Home Business ManagementEmployment Law Does an Employer Have to Pay Out PTO When an Employee Leaves?

Does an Employer Have to Pay Out PTO When an Employee Leaves?

by Timesheets.com
a woman holding money and time off. She is paying out an employee.

Giving your employees time off is a benefit that isn’t required by the FLSA. Since time off is nonobligatory, most employers believe that they are exempt from paying out employees when they leave. Although the federal government doesn’t regulate time off and payouts, state governments have different rules.

Most states take it upon themselves to implement employee leave laws. New Jersey, Arizona, and California, for example, have mandated sick leave law requirements. Although states are generous with sick time, not a single state requires employers to give employees vacation time. As a result, vacation policies are actually set up by the employer as a benefit to their employees. This would make you think that employers can choose what they can and can’t do with accrued time off, but that’s not the case! States have laws pertaining to how employers handle accrued vacation hours and how to pay them out.

Does an Employer Have to Pay Out Employees?

Yes…ish! This depends on what state you’re in. About half of the states in the U.S. don’t require employers to pay out their employees after they leave or are terminated. This is great for employers because they don’t have to worry about sending an employee extra cash after they leave. On the other hand, if you live in a state with payout regulations, you might have to pay up.

Generally, most payout states believe that accrued hours are hours earned (or “vested”). If the employee earned those hours, they should get paid for those hours. Any vested hours normally count as 1 hour of compensation; therefore, if the employee doesn’t use all vested hours, they will get compensated after they leave the company. California, for example, has strict laws when it comes to paying your employees’ vested hours:

“PTO” is earned on a day-by-day basis, vested paid time off days cannot be forfeited, the number of earned and accrued paid time off days can be capped, and if an employee has earned and accrued paid time off days that have not been used at the time the employment relationship ends, the employee must be paid for these days.

California, Labor Code Section 227.3

To determine whether you are required to pay out your employees, we recommend that you check with your local labor board. In the meantime, check out the handy chart below:

State Payout Laws

States without Pay outsStates With Pay outsConditions for States With Pay Outs
AlabamaCaliforniaPTO must be included in the employee’s final paycheck
ArizonaIllinoisEmployers must pay out employee for PTO, unless their handbook or contracts says otherwise
ArkansasIndianaSpecific conditions for PTO pay out
ConnecticutKentuckyYou must pay out an employee by the next pay period, or 14 days after the employee’s last day
DelawareLouisianaEmployers must pay out employee for PTO, unless their handbook or contracts says otherwise
FloridaMarylandEmployers must pay out employee for PTO, unless their handbook or contracts says otherwise
HawaiiMinnesotaEmployers must pay out employee for PTO, unless their handbook or contracts says otherwise
IowaNebraskaEmployers must pay out employee for PTO, unless their handbook or contracts says otherwise
KansasNew YorkEmployers must pay out employee for PTO, unless their handbook or contracts says otherwise
MaineNorth CarolinaPayout depends on the agreement between an employee and employer
MichiganNorth DakotaPayout depends on the agreement between the employee and employer. Employees aren’t paid out if they worked for an employer for less than a year and gave fewer than 5 days notice
MississippiOhioEmployees must get paid out for PTO, unless their handbook, agreement, or contract, says that employees forfeit their PTO
MissouriRhode Island
NevadaSouth CarolinaEmployees must get paid out for PTO, unless their handbook, agreement, or contract, says otherwise
New JerseyWashington D.C. Employees must get paid out for PTO, unless their handbook, agreement, or contract, says otherwise
New MexicoWest Virginia
OklahomaWisconsinEmployees must get paid out for PTO, unless their handbook, agreement, or contract, says otherwise
OregonWyomingEmployees must get paid out for PTO, unless their handbook, agreement, or contract, says otherwise
South Dakota

What to Do When Sick and Vacation Time Are Combined

Normally employees would get paid for sick time and vacation time, but this is dependent on your state’s policy. Some think sick time is not accrued, which means that the employee did not technically “earn” those hours. As a result, the employee would not get paid out for sick time. Other states may disagree and say that sick time and vacation time count as earned PTO, and PTO must get paid out entirely. As a rule, you should check with your state government to clarify what regulations you must follow.

Paying Out and Paying up

Generally, an employer must pay an employee for any accrued time they earned. Regardless of whether the employee earns their PTO monthly, bi-weekly, hourly, or semi-monthly– the employee gets paid out for their earnings. Along with that, an employer doesn’t have to pay an employee for any time they were going to earn in the future. As an example, let’s say that an employee gets 10 hours of PTO each month, which totals to 120 hours at the end of each year. If this employee decides to leave in July with a balance of 70 hours, the employer would pay out 70 hours. Just because the employee can earn up to 120 hours each year, doesn’t mean that they actually earned all of those PTO hours. The employee would simply get paid out from whatever remaining balance they had left.

On the other hand, if you have a PTO policy that gives employees PTO hours at the beginning of the year as a “lump sum”, you will most likely have to pay them out for all hours. But again, this depends on your state’s policies.

Questions about calculating PTO payouts? Read this article

Tracking Accruals Properly Can Help!

All in all, the best thing you can do for yourself as an employer is to track accrued time properly. If you don’t have accurate accrued balances, you won’t know how much time an employee earned. Consequently, when you don’t know how much time they’ve earned, you can’t pay out properly. Find a solution to track employee accruals so you can avoid making mistakes down the line. If you don’t issue the correct payouts to employees, or don’t pay out in a timely manner, you may find yourself with legal penalties– which can cost you more in the long run.

