PTO payout laws by state: Which states require vacation payout upon termination?

Managing PTO seems like a straightforward exercise: team members request time off, you approve it, everyone’s happy. But then someone resigns, and suddenly you’re deep into state labor laws, wondering if their unused PTO turns into a payout or if myriad exceptions apply. Some states require you to pay up; others leave it up to the employer… Mostly. 

In this article, we’re breaking down PTO laws by state so you can confidently handle final paychecks without the legal headache and part on good terms with your former colleagues. 

What are PTO payout laws?

PTO payout laws help protect employees from losing the benefits of earned time off when transitioning out of a company by requiring employers to compensate them for unused paid leave. 

Example: Alex is leaving Acme Corp. for a new position at the end of the month. They haven’t used any paid time off this year and have ten vacation days saved. Each vacation day amounts to $300 in wages.  Acme Corp.’s policy compensates employees for any unused PTO, so Alex’s final paycheck includes an extra $3,000 dollars. 

Some states treat PTO (paid time off) like earned wages, which means it must be paid out when the employee leaves. Others let companies decide, but if a policy promises PTO payouts, they must be honored. 

How does PTO payout work?

PTO payouts typically happen when an employee resigns, retires, or is terminated with unused paid time off. Whether you’re required to make a payout, however, depends on state law and company policy. PTO payout laws in some states consider unused leave like wages and make payouts mandatory, while others give companies the right to set their own policies. 

If your company offers or is required to make PTO payouts, you’ll typically use the employee’s wage or salary to calculate the amount.

Example: Taylor works as a paralegal and earns $65 an hour. They also accrue one day of PTO per month. In September, Taylor resigns to start law school. Because Taylor has not used any PTO for the year, they are entitled to compensation for nine days of PTO. In a typical workday, Taylor earns $487.50, so in most cases, those nine days of PTO add $4,387.50 to their final paycheck.

Managing PTO payouts isn’t just about cutting a final paycheck, though. It’s important to have a clear policy to stay compliant with state law, particularly if you operate in multiple jurisdictions. Employers need to define how workers earn PTO, whether it carries over from year to year, and how it’s handled when employees move on to avoid legal risks and confusion. 

• Accrual methods. Some companies issue PTO in a lump sum at the start of the year, while others provide for an accrual of PTO on a per pay period or some other basis. 
• Rollover policies. If your state allows use-it-or-lose-it policies, it may require sufficient notice to the employee and a written policy to that effect.  On the other hand, if your state prohibits use-it-or-lose-it policies, you’ll need to allow rollover but also consider setting accrual caps to manage liability. 
• Eligibility criteria. Define who qualifies for PTO payouts and when. Depending on state law, you may want to exclude employees terminated for cause, part-time workers, or new hires. 
• Final paycheck integration. Many states have strict deadlines for issuing final wages, so it’s important to put systems in place that ensure PTO is correctly calculated and included in final paychecks.

PTO payout laws by State in 2025

Which states require payout of unused vacation?

If you’re running a business in any of the states listed below, your employees are entitled to receive payouts for accrued vacation and other PTO if they decide to leave or are terminated. 

• California
• Colorado
• Illinois
• Indiana
• Louisiana
• Maine
• Maryland
• Massachusetts
• Montana
• Nebraska
• New Hampshire
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Rhode Island
• West Virginia
• Wisconsin

You can’t afford to guess when it comes to legal requirements, and it’s important to confirm that your policy complies with the law in every jurisdiction where you operate. Some states require a payout no matter what, while others enforce it if your PTO policy promises it.

You can also avoid misunderstandings by drafting a clear, unambiguous PTO policy. Spell out how PTO accrues, when it’s paid out, and if any limits apply. Including the complete policy in your employee handbook gives everyone access to everyone who needs it and keeps your business consistent across jurisdictions.

Make it a practice to review your policy with HR and legal experts. Laws change, and sometimes you need the experience and advanced knowledge of a professional to make the updates you need. 

Manage employee PTO and remain compliant with Rippling

A comprehensive, single-system solution for HR, payroll, spend, and IT, Rippling offers support to businesses of all sizes worldwide. Rippling’s integrated HCM removes barriers between key HR functions, including payroll, benefits management, headcount planning, and learning management, for a seamless experience.

For businesses interested in streamlining one or more HR functions, Rippling ASO provides access to expert assistance without sacrificing flexibility. Bring your own brokers, benefits, and workers’ compensation plans, and Rippling takes charge of administration and compliance. 

FAQs on PTO payout laws by state

In what states is PTO payout required?

Employers in California, Colorado, Illinois, Indiana, Louisiana, Maine, Massachusetts, Nebraska, and North Dakota are required to pay out unused accrued PTO when an employee resigns or is terminated.

Do companies have to pay out PTO when you quit?

Whether a company has to pay out PTO when you quit depends on the laws of the state where you’re employed. Some states, like California, Colorado, Illinois, Indiana, Louisiana, Maine, Massachusetts, Nebraska, and North Dakota (except in narrow circumstances prescribed by statute), require employers to compensate workers for unused vacation time. Others allow businesses to set their own policies. 

Which states prohibit use-it-or-lose-it PTO policies?

California, Colorado, Nebraska, and Montana prohibit use-it-or-lose-it PTO policies. In these states, accrued PTO counts as earned wages and cannot be forfeited. Employers may limit future accruals but must compensate employees for any earned vacation upon termination.

Are companies required to pay out PTO?

Companies are required to pay out PTO in several states, including California, Colorado, Illinois, Indiana, Louisiana, Maine, Massachusetts, Nebraska, and North Dakota. In other states, employers must pay out PTO only under certain circumstances or if the company has a written policy to this effect.

This blog is based on information available to Rippling as of March 18, 2025.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.