at the time of separation from employment or at some other time.	If the employer fails to pay benefits or wage supplements owed, they shall be subject to a civil penalty of not less than $1,000 nor more than $5,000 for each such offense.
District of Columbia	Vacation pay is a benefit promised under the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	– Not specified by the state law. – If the employee believes they are owed agreed-upon vacation pay, they can pursue such payment with the help of the District of Columbia OWH and file a claim.
Hawaii	Vacation pay is a benefit promised under the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	The employer’s policy contains the rules regarding the payout of accrued vacation time and how vacation time is earned.	– Not specified by the state law. – If the employer includes payment of accrued vacation time upon termination in their policy but doesn’t comply with it, the employee may pursue that payment through the court.
Idaho	Vacation pay is a benefit promised under the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	– Not specified by the state law. – If the employee believes they are owed agreed-upon vacation pay, they can pursue such payment through private civil actions.
Illinois	Vacation pay is a benefit promised under the employer’s policy or an agreement.	The use-it-or-lose-it vacation policy is allowed provided the employer gives an employee enough opportunity to use vacation time and the notice of the nature of the said policy. If the employer decides to change their vacation policy and include forfeiture of unused vacation in the middle of the year, all accrued vacation earned up until the date of change must be paid to the employee.	All accrued vacation time must be paid to the employee as part of their final compensation. The employee has the right to receive the cash value of their vacation time earned.	If the employer fails to pay the final wages or compensation due, they shall be liable for damages equal to 5% of the unpaid wages for each month these wages remain unpaid. If the employer fails to comply with the payment order issued by the Illinois Department of Labor, they will also have to answer to the Department for a penalty of 20% of the unpaid wages and to the employee for a penalty of 1% of the unpaid wages for each day until paid.
Indiana	Vacation pay is considered a form of compensation once earned in accordance with the employer’s policy or an agreement.	The employer may impose certain conditions in their vacation policy in order for the accrued vacation to be paid to the employee upon termination.	The employee shall receive a payment for the accrued vacation they are entitled to upon termination if they fulfill all the requirements needed to receive such compensation.	If the employer fails to pay out accrued vacation time, they will have to pay two times the amount of compensation due.
Iowa	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	If the employer willfully fails to pay final wages, they shall be liable for paying the additional 5% of the unpaid wages for each day.
Kansas	Vacation pay is a fringe benefit. Once earned under the employer’s policy or an agreement, it is treated as wages.	Employers are allowed to include forfeiture of accrued unused vacation in their vacation policy. They may also create a vacation policy that says that vacation days are earned only upon reaching the employee’s anniversary date and no payment will be made if employment ends before that date.	If the employer’s policy or an agreement provides payment of accrued unused vacation upon termination, that employer must comply with it.	If the employer willfully fails to pay final wages, they shall pay 1% of the unpaid wages per day until paid (starting from the 9th day after payment is due) or an amount equal to 100% of the unpaid wages, whichever is lesser.
Kentucky	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement. If provided, any accrued vacation must be paid upon termination.	It is considered an offense if the employer fails to pay final wages. If these wages are not paid, the employer shall face a civil penalty of not less than $100 nor more than $1,000 for each separate offense.
Louisiana	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	Forfeiture of earned vacation pay upon termination is not allowed.	All eligible employees must be paid for accrued vacation time upon termination.	If the employer fails to pay final wages, they shall be liable either for 90 days’ wages at the employee’s daily rate of pay or for the full amount of unpaid wages, whichever is lesser.
Maine	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	As of January 1, 2023, forfeiture of unused accrued vacation upon termination is not allowed unless the employee is employed by an employer with 10 employees or less or by a public employer.	All unused accrued vacation pursuant to the employer’s policy on and after January 1, 2023 must be paid to the employee upon termination unless the employee is employed by an employer with 10 employees or less or by a public employer.	If the employer fails to pay final wages, the court may assign them liable for all unpaid wages plus a reasonable rate of interest, liquidated damages in an amount equal to 2x unpaid wages, as well as costs and attorney’s fees.
