Do companies have to pay out PTO in the US?

In the US, paid time off (PTO) is one of the most valued and sought-after employee benefits. But it’s also one of the most confusing for employers to manage, especially when an employee resigns or is terminated. This is because it raises the complex question of whether companies are required to pay out unused PTO.

The answer to this depends on several factors, which we’ll break down in this article. We’ll also explore how state-specific rules can differ, some best practices for simplifying your PTO policies, and how the right software makes it infinitely easier to track PTO and comply with regulations.

So let’s jump straight in.

First: What is PTO, and how does it accrue?

PTO covers any time that employees take off with pay, such as vacation days, personal time, and sometimes sick leave. Most companies offer accrued PTO, meaning employees earn time off based on the number of days or hours worked.

That accrual becomes important when someone leaves your company, because it determines how much unused PTO is potentially owed to them.

So, is your company required to pay out PTO?

There’s no federal law in the US that requires employers to pay out unused PTO, with employers able to set their own policy.

However, state laws are different, with many requiring employers to pay out accrued PTO when an employee leaves.

To see a full breakdown of the laws in these states, check out our in-depth list:

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If you have employees in these states, you must adhere to the relevant rules, regardless of where your business is based.

What if your company has no PTO payout policy?

If you haven’t already documented your PTO policy in your employment contracts or in your employee handbook, it’s advisable to do so — even in states that don’t mandate PTO payout.

This is because courts often interpret silence in policies as a commitment to pay. As a result, you need to ensure that you:

• Document your PTO accrual and payout terms clearly

• Communicate any changes to your employees

• Stay consistent in your enforcement

Can employers cap, limit, or forfeit unused PTO?

The short answer is yes, but only to a certain extent — and not in every state. Let’s break it down:

Capping PTO accrual

Most states allow employers to set a maximum accrual cap, which is essentially a ceiling on how much PTO an employee can bank over time. This encourages employees to use their time off and prevents companies from carrying large PTO liabilities on the books.

For example, you might set a policy that caps accrual at 1.5x an employee’s annual allotment. Under this approach, an employee with 15 days of PTO per year would only be able to accrue up to 22.5 days total (15 days x 1.5), and would have to use some of it before they can accrue more.

This is allowed in most states, although some — like California — are stricter on what the cap must be.

Forfeiting PTO

Forcing employees to forfeit their unused leave — often known as a “use it or lose it” policy — is allowed in some states, but banned in others. For instance, it’s allowed in Florida, Texas, and Pennsylvania (as long as the policy is clearly communicated in writing), but not in California, Colorado, and Montana, where accrued PTO is considered earned wages.

If you're in a state that prohibits forfeiture, unused PTO must be paid out once it’s earned.

Again, you can see a breakdown of the rules by state in our detailed guide.

What about unlimited PTO?

If you offer unlimited PTO, there’s no accrual — and, therefore, nothing to pay out.

However, if your policy has limits disguised as flexibility, it may be treated like traditional PTO in a legal dispute. As a result, it’s critical to have clarity and consistency in your policy.

It’s also important to note that, in some states (like California), courts may still treat unlimited PTO as “de facto accrued time” if it’s not truly unlimited in practice. That means you could still fall foul of the law if:

• Employees require pre-approval for time off

• There’s an informal “cap,” or a culture of discouraging extended breaks

• You track time off anyway and reference balances

Remember: unlimited PTO only shields you from payout requirements if it's genuinely unlimited, and not earned or accrued.

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Best practices for managing unused PTO

Having a clear, compliant, and fair approach to PTO isn't just about avoiding legal issues. It's about building trust and transparency in your culture.

Here are some best practices to consider when handling unused PTO:

• Document your policy. The most effective policies are not just compliant — they're clear, accessible, and actually read by your team. Learn more about creating a PTO policy.

• Match your policy to local laws. If you have (or plan to have) employees in other states, you must adhere to the rules in each employee’s location. To ensure fairness, it’s advisable to default to the most employee-protective standard if you're operating across multiple states.

• Automate where possible. Manual tracking (such as through spreadsheets) is a recipe for errors, frustration, and inconsistent enforcement. Use an integrated, automated tool like Remote Payroll to easily track time taken off.

• Be consistent. Inconsistent enforcement of PTO policies erodes trust and opens the door to legal challenges or morale issues. Aim to apply policies uniformly, and document exceptions where relevant.

• Review and refresh. As your company grows, so will your legal obligations and employee expectations — and some policies may not scale. It’s advisable to audit your PTO policy once a year, and make changes if necessary. Ensure you communicate any changes clearly, though.

• Encourage use of PTO. Unused PTO can often pile up not because of policy flaws, but because employees don’t feel empowered to take it. Build a culture that normalizes taking breaks, provide reminders for people to use their leave, and ensure senior leaders are setting an example.

How can Remote help?

Managing PTO can get complex fast, especially if you have employees in different locations. But with Remote Payroll you and your people can see their PTO balance in real time, mitigating any guesswork or confusion. This kind of transparency builds trust — and reduces HR back-and-forth.

Most importantly, Remote helps ensure that you are fully compliant with all relevant labor and payroll tax laws, even if you have employees abroad. To learn more about how we remove your compliance headaches and make payroll, leave, and everything else quick and painless, speak to one of our friendly experts today.

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