Do Employers Have to Pay Out Vacation Time?

Do Employers Have to Pay Out Vacation Time?

If you have unused vacation time when you leave your job, you may be wondering whether your employer has to pay you for it.

There is no federal law requiring employers to provide paid vacation or pay employees for unused vacation time. However, some states require employers to pay employees for vacation they have earned but not used, while other states allow employers to establish their own rules through a vacation or PTO policy.

Whether you are entitled to a vacation payout can therefore depend on the state where you work, your employer’s written policy, how the vacation was earned, and the reason your employment ended.

If you are quitting, being fired, or being laid off with unused vacation, here is what you need to know.

Does Federal Law Require Employers to Pay Vacation Time?

No.

The federal Fair Labor Standards Act does not require employers to provide paid vacation or pay employees for time they do not work.

Vacation pay is generally a matter of agreement between the employer and employee, or between the employer and a union representing employees.

This means federal law generally does not require a private employer to:

• Provide paid vacation
• Allow employees to accrue vacation
• Pay employees for unused vacation
• Pay unused vacation when an employee quits
• Pay unused vacation when an employee is fired
• Allow unused vacation to carry over from one year to the next

However, state laws can provide employees with additional protections.

That is why the answer can be very different depending on where you work.

Does My Employer Have to Pay Me for Unused Vacation When I Quit?

It depends on your state and your employer’s vacation policy.

Some states treat earned vacation as wages. In those states, an employer may be required to pay an employee for vacation that was earned but not used when the employee leaves the company.

Other states generally require employers to follow the terms of their written vacation policy.

For example, California treats earned vacation as wages and generally requires employers to pay employees for earned, accrued, and unused vacation when employment ends. Colorado also requires payment of earned vacation at separation and prohibits the forfeiture of vacation that has already been earned.

Oregon takes a different approach. The state does not require employers to provide vacation, but an employer that has an established policy or agreement concerning vacation benefits must follow that policy.

So, if you are leaving a job with unused vacation, do not assume that you will automatically receive a payout—and do not assume that your employer can automatically keep it.

Check both your state’s law and your employer’s policy.

Does My Employer Have to Pay Unused Vacation If I Am Fired?

Again, it depends on state law and the employer’s policy.

Some states require payment of earned vacation when employment ends regardless of whether the employee quits or is fired.

For example, California generally requires payment of earned and unused vacation when employment ends, regardless of the reason for the separation.

Colorado likewise requires employers to pay earned vacation when an employee separates from employment and prohibits policies that cause already-earned vacation to be forfeited.

Other states place greater emphasis on the employer’s written policy.

The reason for the termination may also matter if the employer’s policy contains conditions concerning vacation payout and those conditions are permitted under state law.

What Is Accrued Vacation?

Accrued vacation is vacation time that an employee has earned but has not yet used.

For example, suppose your employer provides 80 hours of vacation per year and you have earned 60 hours so far.

If you have used 20 hours, you may have 40 hours of unused accrued vacation remaining.

Whether your employer must pay you for those 40 hours when you leave depends on applicable law and the terms of the vacation plan.

This distinction is important because an employee generally cannot demand payment for vacation that has not yet been earned.

What Does “Earned Vacation” Mean?

The meaning of “earned” can depend on the employer’s vacation plan and state law.

An employer might allow employees to earn vacation:

• Each pay period
• Each month
• After completing a certain amount of work
• On an anniversary date
• According to a specific accrual schedule

The employer’s policy should explain how employees earn vacation.

State law may also determine when vacation becomes legally protected compensation.

For example, California considers vacation to be earned as work is performed and treats earned vacation as wages.

Colorado similarly requires payment of vacation pay that has been earned under the terms of the employer’s agreement with the employee.

Can My Employer Have a “Use It or Lose It” Vacation Policy?

Sometimes, but not in every state.

A “use it or lose it” policy generally means that employees lose unused vacation if they do not use it by a particular deadline.

Whether this is legal depends on the state.

California, for example, does not permit employers to use a policy that forfeits vacation that employees have already earned. The California Department of Industrial Relations specifically states that an earned vacation balance cannot be forfeited through a use-it-or-lose-it policy.

Colorado likewise prohibits the forfeiture of earned vacation. Its rules distinguish between a legitimate accrual cap—which limits how much additional vacation an employee can earn—and a policy that takes away vacation the employee has already earned.

Other states may permit certain forfeiture policies if specific requirements are satisfied.

For example, Illinois permits certain use-it-or-lose-it arrangements when employees have a reasonable opportunity to use their vacation and receive appropriate notice of the policy.

Therefore, you cannot determine whether a use-it-or-lose-it policy is legal simply by looking at the employee handbook. State law matters.

