What Happens to PTO When You Quit?

When workers leave a position that offered paid time off (PTO), they may be entitled to a payout of some or all of their unused vacation and sick time. However, some US states have laws that limit this, effectively ending PTO when the employee leaves the company even if they could have used it had they remained.

Understanding your rights to PTO is essential, especially if you are considering leaving your position. In this post, we will give you an overview of the situation. Contact an attorney for legal advice specific to your case if you believe you are owed funds not collected.

Why is it important to know vacation pay and other PTO?

PTO is not a legal requirement under employment law in the US. That means that employers do not have to provide it to employees. However, if a company has a vacation policy, there are details in an employee’s contract, or there is a collective bargaining agreement that includes PTO, then the employer may need to pay out unused time off once an employee leaves.

Just because companies offer PTO as part of their employment contract and company policy doesn’t mean your former employer will have to pay for the accrued PTO time you didn’t use before leaving. Some companies have a use-it-or-lose-it policy, which means you forfeit any unclaimed time off.

Before you give your two weeks’ written notice or leave your position with unused vacation pay at the time of your last day of work, discuss your options with your employer. Read through any disclaimer in your employee handbook to learn more about what to expect.

What does the law say?

Laws in the US differ widely from state to state on this matter, which is why it’s essential to know what rights specifically apply to your situation.

Federal law regarding unused PTO

There is no federal law that governs unused paid time off. The Department of Labor allows employers to set their own policies regarding unused sick time or vacation time.

State laws regarding unused PTO

States have varying laws on unused PTO. Some states regulate employer policies on unused vacation time. In the following states, employers must pay employees for unused PTO in situations where their employee contract, written policy, or other company policy, including PTO accrual rules, state that they will do so:

• Alaska
• Arizona
• Illinois
• Indiana
• Kentucky
• Maine
• New York
• Maryland
• Nevada
• Pennsylvania
• Rhode Island
• Tennessee
• Texas

But remember, employers in these states still set their PTO policies. That means they can put in place a use it or lose it policy that requires employees to use their vacation time, sick time, or other PTO before a specific expiration date. If the time off is not used, then the employer does not need to pay for it.

Other states have rules that require employers to pay out any unused PTO that an individual has. In these states, the employer has to provide employees with payment for their unused time off, or they could be violating wage and hour laws within those states.

The following states require employees to be paid for their vacation time and other PTO:

• California
• Colorado
• Illinois
• Louisiana
• Massachusetts

Other states have different laws and requirements that differ from each other. For example, in North Dakota, if an employee left voluntarily, provided under five days’ notice before leaving, worked there for under a full 12 months, and received notice that PTO payouts were withheld in these situations, they may not receive that compensation.

Rules might be also different if you were terminated, retiring, or resigning from your position. 

As we mentioned, every state might have different regulations when it comes to PTO policy legislation. Here is a helpful breakdown of legislation by state.

More data to understand unused PTO

• It’s estimated that private industry workers in the US receive 15 paid vacation days after five years of service, according to data from 2017 provided by the US Bureau of Labor Statistics
• 55% of PTO went unused in 2022, almost double compared to 2019
• Americans take less time off now than they did in the past. According to research by the US Travel Association (PDF), the amount of PTO taken in the US peaked in 1981 and has not recovered since.

Simplify your PTO processes with Deel

When it comes to things like effectively managing sick leave and accrued vacation time, having some support from an HR system can help. Whether you look at it from the employer or employee perspective, the best solution to avoid issues around unused PTO is to make sure PTO is being used.

Do you need help offering your employees vacation leave more efficiently? Thinking about providing unlimited PTO? Looking for ways to reduce manual work for your human resources team?

Deel's PTO plugin will make your PTO management a breeze, enabling you to request and approve time off directly from Slack and assign coverage and notifications about employees being off.

Together with PTO, we offer a host of Slack-based HR tools to boost your people operations management. Book a demo today to start building more effective HR processes.