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What Happens to PTO When You Quit?

US state laws vary wildly in how they regulate PTO, so it can be tricky to understand what happens to PTO when you quit. Learn more about PTO in this post.

Gabriele Culot
Written by Gabriele Culot
January 24, 2023
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Key Takeaways

1. There are no federal regulations governing PTO in the US

2. State laws can vary dramatically between each other, making things hard to navigate

3. Understanding what PTO regulations apply to you is crucial to ensure process compliance, and respect of legal rights

When workers leave a position offering paid time off (PTO), they may be entitled to some or all unused vacation 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, or there are details in an employee’s contract, or collective bargaining agreement that stipulate PTO, then the employer may have to pay for unused time off once an employee leaves.

Just because companies offer PTO as part of their employment contract and company policy does not necessarily mean your former employer will have to pay for the accrued PTO time you didn’t use before leaving. 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.

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?

Federal Law regarding unused PTO

The Department of Labor (DOL) does not govern how employers manage their employees’ sick time or paid vacation time. Similarly, no law states a company has to offer paid time off or governs PTO policy.

State laws regarding unused PTO

Some states regulate employer policies, for instance, those dealing with 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 they do not, then the employer does not need to pay for it, and unused PTO does not carry over after expiration.

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. Keep in mind that these laws differ from one state to the next.

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.

Another variable that should be kept in mind is that this info might differ in the case of terminated employees. So you should research your specific situation thoroughly in the event of involuntary termination of employment.

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
  • In a survey by the US Travel Association, 768 million days of paid time off went unused in 2019, with 55% of Americans not using all of their paid personal days off.
  • Americans take less time off now than they did in the past. According to research by the US Travel Association, 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.

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