It would be nice if there was a uniform PTO payout law that each state followed, but that’s not the case. It’s not even close to the case. Some states count PTO as wages and compensation that employers must pay out when an employee leaves the company. Others say almost nothing about PTO payouts at all, leaving everything to the discretion of the employer.
We’ve gathered the information you need to know about each state’s PTO payout laws to help you make smart decisions for your company.
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.
The US is the only advanced economy in the world that does not guarantee this type of paid leave. (And our burnout rates show it.)
Whether it’s vacation time, sick leave, or even federal holidays, employers are not federally required to pay their employees a single cent for any of it. That’s why each state has different rules concerning PTO and PTO payouts.
Generally, states don’t require employers to provide PTO, either—with the exception of sick leave. A growing number of states are requiring certain employers to provide paid sick leave, safe, leave, and even regular-old PTO (looking at you, Nevada!).
Keep in mind that just because PTO isn’t required doesn’t mean you shouldn’t offer it. Here at HRAdvice, we believe PTO is an asset to employees and employers alike.
All of us need breaks from work to stay healthy and happy. And when we don’t have to worry about losing pay during those breaks, we’re more likely to take them. We can return to work fresh and rested after taking PTO, boosting our productivity, morale, and job satisfaction.
With advancing recognition of the importance of PTO, more states are taking action to change PTO payout laws.
PTO Payout Laws Are in Flux
Only a handful of states ban use-it-or-lose-it policies and compel employers to pay out unused PTO when an employee leaves the company.
But that number is growing.
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.
It’s a good idea to follow the strictest state—usually California—when it comes to creating a PTO policy for your employees. That way, you don’t have to worry when your state adds a new regulation. This is what we do at Stone Press.
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 PTO payout policy to help you keep everything free of reproach.
PTO Payout Laws by State
Below, you’ll find the PTO payout laws by state. For laws regarding paid time off and not necessarily payouts from PTO, see our guide to the critical PTO laws by state.
Alabama
- Use-it-or-lose-it policy banned: No
- PTO payouts required on separation of employment: No
Alaska
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- Use-it-or-lose-it policy banned: No
- PTO payouts required on separation of employment: Yes, unless the employment agreement explicitly says otherwise.
Oklahoma
- 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
- 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
- Use-it-or-lose-it policy banned: No
- PTO payouts required on separation of employment: Yes, if the employment agreement requires it.
Rhode Island
- 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
- 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
- Use-it-or-lose-it policy banned: No
- PTO payouts required on separation of employment: No
Tennessee
- 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
- 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
- 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
- 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
- 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
- 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
- Use-it-or-lose-it policy banned: No
- PTO payouts required on separation of employment: Yes, if the employment agreement requires it.
Wisconsin
- 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
- 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.
Whether you operate in one state or many, the right payroll software can help ensure you’re in compliance with local regulations.
They help automate PTO, sick leave, and payout calculations plus stay on top of regulations so you don’t have to–even when things change. However, I’d still recommend making it a regular practice to check these things yourself.
PTO and PTO payouts can get even more complex if you’re offering PTO to non-US employees, as well. I don’t recommend international hiring to most businesses if they can avoid it, but global payroll software can help you keep track of local PTO and payroll laws in the countries you operate in.
