Comparing 2025 PTO Payout Laws by State

Accrued PTO can complicate offboarding processes, regardless of why an employee leaves. See what each state says about how to handle those unused hours.

Authored by Paylocity's Compliance & Government Relations Team

Article

May 16, 2024

Paid time off (PTO) is a commonly provided benefit that allows employees to take time away from work while still receiving their normal wages.

Despite its common use, only Illinois, Maine, and Nevada legally require employers to provide some form of PTO. No other state, nor the federal government, requires PTO for employees, though several states have paid sick leave or paid family and medical leave (PFML) programs to which employers (and sometimes employees) financially contribute via payroll taxes.

If an employer chooses to offer PTO, some states instead have laws regarding how those organizations classify and manage that time off. For example, they may allow organizations to categorize and limit PTO use by type (e.g., vacation, sick, volunteer, etc.) or instead have one standardized PTO bucket.

State PTO laws are especially important when an employee is unable to use their accrued PTO as intended (e.g., resignation, termination, year-end, etc.). Depending on the state, employers may have to compensate employees for that unused PTO, or they may require the employee to forfeit it all.

NOTE: The below information was last updated January 2, 2025. It is not intended as legal or tax advice.

Key Takeaways

PTO payouts financially compensate employees for their accrued but unused PTO.
Instead of paying employees for their unused PTO, some companies have “use-it-or-lose-it” policies that force workers to forfeit unused PTO.
Laws regarding use-it-or-lose-it policies and PTO payouts in general vary by state.

What is PTO Payout?

A PTO payout is when an employer provides a lump-sum payment to an employee for the employee’s accrued but unused PTO. Employers only have to pay out an employee's unused PTO if state PTO payout laws or an internal company policy requires them to.

The details and requirements of either can vary widely by state or organization, so it’s beneficial for employees and employers alike to familiarize themselves with the applicable regulations.

To calculate a PTO payout, simply multiply the employee’s hourly rate or salary-based equivalent by the amount of accrued PTO hours and apply any relevant payroll deductions (e.g., taxes). The final sum can then be added to the employee’s final paycheck, disbursed separately, or allocated as the employee wishes if the company uses a PTO conversion program.

Use-It or Lose-It Policies

In some states, organizations can instead adopt a “use-it-or-lose-it” policy that forces employees to forfeit any accrued but unused PTO by a specified date or event, such as the end of the fiscal year or the employee's last day. This prevents employees from stockpiling excessive amounts of PTO and protects employers from any labor issues that could arise from such a situation.

Additionally, use-it-or-lose-it policies can exempt an employer from having to pay out an employee’s accrued PTO. Therefore, a handful of states (California, Montana, and Nebraska) expressly prohibit use-it-or-lose-it policies, while several others only allow them in certain circumstances.

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2025 PTO Payout Laws by State

States that require PTO payouts often base their mandates around existing employment agreements between employees and employers. Moreover, most states that require PTO payouts don’t differentiate based on the reason for the employee’s separation (i.e., a PTO payout when quitting is usually the same as when being fired).

Refer to your state’s government website for more PTO payout information and each state’s linked tax facts page below for other payroll tax requirements.

