What happens to your unused vacation time or sick time when you're fired from your job? Depending on where you work, you may be paid for some, all, or none of your accrued paid time off (PTO) when you’re terminated for cause. The rules depend on state law and company policy.
Eligibility for Payment of Unused Leave
Federal law doesn't provide guidelines for payment of time not worked, such as vacation or sick leave. Some states require employers to pay for unused sick or vacation time when an employee is terminated. Also, some employers maintain policies that are more generous than the legal requirement, in the hopes of minimizing friction during a separation.
States That Require Payment for Unused Vacation
There is no federal law governing if and when accrued vacation must be paid when an employee leaves his or her job. However, most states require payment of unused leave under certain circumstances. The map below breaks down states that require payment for unused vacation, states that only pay unused vacation when contracts exist, and states that do not have a law or administrative policy for vacation.
States Where Unused Vacation Must be Paid
The states where unused vacation must be paid are as follows: California (unless a collective bargaining agreement states otherwise), Louisiana, Massachusetts, Nebraska, and North Dakota (unless the employee quits and has been notified in advance that vacation won’t be paid).
States Where Unused Vacation May be Paid
The states requiring that unused vacation be paid if an employment contract or employer promise/policy to pay exists are as follows: Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, the District of Columbia, Delaware, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island (after one year of service), South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.
States With No Vacation Pay Guidelines
States, where there is no relevant law or administrative policy requiring payment for vacation include Florida, Georgia, Missouri, New Mexico, South Dakota, and Wisconsin.
Pay for Paid Time Off (PTO) Days
More and more organizations are moving from designated vacation and sick 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 states listed above.
If you are fired, you may or may not be paid for unused vacation and sick time. Again, it depends on two factors—the law in your state and company policy. Either may set criteria for:
- Paying any employees for unused vacation or sick leave
- Paying employees who are fired for cause for unused vacation or sick leave
Pay for Unused Sick Time
Unlike unused vacation days, which are covered by state law in some locations, 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.
How Eligibility for Unused Leave Pay Is Determined
It's important to be informed about your company's pay policies. 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. Of course, your employer cannot have a policy that violates state labor law.
In states that don’t require employers to pay out unused time off, the company can decide whether to establish policies denying payment for 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 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 with your manager, Human Resources department, or state department of labor for information on what unused leave pay you qualify to receive. State laws may change, and individual circumstances may vary.
There Are No Federal Laws Governing Payouts for Sick Time or Vacation Time: However, most states require employers to pay for unused leave under some circumstances.
State Law Vary: Consult your state department of labor for more information. Depending on where you live, your employer may be required to pay in all, some, or no situations.
Pay Attention to Company Policy as Well as State Law: Many employers will pay for unused leave out of a desire to smooth the transition and maintain their reputation.
The information contained in this article is not legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law.