US Leave Payout Laws - State-by-State Requirements

There is no federal law requiring employers to pay out accrued vacation, PTO, or other forms of leave upon termination. However, many states have enacted laws that treat accrued vacation and PTO as earned wages that must be paid out. Understanding your state's laws is crucial when leaving a job, as these rules apply to all forms of paid leave, including vacation, PTO, and sometimes sick leave.

Several states require employers to pay out accrued vacation time and PTO when an employee leaves, regardless of the reason for separation. These include California, Colorado, Illinois, Louisiana, Massachusetts, Montana, Nebraska, and North Dakota. In these states, use-it-or-lose-it policies are generally prohibited, and accrued leave must be treated as earned wages.

Most states allow employers to set their own leave payout policies for vacation and PTO. If the employer's policy or employment agreement states that unused leave will be forfeited upon termination, it may be legal. However, employers must clearly communicate this policy to employees. Some states have specific requirements about when payout must occur if it is provided.

Sick leave payout rules differ from vacation/PTO in most states. Few states require sick leave to be paid out upon termination. In states with mandatory sick leave laws, the payout requirements vary. Some states allow employers to offer payout, while others allow employees to donate unused sick leave or carry it forward but not receive payout.

To protect yourself: 1) Review your employee handbook and employment agreement carefully, 2) Understand your state's specific laws regarding vacation, PTO, and sick leave payout, 3) Keep detailed records of your leave balance, 4) Ask HR about payout policies before resigning or accepting termination, 5) Document any discrepancies in your final paycheck.