Pay for Unused PTO
It might surprise you to learn that there is no federal law requiring employers to pay out unused PTO, including vacation time, after an employee leaves a company. The Fair Labor Standards Act (FLSA), which sets regulations for wages and overtime, does not mandate payment for unused vacation time. However, that does not necessarily mean that you will lose the value of your accrued time. Depending on your location and your employer’s policies, you might leave your job with a little extra cash in hand. Here is what you need to know.
Why Doesn’t the FLSA Require Payment for Unused PTO?
The FLSA pertains to time worked. It sets out standards for the minimum wage and overtime and regulates how work time is recorded. (“Hours worked ordinarily include all the time during which an employee is required to be on the employer’s premises, on duty, or at a prescribed workplace.”) The Act does not require employers to pay workers for time not worked, including vacation time, sick time, or holidays. In short, employers are not legally required to give workers paid time off, so if they do decide to offer PTO, they can often decide whether or not to pay it out at the end of a worker’s tenure with the company. However, there are exceptions, even at the federal level. For example, some construction workers on federal government contracts may be covered by the Davis-Bacon and Related Acts (DBRA) and entitled to vacation pay. In this case, workers may be entitled to payment for unused vacation time.
States That Require Payment for Unused Vacation
Depending on where you live, you might be entitled to compensation for unused vacation time under state law. Some states require employers to pay out vacation time in every case, while others stipulate certain conditions for payment – for example, when an employment contract states that unused PTO will be paid upon separation.
These states require employers to pay out unused vacation time:
California, Louisiana, Massachusetts, Nebraska, and North Dakota (except in certain cases)
These states require employers to pay if an employment contract or employer promise to pay exists:
Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island (after one year of service), South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming
These states have no law or policy regarding unused vacation time:
Florida, Georgia, New Mexico, and South Dakota
Company Policy May Provide Payment for Unused Time Off
Even if your soon-to-be former employer isn’t legally required to pay out your unused vacation time, they may opt to do so. An employer has a brand to maintain among prospective workers; by offering benefits like paid vacation time, they can increase their perceived value among future job candidates. In fact, even though most employers are not required to offer paid time off, most private-sector companies do. The Bureau of Labor Statistics estimates that 77% of private industry workers have access to paid vacation time. If your employer is one of them, you may also be entitled to payment for unused time after you leave the company.
Your employee handbook may outline vacation, sick time, and holiday policies, including whether you can expect to receive payment for unused time. It may also tell you whether there are conditions for payment—for example, whether you’ll receive a payout if you are laid off, but not if you resign. If you’re fired, there may be different laws and policies that cover what you’ll be paid for after a termination. Still not sure about your company’s policies? Talk to your HR department.