Maryland	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	Employers are allowed to include forfeiture of unused accrued vacation upon termination in their policy.	Determined by the employer’s policy or an agreement. If the employer’s policy says that unused accrued vacation will be lost or forfeited upon termination, the employee won’t be able to demand  that payment. However, if there’s no policy regarding vacation leave accrual limitations,  such employee is entitled to the full cash value of accrued vacation pay.	If the employer fails to pay final wages, the court shall find them liable for damages of up to 3x the amount of the unpaid wages plus attorney’s fees.
Massachusetts	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	There may not be any type of agreement between the employer and employee under which the employee forfeits earned accrued vacation. However, the employer may put a cap on accumulated vacation time.	If the employee is terminated from their job “through no fault or delinquency on his part or by resignation, retirement or death,” they must be paid at their usual rate for any accrued vacation upon termination.	If the employer fails to pay final wages, a court may award an employee triple damages as liquidated damages for the unpaid wages as well as the costs of the litigation and attorney’s fees.
Michigan	Vacation pay is a fringe benefit. Once earned under the employer’s policy or an agreement, it is compensation due to an employee upon termination.	No state laws relating to the use-it-or-lose-it policy.	If provided under the employer’s policy or an agreement, the employee must be compensated for accrued vacation upon termination. The employer can withhold this compensation only if they got valid consent from that employee to do so.	If the employer fails to pay fringe benefits due to an employee, that employer is guilty of a misdemeanor and shall be punished by a fine of not more than $1,000 or imprisoned for not more than 1 year, or both.
Minnesota	Earned vacation time is a benefit or wage supplement owed once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	The employer who refuses to pay benefits or wages owed within 30 days after such payment is required to be made under law or under the agreement, is guilty of a gross misdemeanor.
Missouri	Vacation pay is a benefit provided under the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	If the employee believes they are owed agreed-upon vacation pay, they can file a private right of action against the employer in small claims court.
Montana	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	Use-it-or-lose-it policies are not permitted. However, employers may put caps on accumulated vacation time.	If provided under the employer’s policy, the employee must be compensated for accrued vacation upon termination.	If the employer fails to pay final wages, they are guilty of a misdemeanor and shall be liable for a penalty in an amount not to exceed 110% of the unpaid wages.
Nebraska	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	Use-it-or-lose-it policies are not permitted.	All accrued vacation must be paid upon termination.	If the employer fails to pay final wages after the employee establishes a claim and secured judgment on that claim, they shall be liable for an amount equal to the secured judgment. If failure to pay is willful, the employee shall be paid 2x the amount of unpaid wages.
Nevada	As of January 1, 2020, every private employer with 50 or more employees must provide each employee at least 0.01923 hours of paid leave for each hour worked. Such paid leave pertains to vacation as well. This law does not apply to employers in their first two years of operations, as well as temporary, seasonal, or on-call workers.	The use-it-or-lose-it policy is not prohibited. Employers covered by the 2020 paid leave law are also allowed to cap the number of hours to 40 per year.	The employer that has 50 or more employees is not required to pay a terminated employee for any unused paid leave unless the separation wasn’t voluntary and the employee is rehired within 90 days of the separation. In this case, any previously unused paid leave must be restored.	If the employer fails to pay any unused paid leave, the Labor Commissioner may impose an administrative penalty on the employer of not more than $5,000 for each offense.
New Hampshire	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement. If provided, accrued vacation must be paid upon termination.	If the employer willfully fails to pay final wages, they shall be liable for liquidated damages in the amount of 10% of the unpaid wages for each day upon which such failure continues or in an amount equal to the unpaid wages, whichever is lesser.
New Jersey	Accrued vacation pay is a benefit promised under the employer’s policy or an agreement and it is not regarded as wages.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	– Not specified by the state law. – If the employer fails to pay accrued vacation as provided in the established policy or an agreement, the aggrieved employee may have a basis for a claim.