Can an Employer Put a Cap on Vacation Accrual?

A vacation accrual cap is not necessarily the same thing as a use-it-or-lose-it policy.

An accrual cap generally limits the amount of vacation an employee can accumulate.

For example, an employer might allow employees to accrue up to 200 hours of vacation. Once an employee reaches 200 hours, the employee stops accumulating additional vacation until some of the existing balance is used.

Some states permit reasonable accrual caps.

California, for example, permits reasonable caps on vacation accrual even though it does not allow earned vacation to simply be forfeited.

Colorado also distinguishes between limiting future accrual and taking away vacation that has already been earned.

The legality of an accrual cap therefore depends on the state and the way the employer’s policy operates.

Does PTO Have to Be Paid Out When You Leave a Job?

It depends on what the PTO actually represents and the law of your state.

Some employers combine vacation, personal days, and other paid time off into one PTO bank.

Whether unused PTO must be paid when employment ends can depend on:

• How the PTO can be used
• How the PTO is earned
• The employer’s written policy
• State law
• Whether the PTO is considered earned compensation under state law

The label used by the employer is not always the deciding factor.

Colorado, for example, specifically recognizes that paid leave called “PTO,” “personal days,” “annual leave,” or “floating holidays” can qualify as vacation pay when employees may use it for any purpose at their discretion.

By contrast, leave that can only be used for specific qualifying events may be treated differently.

Does Unused Sick Time Have to Be Paid Out?

Usually, you should not assume that unused sick time is treated the same as vacation.

Vacation and sick leave can be subject to different laws.

Some states require employers to provide paid sick leave but do not require employers to pay employees for unused sick leave when employment ends.

If your employer combines vacation and sick leave into a single PTO bank, however, the legal analysis may be different depending on state law and how the PTO can be used.

For that reason, look at your employer’s actual leave policy rather than assuming that vacation, sick leave, and PTO are legally interchangeable.

What States Require Vacation Payout?

There is no single nationwide rule requiring employers to pay unused vacation.

States approach vacation payout differently.

Some states have laws that generally require employers to pay earned vacation when employment ends. Others require employers to honor their written vacation policies. Some allow certain forfeiture provisions if specific conditions are met.

For example:

California: Earned vacation is treated as wages and generally must be paid when employment ends. California does not permit forfeiture of earned vacation through a use-it-or-lose-it policy.

Colorado: Employers that provide vacation must pay earned vacation when employment ends, and earned vacation cannot be forfeited.

Illinois: Earned vacation that is payable under the employer’s policy is included in final compensation and must generally be paid on the next regularly scheduled payday. Illinois also permits certain use-it-or-lose-it policies under specified circumstances.

Massachusetts: Vacation payments promised under an employment agreement are treated as wages, and accrued vacation generally must be included in final compensation when employment ends.

Oregon: Employers are not generally required to provide vacation, but they must honor an established vacation policy or agreement concerning payment of accrued vacation.

This is only a sampling of state laws. The rules can also change, so employees should check the current law in their state.

What About New York?

New York generally looks closely at the employer’s written vacation policy.

According to the New York Department of Labor, if an employee has earned vacation and there is no written policy providing for forfeiture, the employer must pay the employee for accrued vacation.

A written policy can establish conditions under which vacation benefits are forfeited, but those conditions must be clearly communicated to employees.

This is another example of why the wording of your employer’s vacation policy can be extremely important.

What About Pennsylvania?

Pennsylvania does not generally require private employers to provide vacation pay.

The Pennsylvania Department of Labor & Industry explains that vacation pay is generally a benefit provided through an employer’s policy or an agreement with the employee. When an employer provides such a benefit, it must follow its own rules.

Therefore, a Pennsylvania employee should carefully review the employer’s written vacation policy to determine whether unused vacation must be paid after separation.

What If My Employer’s Vacation Policy Says I Will Not Be Paid?

The policy may matter—but it does not necessarily settle the issue.

An employer’s policy must comply with applicable state law.

For example, an employer in California cannot use a policy to forfeit vacation that employees have already earned.

Similarly, Colorado does not allow an employer to use an agreement or policy to waive an employee’s right to earned vacation in violation of state law.

In other states, a clearly written forfeiture provision may be enforceable.

That is why the question is not simply, “What does my employee handbook say?”

The better question is:

“What does my employee handbook say, and is that policy allowed under the law of my state?”

What If My Employer Changes Its Vacation Policy?

An employer may generally change its vacation policy for future benefits, subject to applicable law and any contractual obligations.

However, changing a policy does not necessarily mean an employer can take away vacation that employees have already earned.

