The PTO Payout Laws You Must Follow in Every State

PTO payout laws differ a LOT by state.

Some states count PTO as compensation and require payouts. Other states have zero laws and companies can do whatever they want (as long as they follow their contracts and policies).

Federal PTO Payout Laws that Apply to Every State 

There are no federal PTO payout laws that apply to all 50 United States of America. This is because the Fair Labor Standards Act, or FLSA, does not require employers to pay their employees for any time they don’t actively work.

Whether it’s vacation time, sick leave, or federal holidays, employers are not federally required to pay their employees for unused PTO. That’s why each state has different rules concerning PTO and PTO payouts.

PTO Payout Laws by State

All the PTO payout laws are below. There are a bunch of other PTO laws that companies need to follow. I have a list of all PTO laws by state over here.

Alabama Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: No

Alaska Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employer policy requires it.

Arizona Payout Laws

• Use-it-or-lose-it policy banned: No, but employers must provide and pay out earned sick leave under the Arizona Fair Wages and Healthy Families Act.
• PTO payouts required on separation of employment: No, unless it is earned sick leave.

Arkansas Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it.

California Payout Laws

• Use-it-or-lose-it policy banned: Yes
• PTO payouts required on separation of employment: Yes. Earned PTO is considered wages in California and is subject to the same laws as regular wages. Employers must pay out unused PTO regardless of the circumstances surrounding an employee’s separation from employment.

Colorado Payout Laws

• Use-it-or-lose-it policy banned: Yes
• PTO payouts required on separation of employment: Yes. In Colorado, all PTO is considered wages and must be paid out upon separation from employment, just like an employee’s regular wages and compensation.

Connecticut Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Delaware Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it.

Florida Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Georgia Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Hawaii Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it.

Idaho Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Illinois Payout Laws

• Use-it-or-lose-it policy banned: No, but employees must be given a reasonable amount of time to use their PTO under Illinois law. 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Indiana Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Iowa Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Kansas Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Kentucky Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Louisiana Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Maine Payout Laws

• Use-it-or-lose-it policy banned: For private employers with more than 10 employees, yes; for public employers and private companies with 10 or fewer employees, no. Note: the law is currently in flux and at odds with itself, which could result in a Colorado-style court case to clarify Maine’s PTO payout laws.
• PTO payouts required on separation of employment: For private employers with more than 10 employees, yes, even if the employment agreement or policy does not require it. For all others, yes, if the employment agreement or policy requires it. 

Maryland Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Massachusetts Payout Laws

• Use-it-or-lose-it policy banned: Yes and no. Employers cannot compel employees to forfeit earned wages, including vacation pay, when they separate from the company. But they can put accrual caps in place that effectively allow use-it-or-lose-it policies as long as employees are well aware of the policy and have ample time to use their PTO.
• PTO payouts required on separation of employment: Yes. Under Massachusetts law, employers must pay out all unused vacation pay and PTO, whether it was written or spoken into agreement. 

Michigan Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes. Michigan law explicitly states that if a company offers PTO, it must be paid out upon separation from employment unless an employee has given full and free, written consent to the contrary without fear of discharge or intimidation. 

Minnesota Payout Laws

• Use-it-or-lose-it policy banned: No, unless the leave is paid sick and safe time, which employers will be required to provide beginning in January 2024
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. In addition, unused paid sick and safe time must be cashed out upon the final paycheck, but employers can cap the accrual at 80 hours.

Mississippi Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Missouri Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Montana Payout Laws

• Use-it-or-lose-it policy banned: Yes. 
• PTO payouts required on separation of employment: Yes. Under Montana law, employers are prohibited from taking away unused vacation time or failing to pay it out for any reason. 

Nebraska Payout Laws

• Use-it-or-lose-it policy banned: Yes
• PTO payouts required on separation of employment: Yes. Under Nebraska law, employers cannot take away vacation or PTO time or fail to pay it out for any reason.

Nevada Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: It depends. Under Nevada’s Senate Bill (SB) 312, private companies with 50 or more employees must give their employees paid time off with a minimum carryover cap of 40 hours per year. But these employers are not required to pay out unused PTO. However, if the employee was laid off or terminated and is rehired within 90 days, they must retain all the PTO they had earned previously.

New Hampshire Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

New Jersey Payout Laws

• Use-it-or-lose-it policy banned: No, unless it is earned sick leave, which employers must provide and pay out under New Jersey’s Earned Sick Leave law.
• PTO payouts required on separation of employment: No, but employees could make the case for a payout if the employment agreement or policy is silent on the matter.

New Mexico Payout Laws

• Use-it-or-lose-it policy banned: No, unless it is earned sick leave, which certain employers must provide and pay out under New Mexico’s Healthy Workplaces Act.
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

New York Payout Laws

• Use-it-or-lose-it policy banned: No, unless it is earned sick leave, which certain employers must provide and pay out under New York’s Paid Sick Leave program.
• PTO payouts required on separation of employment: No, unless the employment agreement or policy requires it. With New York’s Paid Sick Leave, employers do not have to pay it out upon separation from employment. However, if the employees are seasonal or maintain an employment relationship with the employer, the employees must retain their normal accrued amount of paid sick leave.