New Mexico	Accrued vacation pay is regarded as a “fixed and definite amount.”	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	If the employer fails to pay for accrued vacation upon termination, they shall be liable for a penalty of continued payment of the unpaid amount for the next 60 days.
New York	Earned vacation time is considered a benefit or a wage supplement once earned in accordance with the employer’s policy or an agreement.	Employers are allowed to include forfeiture of unused accrued vacation upon termination in their policy.	If the employer provides benefits such as vacation pay, accrued vacation shall be paid upon termination unless there is a condition in the employer’s policy or an agreement that nullifies this benefit.	If the employer fails to pay for accrued vacation provided under the policy/agreement upon termination, that employer is guilty of a misdemeanor.
North Carolina	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	The use-it-or-lose-it policy is not prohibited. However, even if the employer has a written policy that has a forfeiture clause regarding vacation pay, an employee may still be due the earned vacation pay upon termination (depending on the nature of a forfeiture clause).	If provided by the employer’s policy or an agreement, accrued vacation must be paid upon termination. If the employer plans to make certain changes regarding earned wage benefits and sets a notice of these changes, all accrued vacation that has been earned up to the date of the notice still must be paid to the employee.	If the employer fails to pay final wages, they shall be liable for liquidated damages in an amount equal to the amount of unpaid wages plus interest and court costs.
North Dakota	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	The use-it-or-lose-it vacation policy is allowed provided the employer gives an employee enough opportunity to use vacation time and the notice of the nature of the said policy.	All accrued earned vacation must be paid upon termination. However, there are certain limitations regarding the payment in cases when an employee ends their employment:  – Voluntarily, and – For some other reason.	If the employer fails to pay final wages in a timely manner, they shall be liable for the amount of up to 30 additional days of wages.
Ohio	Vacation pay is a fringe benefit. Once earned in accordance with the employer’s policy or an agreement, it is treated as wages.	No state laws relating to the use-it-or-lose-it policy.	If provided by the employer’s policy or an agreement, accrued vacation must be paid upon termination.	If the employer fails to pay final wages within 60 days of an uncontested court filing, they shall be guilty of a misdemeanor and liable for liquidated damages in an amount equal to 6% of unpaid wages or $200, whichever is greater.
Oklahoma	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	If provided by the employer’s policy or an agreement, accrued vacation must be paid upon termination.	If the employer willfully fails to pay final wages, they shall be liable for liquidated damages in the amount of 2% of the unpaid wages for each day upon which such failure continues or in an amount equal to the unpaid wages, whichever is lesser.
Oregon	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	If provided by the employer’s policy or an agreement, accrued vacation must be paid upon termination.	If the employer willfully fails to pay final wages, they shall be charged with a civil penalty of $1,000, plus costs, interest, and attorney’s fees.
Pennsylvania	Vacation pay is a fringe benefit or a wage supplement. Once earned in accordance with the employer’s policy or an agreement, vacation pay is treated as wages.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	If the employer fails to pay final wages for 60 days after the filing of the employee’s claim, they shall be liable for liquidated damages in an amount equal to 25% of the unpaid wages or $500, whichever is greater. Additionally, if the employer does not give a satisfactory explanation for failing to pay to the Pennsylvania Secretary of Labor within 10 days after the receipt of such claim, they shall be liable for a penalty of 10% of the unpaid wages.
Rhode Island	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement and becomes payable after the employee completes at least 1 year of service.	No state laws relating to the use-it-or-lose-it policy.	All accrued vacation must be paid upon termination on the next regular payday, provided the employee works for the employer for at least one year.	If the employer fails to pay final wages, they shall be guilty of a misdemeanor and must pay not less than $400 or be imprisoned for up to 1 year, or both.
South Carolina	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	If the employer fails to pay final wages, the employee may recover in a civil action an amount equal to 3x the amount of the unpaid wages plus costs and attorney’s fees.