Jurisdiction	Use-It-Or-Lose-It Policies	PTO Payout Requirement(s)
Alabama	No regulations	Based on the employer's policy. If the employer communicates a paid vacation policy to employees, it may not unilaterally revoke the policy after performance by employees.
Alaska	No regulations	Based on the employer's policy. If the employer has a policy, promise, or contract to provide paid vacation time, the state will enforce the employer's rules for those payments.
Arizona	No regulations	The wages due upon separation must include vacation pay if the employer has a policy or practice of making those payments.
Arkansas	No regulations	Earned, unused vacation time must be paid to terminated employees if the employer provides paid vacation time according to an accrual plan and the vacation time was earned according to that plan.
California	Prohibited	Earned, unused vacation time can’t be forfeited, regardless of the reason for termination, unless a collective bargaining agreement provides otherwise.
Colorado	Allowed if: the policy is included in an agreement between the employer and employee the agreement determines when vacation pay is "earned" the policy doesn’t deprive an employee of earned vacation time or the wages associated with that time any "earned and determinable" vacation pay is paid upon employment separation	Any "earned and determinable" vacation pay must be paid upon employment separation. The parties' agreement determines when vacation pay is "earned.” If the agreement is silent or ambiguous about when vacation pay is earned, the state will consider: the employer's historical practices industry norms and standards the subjective understanding of the employer and employee any other relevant factors
Connecticut	No regulations	If employment is terminated, employers who offer vacation time must pay the employee's accrued, unused vacation time and other fringe benefits as if they’re wages, as specified under the contract or agreement.
Delaware	No regulations	If the employer's policy or an employment agreement between the employer and employee provides for vacation pay upon termination, the employer must follow the terms of that policy or agreement.
District of Columbia	No regulations	Unused vacation time is payable on termination if: the employer provides vacation time as part of employee compensation there’s no agreement to the contrary
Florida	No regulations	Not required by state law.
Georgia	No regulations	Not required by state law.
Hawaii	No regulations	Based on the employer's policy.
Idaho	No regulations	Based on the employer's policy.
Illinois	Allowed if employees have a reasonable opportunity to both use the vacation time and take notice of the policy.	Accrued, unused vacation time must be paid out upon termination.
Indiana	Allowed	Based on the employer's policy.
Iowa	No regulations	Based on the employer's policy.
Kansas	Allowed	Based on the employer's policy.
Kentucky	No regulations	If an employer offers "vested vacation pay," employers must pay departing employees the vested, unused vacation pay, regardless of whether the employee is terminated or leaves voluntarily. Conversely, employers aren’t required to pay for vacation time that hasn’t vested under a policy or contract (or possibly an established practice). Vested vacation pay is treated as wages, but if and when vacation vests is a matter of policy or contract between the employer and employee.
Louisiana	Allowed	Employees must be paid for all accrued, unused vacation time upon termination, regardless of the reason for the termination.
Maine	Not expressly prohibited or allowed. Employees can carry over up to 40 hours of earned paid leave (which can be used for vacation time off) from one defined year to the next.	A private employer with 10 or more employees must pay any accrued vacation pay they owe upon an employee’s termination.
Maryland	No regulations	If an employer doesn’t have a written policy that limits pay for accrued, unused vacation time to a departing employee, the employee is entitled to the cash value of whatever earned, unused vacation time is left. The employer isn’t required to make these payments if the employer has established as such in a written policy and notified employees in writing at the time of hire that unused vacation time is forfeited.
Massachusetts	Allowed if employers give employees adequate notice of the policy (i.e., enough time to use the accumulated vacation time before the employer's cutoff date). Employers may also place a cap on vacation accrual.	An employer must pay terminating employees all earned, unused vacation time.
Michigan	No regulations	Based on the employer's policy.
Minnesota	No regulations	Based on the employer's policy.
Mississippi	No regulations	Based on the employer's policy.
Missouri	No regulations	Wages don’t include vacation time as a part of final paycheck requirements.
Montana	Prohibited, but employers may have a policy placing a cap on vacation time accrual. When the earned vacation hours drop below that cap, the ability to earn vacation time pay restarts.	Based on the employer's policy.
Nebraska	Prohibited	All earned, unused vacation time must be paid to terminated employees.
Nevada	Not expressly prohibited or allowed. The state’s paid leave requirements allow employees to carry over up to 40 hours per year.	Based on the employer's policy.
New Hampshire	Allowed	Based on the employer's policy. If there is no employer policy, vacation pay must be paid out upon termination.
New Jersey	No regulations	Based on the employer's policy.
New Mexico	No regulations	Accrued, unused paid leave must be paid out upon termination.
New York	Allowed if employers give employees prior notice of the policy.	Based on the employer's policy.
North Carolina	Allowed if employees are notified in writing of any policy that requires or results in loss or forfeiture of vacation time or pay. Employees who aren’t notified, aren’t subject to the loss or forfeiture.	Based on the employer's policy.
North Dakota	Allowed if employees have a reasonable opportunity to both use the vacation time and take notice of the policy.	An employer must pay a terminating employee for earned PTO at the regular rate of pay earned by the employee before separation. An employment policy or agreement can’t include forfeiture of earned PTO at separation. However, if an employee voluntarily separates from employment, a private employer may withhold payment for accrued PTO if: the employer gave the employee written notice at the time of hiring of the limitation on payment of accrued PTO the employee has been employed for less than one year the employee gave less than five days' written or verbal notice
Ohio	No regulations	Based on the employer's policy.
Oklahoma	No regulations	Based on the employer's policy.
Oregon	No regulations	Based on the employer's policy.
Pennsylvania	No regulations	Based on the employer's policy.
Rhode Island	No regulations	After one year of service, employers must pay separated employees their accrued vacation time that was awarded by either: a collective bargaining agreement a written or verbal company policy any other written or verbal agreement between the employer and employee
South Carolina	No regulations	Based on the employer's policy.
South Dakota	No regulations	Not required by state law.
Tennessee	No regulations	Based on the employer's policy.
Texas	No regulations	Based on the employer's policy.
Utah	No regulations	Employers must pay employees for any accrued, unused leave upon the employee’s termination, unless the employer specifically implements a use-it-lose-it policy explicitly stating that leave doesn’t accrue and employees aren’t paid for unused leave.
Vermont	No regulations	Based on the employer's policy.
Virginia	No regulations	Based on the employer's policy.
Washington	No regulations	Based on the employer's policy.
West Virginia	No regulations	Based on the employer's policy.
Wisconsin	No regulations	Not required by state law.
Wyoming	No regulations	Based on the employer's policy.

PTO Payout FAQs

Which states require PTO payout at termination?

Over a dozen states expressly require employers to pay out unused PTO when an employee leaves:

California
Colorado
Illinois
Indiana*
Louisiana
Maine
Maryland*
Massachusetts

Montana*
Nebraska
New Hampshire*
New Mexico
New York*
North Dakota
West Virginia*
Wisconsin*

*Allows for an existing employment agreement or policy to supersede the PTO payout requirement.

How does a PTO payout work?

In most cases, employers multiply an employee’s hourly rate or salary-based equivalent by the number of PTO hours the employee accrued. After deducting the applicable taxes, the employer then disburses the remaining amount to the employee.

Does a PTO payout count as income?

Yes, the IRS considers PTO payouts as supplemental wages, meaning the federal PTO payout tax rate is currently 22%. Moreover, some states expressly group vacation hours with an employee’s regular wages and use the corresponding rate for PTO payout taxes.

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