The distinction between future vacation and already-earned vacation can be particularly important.

For example, Colorado permits employers to establish certain accrual limits but does not permit them to take away vacation that an employee has already earned.

The rules are different from state to state.

If your employer recently changed its vacation policy and your existing vacation balance disappeared, compare the old policy, the new policy, and the law in your state.

When Should Unused Vacation Be Paid?

The deadline for paying unused vacation depends on the applicable state law and, in some states, the employer’s policy.

For example, Illinois requires final compensation, including earned vacation pay, to be paid no later than the employee’s next regularly scheduled payday.

California has different final-pay requirements, including rules requiring accrued vacation to be included in final wages.

Other states have different deadlines.

Therefore, do not assume that unused vacation will always be paid on the same schedule as a normal paycheck.

What Should I Do If My Employer Does Not Pay My Vacation?

If you believe you are owed unused vacation, start by gathering your records.

Keep copies of:

• Your employee handbook
• Your vacation or PTO policy
• Your employment agreement
• Your offer letter
• Pay stubs showing your vacation balance
• Vacation accrual records
• Records of vacation you used
• Your final paycheck
• Emails or other communications about your vacation

Then determine whether your state requires the employer to pay the accrued balance.

You can also ask your employer or payroll department to explain why the vacation was not included in your final pay.

If you believe your employer violated the law, you may be able to file a wage claim with your state labor agency or pursue another legal remedy.

Can My Employer Refuse to Pay Vacation Because I Did Not Give Two Weeks’ Notice?

It depends on the law in your state and the employer’s policy.

Some employers have policies stating that employees must provide a certain amount of notice to receive a payout of unused vacation.

Whether such a condition is enforceable depends on applicable state law.

In a state that treats earned vacation as wages that cannot be forfeited, an employer generally cannot use an unlawful policy to take away earned vacation.

In other states, a properly written and legally permitted policy may affect whether the employee receives a payout.

If your employer says you lost your vacation because you did not give two weeks’ notice, review the policy and the law in your state before assuming the employer is correct.

What If My Employer Pays Vacation Only If I Give Notice?

This is another situation where state law matters.

An employer may have conditions in its vacation policy, but those conditions cannot override a state law that protects earned vacation.

For example, California generally requires payment of earned and unused vacation at separation regardless of the reason for separation, subject to applicable exceptions such as certain collective bargaining agreements.

In states where the employer’s policy controls, however, a valid notice requirement may affect eligibility for a payout.

What If My Employer Says I Never Earned the Vacation?

The answer may depend on the employer’s accrual system.

Ask for a copy of the policy and compare it with your pay records.

Determine:

• When vacation begins accruing
• How quickly it accrues
• Whether there is an accrual cap
• Whether there are eligibility requirements
• Whether you were excluded from the plan
• How much vacation you already used
• How much vacation remained when your employment ended

If the employer’s records conflict with your records, save documentation showing how you calculated your balance.

What If My Employer Gives Me Vacation Before I Earn It?

Some employers allow employees to use vacation before they have technically accrued it.

Whether the employer can recover advanced vacation from the employee’s final paycheck depends on state law.

For example, California places significant restrictions on an employer’s ability to recover advanced vacation through a final paycheck.

Because this issue can involve both vacation law and wage-deduction law, employees should not assume that an employer can simply subtract an alleged vacation balance from their final wages.

The Bottom Line: Do Employers Have to Pay Out Vacation Time?

Employers do not have to provide or pay out vacation under federal law.

But that does not mean an employer can always keep an employee’s unused vacation.

State law can require an employer to pay earned vacation when employment ends. In other states, the employer’s written vacation policy may determine whether unused vacation is paid.

If you are leaving a job with unused vacation, check:

1. Your state’s law
2. Your employer’s vacation or PTO policy
3. How much vacation you actually earned
4. How much vacation you used
5. Whether the policy contains a forfeiture or notice provision
6. Whether the policy complies with your state’s law

If your employer refuses to pay vacation that you believe you earned, do not simply assume that the employer is right. Keep your records and investigate the law that applies where you work.

Related Resources

• Can Your Employer Deduct Money From Your Paycheck?
• Why Is My Paycheck So Small?
• Can Your Employer Make You Work on Your Day Off?
• Wage Theft & Unpaid Wages

Disclaimer

This article provides general information about U.S. employment law and is not legal advice. Vacation and PTO laws vary significantly by state, and the law applicable to your situation may depend on the specific facts, your employer’s policy, employment agreement, and any applicable collective bargaining agreement. Laws can change, so verify the current law applicable to your situation or consult an employment attorney. Please read our Terms and Conditions.

Article: Do Employers Have to Pay Out Vacation Time?