Tennessee	Vacation pay is a fringe benefit, and it is not included in an employee’s final wages unless the employer’s policy or an agreement specifically provides payment of accrued vacation upon termination.	No state laws relating to the use-it-or-lose-it policy.	If the employer’s policy or an agreement specifically provides payment of accrued vacation upon termination, that employer is liable for such payment.	If the employer fails to pay final wages, they shall be guilty of a misdemeanor and punished by a fine of not less than $100 nor more than $500. If the failure to pay is willful, the employer shall be subject to a civil penalty of not less than $500 nor more than $1,000.
Texas	Vacation pay is treated as wages only if the employer’s policy or an agreement specifically provides payment of accrued vacation upon termination.	No state laws relating to the use-it-or-lose-it policy.	If the employer’s policy or an agreement specifically requires that accrued vacation is paid upon termination, that employer is liable for such payment. The employer has a right to establish in their policy how vacation pay is earned and accrued and whether it is paid out when not used.	If the employer willfully fails to pay final wages, they may face a penalty equal to the unpaid wages or $1,000, whichever is lesser.
Utah	Earned vacation time is considered wages once earned in accordance with the employer’s policy or an agreement.	No state laws relating to the use-it-or-lose-it policy.	If provided by the employer’s policy or an agreement, accrued vacation must be paid upon termination.	If the employer fails to pay final wages within 24 hours of the employee’s written demand, the wages of the employee shall continue for the next 60 days from the date of demand at the usual employee’s rate of pay until paid.
Vermont	Vacation pay is a benefit or a wage supplement.	No state laws relating to the use-it-or-lose-it policy.	The employer is not required to provide their employees with payment for accrued unused vacation upon termination unless they are parties to a written agreement such as an employee handbook or memorandum, for example, that provides such payment.	The employer who decides to provide vacation pay through a written employer-employee agreement is liable to their employees for such payment. If payment for accrued unused vacation is offered by a collective bargaining agreement, the union representative may help the aggrieved employee with the claim.
Virginia	Vacation pay is a fringe benefit and it is regarded as “money that is uncollectible.”	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement.	The employee must proceed on their own to collect payment for any accrued unused vacation they may be owed (this payment cannot be claimed through the Virginia Department of Labor and Industry).
Washington	Vacation pay is considered a voluntary benefit. Employers may choose to include this benefit in the final paycheck.	No state laws relating to the use-it-or-lose-it policy.	Determined by the employer’s policy or an agreement. The employer may choose to pay for accrued unused vacation through a final paycheck.	Washington State Department of Labor and Industries does not enforce payment of accrued vacation upon termination. If the employee believes they are owed agreed-upon vacation pay, they can file a claim in small claims court.
West Virginia	Vacation pay is a fringe benefit. Once earned in accordance with the established employer’s policy, accrued vacation is normally payable as part of final wages.	No state laws relating to the use-it-or-lose-it policy.	All accrued vacation is paid upon termination unless the employer’s policy says that earned fringe benefits are paid at some other time specified in the policy and not at the separation.	If the employer fails to pay final wages in a timely manner, the employee may seek liquidated damages in the form of 2x the amount of the unpaid wages in addition to the unpaid wages.
Wisconsin	Earned vacation pay is treated as wages unless the employer’s policy states that accrued vacation is forfeited upon termination.	The use-it-or-lose-it policy is not prohibited.	If provided under the employer’s policy and if the employer does not include forfeiture of accrued vacation in that policy, accrued vacation must be paid upon termination.	If the employer willfully fails to pay final wages, they shall face criminal penalties and be fined up to $500 or imprisoned for not more than 90 days, or both.
Wyoming	Earned vacation pay is treated as wages unless the employer’s policy states that accrued unused vacation is forfeited upon termination and the said policy has been acknowledged by the employee.	The use-it-or-lose-it vacation policy is allowed provided the employer has given the employee enough opportunity to use vacation time or has not refused their request to use it. Employers may also create a vacation policy stating that vacation days are earned only after working for a year and no payment will be made if employment ends before that.	If provided under the employer’s policy and if the employer does not include forfeiture of accrued vacation in that policy, accrued vacation must be paid upon termination.	The employer who willfully fails to pay final wages is guilty of a misdemeanor and shall be punished by a fine of not less than $500 nor more than $750 for each offense.

