Global Payroll — 6 min
Benefits & Leave — 4 min
Which states require payout of unused vacation?
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When an employee leaves your company, one of the things you’ll need to clarify is what happens to their unused paid time off (PTO).
However, the answer depends entirely on where they work. PTO payout laws vary from state to state, and if your company employs people across multiple jurisdictions, understanding the differences is critical.
In this article, we’ll explain which states require PTO payout, what those requirements are, and how you can simplify the entire process. So let’s jump straight in.
Jump straight to a key chapter
What is unused PTO?
Unused PTO is any vacation or personal time off that an employee has earned but hasn’t yet taken when they leave your company.
Whether you’re required to pay out that time depends on the state your employee is based in — not your company.
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Do companies have to pay out PTO in the US?
Are companies required to pay out PTO? Learn the rules — and best practices — for managing unused vacation time with confidence and clarity.
So, which states require PTO payout?
There’s no federal law in the US that requires employers to pay out unused PTO.
However, many states have their own laws, requiring you to pay out unused PTO when an employee leaves.
Note: In states not on this list (such as Florida, Texas, and Pennsylvania), your policy on paying out unused PTO is up to you. This policy must be clearly outlined, though, and included in either your employment agreements or your employee handbook.
Here’s the full breakdown of the states that require PTO payout, and the key factors you should be aware of:
States requiring PTO payout upon termination
| Stance | Use-it-or-lose-it'? |
California | Classifies accrued vacation as earned wages, requiring payout upon termination. | Not allowed |
Colorado | Considers earned vacation as wages under the Colorado Wage Act, necessitating payout upon separation. "Use-it-or-lose-it" policies are not allowed. PTO Genius+3Criterion+3Assets Global+3 | Not allowed |
Illinois | Requires payment of accrued vacation upon termination, regardless of company policy. | Allowed (if clearly stated) |
Indiana | Mandates payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
Louisiana | Requires employers to pay out unused vacation time upon termination. | Not allowed |
Maine | employers with more than 10 employees must pay out unused vacation upon termination. | Not allowed |
Maryland | Requires payout of accrued vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
Massachusetts | Treats earned vacation as wages, requiring payout upon termination. | Not allowed |
Minnesota | Mandates payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
Montana | Considers accrued vacation as wages, requiring payout upon termination. | Not allowed |
Nebraska | Requires payment of earned vacation upon termination. | Not allowed |
New Mexico | Mandates payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
New York | Requires payout of accrued vacation upon termination if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
North Carolina | Mandates payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
North Dakota | Requires payment of earned vacation upon termination. | Not allowed |
Ohio | Mandates payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
Rhode Island | Requires payout of unused vacation upon termination after one year of employment. | Not allowed |
West Virginia | Mandates payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
Wyoming | Requires payout of unused vacation if the employer's policy or contract provides for it. | Allowed (if clearly stated) |
Note that, in states where ‘use-it-or-lose-it’ is allowed, a clear and written policy is critical. Without it, courts may interpret any ambiguity in favor of the employee..
What about unlimited PTO?
If your company offers unlimited PTO, the rules may be different.
Because unlimited PTO doesn’t accrue in the traditional sense, many states don’t require employers to pay out unused time when someone leaves.
That said, courts and labor departments have occasionally challenged this — especially if the “unlimited” policy isn’t applied fairly or consistently. To stay compliant, make sure your unlimited PTO policy is clearly written, genuinely unlimited, and evenly enforced.
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How to manage an unlimited PTO policy
Learn the best practices for managing unlimited PTO and creating a compliant global benefits plan. Download the Remote guide to attract top talent.
How can Remote help?
If you’re hiring across state lines, don’t leave compliance to chance. PTO payout laws may seem like a small detail, but getting them wrong can have big consequences.
Remote helps ensure that you are fully compliant with all relevant labor and payroll tax laws at the local, state, and federal level — and even if you have employees abroad. To learn more about how we remove your compliance headaches and make payroll, leave, and everything in between a doddle, speak to one of our friendly experts today.
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