North Carolina Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, unless there is a written forfeiture agreement in the employment contract.

North Dakota Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, unless a written notice or agreement says otherwise; the employee had been employed for less than one year; or the employee resigned with less than 5 days’ notice.

Ohio Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, unless the employment agreement explicitly says otherwise. 

Oklahoma Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Oregon Payout Laws

• Use-it-or-lose-it policy banned: No, unless it is paid sick time as mandated by Oregon law.
• PTO payouts required on separation of employment: Yes, unless the employment contract explicitly states that employees shall forfeit unused PTO upon separation from employment.

Pennsylvania Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, if the employment agreement requires it.

Rhode Island Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

South Carolina Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: but only if the employment agreement or policy requires it. 

South Dakota Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: No

Tennessee Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Texas Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement explicitly requires it.

Utah Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, unless the employer has a use-it-or-lose-it policy in place.

Vermont Payout Laws

• Use-it-or-lose-it policy banned: No, unless it is paid sick leave under Vermont law. 
• PTO payouts required on separation of employment: No, unless it is paid sick leave under Vermont law.

Virginia Payout Laws

• Use-it-or-lose-it policy banned: No 
• PTO payouts required on separation of employment: Yes, but only if the employment agreement or policy requires it. 

Washington Payout Laws

• Use-it-or-lose-it policy banned: No, unless it is earned sick leave under Washington’s Paid Sick Leave law.
• PTO payouts required on separation of employment: Yes, if the employment agreement requires it or it counts as sick leave under Washington’s Paid Sick Leave law. 

West Virginia Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, if the employment agreement requires it.

Wisconsin Payout Laws

• Use-it-or-lose-it policy banned: No
• PTO payouts required on separation of employment: Yes, unless the employment agreement explicitly compels employees to forfeit PTO upon separation of employment.

Wyoming Payout Laws

• Use-it-or-lose-it policy banned: No, as long as the employee has ample time to use their vacation days and the employer has not refused any requested days off
• PTO payouts required on separation of employment: No, as long as you have a written forfeiture (use-it-or-lose-it) policy and your employees are aware of it.

How to Avoid Having to Track PTO Payout Laws in Every State

I’ve owned and managed multiple companies with employees spread out across the US.

And I’ve never worried about the exact PTO payout laws. How is that possible?

I avoid dealing with this but sticking to PTO policies that already meet the highest standard with PTO payouts.

I always pay out unused PTO. And I avoid any use-it-or-lose-it PTO policies. This way, I’m always meeting the strictest state laws around PTO payouts.

Problem solved.

It’s common practice across the HR industry to always pay out unused PTO. This avoids any chance of a wage complaint. I also believe it’s the right thing to do. Employees earned that time, pay them for it. And you won’t have to worry about which employee lives where, and if a state payout law has changed lately.

While use-it-or-lose-it PTO policies are more prevalent, I avoid them entirely. Not only are they banned in a few states like Colorado and Maine, I believe they’re horrible PTO practices. A simple PTO accrual system is so much easier to manage. And better for employees.

States are Making Their PTO Payout Laws More Strict

While it’s a slow trend, states are beginning to add payout laws.

Take the state of Colorado, for example. Before 2021, Colorado left its PTO payout law open to interpretation. Technically, employers had to pay out unused PTO when an employee left the company. But they could get around this by including language in their policy that forced employees to give up earned vacation pay under certain conditions. For example, if they were fired or failed to give two weeks notice before leaving.

The 2021 Nieto v. Clark’s Market, Inc. ruling changed everything. In this landmark case, former Clark’s Market employee Carmen Nieto sued the Aspen-based grocery store chain when she was terminated and the store failed to pay out her 136 hours of unused PTO. 

Clark’s quoted its PTO payout policy, which stated that employees forfeited their unused PTO if they were fired. After about three years of legal back-and-forth, the Colorado Supreme Court ruled in Nieto’s favor. 

Now, Colorado is one of the states where use-it-or-lose-it policies are effectively or explicitly banned. Even if you don’t have to pay out unused PTO in your state today, that could change at any time. 

My recommendation is to get ahead of this trend with PTO payout laws. That way, you won’t have to change anything if and when your state enacts a stricter PTO payout law.

PTO Payout Laws vs Your Contracts 

Even if a PTO payout isn’t required by your state’s PTO payout law, you could still get into hot water if you don’t pay it out and your employment agreement says you will. 

In the state of Wisconsin, for example, the law gives employers the power to define whether or not they’ll pay out unused PTO. But once the agreement is written in a contract or handbook, you must follow it to the letter.

And if you don’t make a mention of what happens to unused PTO in Wisconsin, your employee can compel you to pay it out or risk getting sued. 

So make sure that your contracts follow the law for the state that you or any of your employees work in. If you choose to provide payouts for unused PTO in states where it’s not required, stick to your contract 100% of the time and you’ll be fine. 

It’s always a good idea to have an attorney look at your employee contracts.