FAQs about PTO payout laws by state

To get more helpful information about PTO payout laws, let’s check out some frequently asked questions we’ve singled out for you.

What happens to your PTO when you leave a job?

Depending on the company’s policy and state laws, employers may or may not pay their employees for earned and unused paid time off after they leave a job. That being said, some employers can choose not to provide PTO payout after termination (if there’s no state law that requires them to do so).

Only a few states have laws that regulate the employer’s policy regarding payment of unused vacation time, but in most cases, employers set their own rules for PTO payout. 

Therefore, if you’re considering leaving your position, make sure to check your rights in your employer’s PTO policy and whether your employer pays out earned paid time off upon separation of employment.

Which US states require PTO payout?

If a state you work in doesn’t specifically address that the employer must pay for unused vacation days, check whether your employer has a PTO policy stating your rights to PTO payout upon termination.

Most of the states that require payment for unused paid time off have laws that only apply to earned vacation time. Also, some states require PTO payout, but only after certain conditions are met, and others classify vacation pay as wages and include them in an employee’s final paycheck.

To see the states that have laws requiring payment of the unused PTO upon termination, take a look at the list below:

• California,
• Colorado,
• Illinois,
• Indiana,
• Louisiana,
• Maine,
• Massachusetts, 
• Nebraska,
• North Dakota, and
• Rhode Island.

Regarding North Dakota PTO payouts, private employers may impose certain limitations depending on whether the employee separates from them voluntarily or terminates their employment for some other reason.

Also, according to the State of Rhode Island Department of Labor and Training, if the employer provides vacation and the employee works for them for at least one year, they must pay that employee for any remaining accrued vacation upon termination.

On the other hand, the majority of states provide for the PTO payout upon termination if the employer has a policy that clearly states that the PTO payout is provided. And if there is such a policy, the employer must comply with it.

These are the states where the company’s policy (or the employment agreement/contract) dictates whether unused PTO is paid upon termination:

• Alaska,
• Arizona,
• Arkansas,
• Connecticut,
• Delaware,
• District of Columbia,
• Hawaii,
• Idaho,
• Iowa,
• Kansas,
• Kentucky,
• Maryland,
• Michigan,
• Minnesota,
• Missouri,
• Montana,
• Nevada,
• New Hampshire,
• New Jersey,
• New Mexico,
• New York,
• North Carolina,
• Ohio,
• Oklahoma,
• Oregon,
• Pennsylvania,
• South Carolina,
• Tennessee,
• Texas,
• Utah,
• Vermont,
• Virginia,
• Washington,
• West Virginia,
• Wisconsin, and
• Wyoming.

Which US states have no PTO payout regulations?

Certain US states have no statutory requirements regarding the payment of accrued vacation after an employee is discharged or quits a job. 

These are the states that have no PTO payout laws:

• Alabama,
• Florida,
• Georgia,
• Mississippi, and
• South Dakota.

Which states prohibit use-it-or-lose-it policies?

Despite the fact that many states don’t have a state law that bans the use-it-or-lose-it policy, in some states, these types of policies are prohibited by law.

The states where the use-it-or-lose-it policy is prohibited include the following:

• California,
• Colorado,
• Montana, and
• Nebraska.

According to the State of California Department of Industrial Relations, in California, the use-it-or-lose-it policy is an illegal policy that will not be recognized by the Labor Commissioner.

