Pay for Unused Sick or Vacation Leave if You're Fired

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What happens to your unused vacation time or sick time when you're fired from your job? Will you be paid for the leave time you have accrued or won't you get anything? The answers depends on where you work and on company policy. Many states have laws which require employers to pay for unused sick or vacation time when an employee is terminated.

Pay for Unused Vacation Leave for Fired Employees

Because companies are not obligated to provide paid vacation or sick time to employees, they are also not required to pay for unused leave time, unless there is a state law providing for payment when an employee is fired or laid-off.

Twenty-four states have laws that focus on unused vacation time, and you have the legal right to said accrual in your final paycheck if the employer has promised it. These states include Alaska, Arizona, California, Colorado, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island (after one year of employment), Tennessee, West Virginia, Wyoming, as well as Washington D.C.

There is no federal law governing if and when accrued vacation must be paid when an employee leaves his or her job. However, some states required payment of unused leave. For example, the twenty-four states require that your employer include unused vacation pay in your final paycheck. If you live in one of those states, you will be paid for the leave you didn’t use.

For all other states, there is no law that requires an employer to compensate the exiting employee for the accrued vacation or sick time. Some employers, however, may choose to do so voluntarily or be forced to do so based on company policy or the individual contract.

Pay for Unused Sick Time

Unlike unused vacation days, employers are not required to pay employees for accrued sick time. Some employers may pay for unused sick time as an incentive to avoid abuse of their sick day policy, or if they are contractually obligated to pay for sick time.

Pay for Paid Time Off (PTO) Days

More and more organizations are moving from designated vacation and sick time pay to paid time off (PTO) days. With PTO, employees can elect to use the days as they wish- vacation, sick time, personal leave, bereavement, etc. PTO days are treated the same as vacation days in terms of employment law, so they would also be payable to the employee in the 24 states listed above.

If you are fired, you may, or may not, be paid for unused vacation and sick time. It depends on two factors, company policy and the law in your state regarding accrued leave time and whether that company policy sets criteria for:

  • Paying any employees for unused vacation or sick leave
  • Paying employees who are fired for cause for unused vacation or sick leave

How Eligibility for Pay for Unused Leave Is Determined

State law and how the company policy is written would determine your eligibility for pay. Employers should document their company policies with clear and consistent language so that employees understand what they are entitled to receive when their job is terminated. Taking time to explicitly spell out the policies and procedures for employees can prevent resentment and potential legal issues down the line. 

The organization cannot have a policy that violates state labor law. However, in states that don’t require employers to pay out unused time off, the company can opt whether or not to pay accrued vacation or sick time to terminated employees. 

Companies are able to freely decide the type of vacation schedule they use. Some companies issue a bank of paid time off at the beginning of the year, while others may require the employee to earn a certain number of days per month or hours per pay period. To add to that, companies are also legally able to limit the maximum number of vacation days an employee can accrue. 

Depending on the state, it may be illegal to impose policies by which an employee is required to use their vacation time within a given timeframe, or be forced to forfeit it. For example, in the case of the twenty-four states that compensate for unused vacation time, this “use it or lose it” rule could be seen as taking away compensation the employee had already earned.

Check on Eligibility

If you're not sure about eligibility, check with your Human Resources department or state department of labor for information on what unused leave pay you qualify to receive.