When an employee leaves, one of the questions that routinely pops up is, “Do employers have to pay out PTO?” A flexible paid time off (PTO) plan is a great benefit for employees. Having two, three and even four weeks of paid vacation or sick time can really help employees balance their work and home lives. But if your PTO policy isn’t worded carefully, you might be required to pay out thousands of dollars if an employee decides to leave. Payouts of PTO upon termination might be common practice but your company might not be legally required to do so. It all depends on the state where the employee works and what your PTO policy states.
What the Federal Government Says
First, there is no nationwide statute regarding PTO. The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or federal or other holidays. The Department of Labor (DOL) allows individual states and employers to decide employees’ PTO benefits.
States with PTO Laws
There are 24 states with existing PTO payout laws or statutes regarding the payment of PTO accrual. The states include: Alaska, Arizona, California, Colorado, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, West Virginia, and Wyoming—and the District of Columbia. It’s important to note that most laws are dictated by existing company PTO policies.
According to Reuters:
- Arizona: PTO is considered wages and must be paid upon separation if a policy or practice is in place.
- California: Earned, unused vacation time cannot be forfeited unless a collective bargaining agreement says otherwise.
- Colorado: Any earned vacation pay must be paid upon employment separation. The Colorado Division of Labor determines if vacation is earned if there is no existing agreement or if it is ambiguous.
- Illinois: Employees are required to be paid for earned PTO as part of their “final compensation” unless another agreement already exists.
- Indiana: A discharged employee is due earned and unused vacation pay unless the employer has a policy that places limitations on how much vacation pay an employee can receive.
- Kentucky: Employers that offer “vested” vacation pay must pay unused vacation to employees when they leave.
- Louisiana: Louisiana has a statute in place that requires employees are paid for any unused vacation regardless of the reason for termination.
- Maine: Employers must follow the terms of their vacation policy when an employee leaves.
- Maryland: If no written policy exists, employers must pay employees for all earned, unused vacation time.
- Massachusetts: An employer must pay terminating employees all earned, unused vacation.
- Minnesota: If an employer grants PTO, it is considered wages. The policy determines what vacation pay is due.
- Nebraska: All earned, unused vacation must be paid to departing employees.
- New Hampshire: Employers must pay employees accrued, unused vacation unless a policy specifies otherwise.
- New York: Payment of accrued PTO is determined by the employer’s policy.
- North Carolina: An employer’s policy determines whether earned, unused vacation is paid on termination.
- North Dakota: An employee is due earned PTO upon separation but certain stipulations apply. If the employee voluntarily leaves, PTO doesn’t have to be paid if limited payment is stated in a written policy, the employee has been employed for under a year or the employee gave less than five days’ notice of quitting.
- Ohio: Paid PTO is determined by the employer’s policy.
- Oklahoma: An employer is required to provide vacation pay to departing employees if a contract or policy specifically requires it.
- Pennsylvania: Payment of PTO upon separation is determined by the employer’s policy or agreement.
- Rhode Island: Employers must pay employees who leave their accrued vacation time if the employee was there at least a year, a contract or policy dictates payment both written and verbal.
- Tennessee: Employers must establish a vacation policy and it determines if payment is due.
- West Virginia: Accrued vacation does not constitute wages and doesn’t have to be paid upon determination if a written policy stating the fact exists.
- Wyoming: An employer must provide terminating employees with accrued, unused vacation pay earned according to the employer’s policy.
- District of Columbia: Unused vacation is payable on termination if vacation is part of employee compensation and if there is no agreement to the contrary.
Put a PTO Policy in Place
A well-defined PTO policy can do more to protect your company and your employees than relying on PTO laws. According to Workplace Fairness, employees can only challenge an employer over unpaid vacation time in a final paycheck if it is promised ahead of time.
Get some legal advice when drafting your PTO policy. Make sure there isn’t any language regarding payment of PTO, unless you want to offer it to your employees as a benefit. Legal services like myHRcounsel can provide affordable advice that ensures your company policies are legal and compliant with both state and federal laws.
Once your document is crafted, share it with employees so they know exactly how your PTO policy works. Having a written policy that is accessible either through the employee handbook or portal can help protect your company should an issue arise.
A good PTO plan can keep both your employees and payroll department happy. It can also answer the question, “Do employers have to pay out PTO?” Using tools like ExakTime’s time clock app lets you track when your employees work including the number of hours accrued – essential for tracking PTO.