Regarding the use-it-or-lose-it policy in Colorado, as the Colorado Department of Labor and Employment states, any agreement that forfeits earned vacation pay is void.

However, in Montana, the Montana Department of Labor and Industry states that, although use-it-or-lose-it policies are not permitted, employers are allowed to put a cap on the number of vacation days an employee can accumulate.

Is PTO required by law?

As the Fair Labor Standards Act (FLSA) does not require employers to pay employees for the days they’re not working such as vacations or holidays, PTO is regarded as more of an agreement between an employer and an employee.

In other words, there is no federal law mandating that employers must offer PTO to employees. 

However, despite the lack of laws requiring them to pay employees for time not worked, most employers choose to offer paid time off to their employees to boost morale and increase employee productivity.

How is PTO payout calculated?

To calculate how much they owe employees for unused PTO, employers have to determine their total PTO hours and calculate their PTO payout, but also withhold taxes according to the guidelines provided by the IRS. 

As the IRS states, vacation pay is not always treated as supplemental wages, that is, wages in addition to regular wages. However, when vacation pay is paid as a vacation payout, it is treated as a supplemental wage payment and subject to a flat 22% supplemental income tax.

For example, to calculate the PTO payout for an hourly employee, the employer has to:

1. Determine the total PTO hours the employee has accrued, 
2. Calculate how much payout they’ve earned before tax deductions, and 
3. Withhold taxes. 

To explain in more detail how payment for paid time off can be calculated, we’ll give you an example.

Let’s say an employee accrued 30 hours of PTO, that is, accumulated 30 hours of PTO at the end of their employment. To calculate how much payout they’ve earned before tax deductions, we’ll say they make $13 per hour. As the employee has 30 hours of PTO and their hourly rate of pay is $13, this is how we calculate how much PTO payout they’ve earned:

$13 per hour x 30 PTO hours accrued = $390 of the PTO payout before taxes the employee has earned

Now that the employer knows how much PTO payout the employee has earned, they can multiply this number by the federal supplemental tax rate. 

They do it like this:

$390 x the supplemental income flat rate tax of 22%(0.22) = $85.80 which is how much the employer should withhold from the PTO payout for federal income taxes

Are employers required to pay out unused PTO in New York?

According to the New York State Department of Labor, whether an employee must get paid for unused PTO depends on the established rules of the employer’s vacation policy.

Moreover, the New York Department of Labor specifies that if an employee has earned vacation time provided under the employer’s policy, and there’s no written forfeit policy implying employees have to use their PTO within a certain period of time, then the employer must pay the employee for the accrued vacation upon termination.

Therefore, in New York, if a company does not have a written policy that forfeits your right to be paid for unused earned vacation, employers are required to pay you for your unused paid time off.

Do I get paid for unused sick days after I quit?

The FLSA doesn’t require employers to pay employees for sick leave. However, as the US Department of Labor explains, “for companies subject to the Family and Medical Leave Act (FMLA), the Act does require unpaid sick leave.” As for paid sick leave, currently, residents of 14 states, along with Washington, D.C., have the right to paid sick leave under state law.

Although there are no federal laws requiring employers to pay for unused sick leave, some employers may choose to pay accrued sick leave upon termination of employment.

So, whether you get paid for unused sick days after you quit your job depends on several factors:

• Whether the state you work in has paid sick time laws requiring employers to pay for unused sick days upon termination of employment,
• Whether your employer has a PTO policy that includes paid sick leave, and if they have it, whether that policy clearly states what happens to your accrued sick leave upon termination, and
• Whether your employer is required by a collective bargaining agreement or some other legally binding agreement to pay for accrued sick time when their employee leaves their employment.

In California, for example, as California Labor and Workforce Development Agency states, although paid vacation benefits are considered wages and must be paid to the employee through their final paycheck — an employee does not have the right to cash out their unused sick days (unless their employer’s policy states that these days have to be paid).