Need time tracking for your employees? Timesheets.com allows you to track attendance, time off, accruals, expenses, projects, and more. Try a free trial to see how you like it!

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Lisa Lombardo September 9, 2020 - 6:25 am

My question is when an employer switches from PTO accrual to a Flexible PTO where hours are no longer accrued.
One of my employers made the switch and banked my accrued hours and I was owed it on termination of employment and I was part of the flexible PTO or Discretionary (DTO) immediately. Another employer is making the switch and they are insisting I use my accrued time before I benefit from the flexible PTO. The employer is in MN. I am a fulltime employee in MA.
I feel like the approach the first company did is more fair. Is this a choice or is there a law that guides these decisions?

Lindsay Sommers September 11, 2020 - 3:30 pm

Hi Lisa, I unfortunately do not know the answer to that question because I’m not incredibly familiar with MN and MA PTO laws. That being said, I suggest that you speak with either an HR representative at your company or find someone else who understands employment law. You might even want to speak with your state’s local labor board because they know the state laws the best.

amy garcia April 15, 2021 - 11:02 am

How do we file a complaint and to whom when an employer did not pay out PTO after a two week resignation?

Lindsay Sommers April 15, 2021 - 5:37 pm

Hi Amy, great question! You’ll either want to speak with the Wage and Hour Division and file a claim or speak with an employment attorney.

kathryn May 31, 2021 - 6:32 am

My employer terminated me I had 78 hours of PTO. They did not have a reason to fire me other then something petty. Its in the hand book that they have the right to choose to pay that out. Am I still entitled to get paid out ?

Lindsay Sommers June 1, 2021 - 1:28 pm

Hi Kathryn. Getting paid out depends on your state or company policy. If it’s in their policy that they can choose whether or not they want to pay you out, it’s most likely okay that they can withhold your payout. If I were you, I’d consult with an employment attorney and discuss your situation to see if there’s anything you can do.

Josephine P Salazar July 13, 2021 - 2:04 pm

Do the payouts based on where the state the company is located or where the state the employee lives and works from home?

Lindsay Sommers July 13, 2021 - 3:08 pm

Payouts are typically determined based on where the employee lives permanently. When it comes to taxes, for example, let’s say that your employee lives in Texas but the company is based in California… you would apply Texas state taxes for that employee, rather than California state taxes. Take a look at your state’s laws regarding payouts– they should clearly state who payouts apply to.

Anonymous August 27, 2021 - 11:58 am

My company’s employee handbook states “Upon termination, eligible employees will be paid for any accrued unused PTO.”

I am thinking about quitting soon due to a new possible offer, but have over 100 hours accrued. Will I have a case if my employer doesn’t pay out after I quit with this verbiage? I am confused by “termination” as I’ve generally heard that associated with firing/laid off.

Lindsay Sommers August 27, 2021 - 12:36 pm

You are typically paid out when you leave the company, regardless of whether you’re “terminated” or not. You can check with your state’s local labor board to see what your state’s requirements are. They should be able to tell you what obligations your employer has regarding your situation.

Yeah Itsalittlepetty August 27, 2021 - 6:50 pm

Incredibly specific question: Contracted for 3 months with old employer after sale of company, May 1 – July 31. June 16th told “they” (new company) deem my contract fulfilled and require me to leave. (locked out) Payments made per contracts.
On April 30th lump sum payout includes PTO through my Anniversary date of June 2nd. No additional PTO (What would have been earned from Jun 2nd – July 31st) is paid. I am told that the new owner considers the time after I was required to leave to be PTO. Think I’m due 2 months PTO? (old policy was to fully fund PTO at anniversary date, but let’s just worry about accrual)

Lindsay Sommers August 30, 2021 - 3:48 pm

Your PTO payout depends on where you live and how your state defines “hours worked”. Some state PTO payout laws say that an employee technically earned their PTO hours up until the point of termination, so the employer must pay the employee for all hours of PTO they earned up until that point. For example, if you still had 49 hours of PTO during your point of termination, they’d have to pay you for those 49 hours. It’s pretty rare that an employer must have to pay out an employee for hours that they were going to earn later in the year. So, even though you were supposed to earn more PTO during your contract, you didn’t actually earn the extra PTO. It’s likely that your employer doesn’t need to give you extra payouts. If I were you, I’d contact my local labor board so that they can clarify your employer’s obligations.

ANGELA SPENCE September 9, 2021 - 10:19 am

I live in VA and my handbook states ” employees are requested to provide four weeks’ notice in order to be paid for any accrued but unused PTO.”. Does this mean they will not pay me if I give a 2-3 week notice? I am confused on the required vs requested verbiage.

Lindsay Sommers September 9, 2021 - 4:32 pm

Hi there. Unfortunately, only your employer would be able to clarify this for you. Perhaps you should speak with your employer, HR representative, or manager about this issue.

Roxan Marie Burkett October 3, 2021 - 2:30 pm

I left my employer because they were being unfair, and i was being treated badly due to my fmla note from doctor to have 3 days off and if my leg started hurting, i could leave, and call in without being fired. Ever since i started that my boss has harassed me, punishing me because ive had 3 days off and the other employees didn’t. Humiliating me in front of all customers, and co workers, repeatedly, making me walk out. I was denied for my 40 hours PTO AND 3 weeks vacation pay, because I didn;t give notice, but i feel I had to leave due to the circumstances. Can I still get paid for my PTO AND vacationo pay for that scenario?

cris November 19, 2021 - 5:35 pm

I live in Montana and i have acquired over 40 hours of PTO my company says i can only roll 40 into the next years and i lose the amount over 40 hrs,… Is that legal?


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