PTO payout laws conclusion and disclaimer

As every state has its own rules and regulations regarding payment of unused paid time off, make sure you check whether your state offers the possibility of getting paid for unused PTO upon the termination of employment.

For that purpose, check the following:

• Whether the state you work in has a law requiring your employer to pay for unused PTO upon termination, and
• Whether your employer has a PTO policy that clearly states your rights regarding PTO payout.

We hope this PTO payout laws by state guide has been helpful. We also advise you to make sure you’ve paid attention to the links we’ve provided, as most of them will lead you to the official government websites and other relevant information.

Please note that this guide was written in Q2 of 2023, so any changes in the PTO payout laws that were included later than that may not be included in this guide.

We strongly advise you to consult with the appropriate institutions and/or certified representatives before acting on any legal matters.

Clockify is not responsible for any losses or risks incurred, should this guide be used without further guidance from legal or tax advisors.

Sources for the tables:

• Alaska Department of Labor and Workforce Development
• Alaska Department of Labor Wage and Hour Administration
• Arizona Legislation
• Arizona Revised Statutes
• Arizona State Legislature
• Arkansas Department of Labor and Licensing
• California Department of Industrial Relations
• California Legislature
• Colorado Department of Labor and Employment
• Colorado Wage Act Revised
• Connecticut Department of Labor
• Delaware Department of Labor
• District of Columbia Department of Employment Services
• Hawaii Wage Standards Division
• Idaho Department of Labor
• Illinois Department of Labor
• Illinois General Assembly
• Illinois Wage Payment and Collection Act Penalties
• Indiana Department of Labor
• Indiana Legislature
• Iowa Division of Labor
• Iowa Legislature
• Kansas Department of Labor
• Kansas Office of Revisor of Statutes
• Kentucky Legislature
• Kentucky Revised Statutes
• Louisiana Legislation
• Louisiana State Legislature
• Maine Revised Statutes
• Maine State Legislature
• Maryland Department of Labor
• Maryland Department of Labor Wage Issues
• Maryland Division of Labor and Industry
• Massachusetts Attorney General’s Advisory
• Massachusetts Government
• Massachusetts Legislature
• Michigan Department of Labor and Economic Opportunity
• Michigan Legislature
• Minnesota Department of Labor and Industry
• Minnesota Legislature
• Missouri Department of Labor and Industrial Relations
• Missouri Department of Labor Wages Hours and Dismissal Rights
• Montana Department of Labor and Industry
• Montana Legislature
• Nebraska Department of Labor
• Nebraska Legislature
• Nevada Labor Commissioner Office
• New Hampshire General Court
• New Hampshire Legislature
• New Jersey Department of Labor and Workforce Development
• New Mexico Environment Department
• New York State Department of Labor
• New York State Labor Standards
• North Carolina Department of Labor
• North Carolina Legislature
• North Dakota Department of Labor and Human Rights
• North Dakota Government
• North Dakota Legislature
• Ohio Legislative
• Oklahoma State Government
• Oregon Bureau of Labor and Industries
• Oregon Government
• Pennsylvania Department of Labor and Industry
• Pennsylvania Legislature
• Rhode Island Department of Labor and Training
• Rhode Island Legislature
• South Carolina Labor Licensing and Regulation
• South Carolina Legislature
• Tennessee Code
• Tennessee Department of Labor and Workforce Development
• Tennessee State Government
• Texas Code
• Texas Workforce Commission
• Utah Office of Administrative Rules
• Utah State Legislature
• Vermont Department of Labor
• Vermont Legislature
• Virginia Regulatory Town Hall
• Washington State Department of Labor and Industries
• Washington State Department of Labor and Industries Workers’ Rights
• West Virginia Division of Labor
• West Virginia Division of Labor Wage Payment and Collection
• Wisconsin Department of Workforce Development
• Wisconsin State Legislature
• Wyoming Department of Workforce Services
• Wyoming Legislature