By: Katherine Muniz May 09, 2016

What Happens to Unused Vacation Time?

At the end of employment, departing employees have a lot of questions.

One popular question employees often ask is whether they’re entitled to be provided with their unused vacation time in the form of cash wages. “Most states look to whether there is a written agreement between the employer and the employee regarding the accrual of PTO,” says Attorney Griffin H. Bridgers of Berenbaum Weinshienk PC. “This is often in the form of an employee handbook, but can sometimes be in a written employment agreement.”

The law varies from state to state – there is no federal law setting a nationwide policy on PTO. “Where I’m licensed in Texas, there is no right to the value of your PTO when you quit or are fired,” says Bruce Coane of Coane and Associates, PLLC. “On the other hand, many employers will pay the value of the PTO when they terminate employees, notwithstanding the non-existence of a law requiring them to do it. If an employer, in writing, has given a vested ownership interest to the employees in their PTO, then the employee should be able to recover the value of the PTO.”

In most states, employers are left to enforce their own vacation rules, which often take the form of “use-it-or-lose-it” policies. These policies state that unused vacation time is a lost benefit if employees have not used their accrued vacation time by the end of their employment. However, some states have stronger protection laws for employees, stating that earned vacation time is earned compensation, and therefore, is entitled as cash wages at the end of employment.

Here is a list of the states that require unused vacation time to be paid out:

STATE LAW
California Under California Labor Code Section 227.3, all accrued vacation time is considered earned wages, and as such, must be paid out upon termination of employment at his or her final rate of pay.
Illinois Under 820 ILCS 115/5;56 Ill. Adm. Code 300.520, all final compensation, which includes vacation pay, must be paid out upon termination unless a collective bargaining agreement with a union states otherwise. However, employers are permitted to have a policy that vacation time must be used by a certain date or it is lost, provided that the employee is given a reasonable opportunity to take the vacation.
Indiana Accrued vacation pay is considered a form of compensation in Indiana, and must be paid out upon termination of employment, unless the employer has a written forfeiture clause in its policy or contract that states that an employee must use the benefits by a certain date or lose it.
Louisiana Unused vacation time must be paid at termination, and is considered the property of the employee. (Beard v. Summit Institute, 707 So.2d 1233 (La. 1998)); (LA R.S. 23:631, 23:634, and 23:636).
Maryland Vacation pay and fringe benefits earned must be paid out as part of final wages, unless at the time of hiring the employer provides a written forfeiture clause in its policy or contract that specifies that unused vacation will be lost or forfeited upon termination.
Massachusetts In Massachusetts, earned vacation is considered wages and must be paid upon termination of employment.
Michigan Vacation pay earned must be paid out as part of final wages unless the company’s written policy states otherwise.
Montana Wage and Hour Laws in Montana look to the Attorney General’s Opinions in relations to wage payment issues. In Opinion 56, Volume 23, the Attorney General provides that “Vacation pay which has been earned and is due and owing must be considered in the same category as wages and is collectable in the same manner and under the same statutes as are wages.”
Nebraska Vacation pay earned must be paid out as part of final wages upon termination of employment Roseland v. Strategic Staff Mgmt., 272 Neb. 434, 722 N.W.2d 499 (2006).
New York Vacation pay earned must be paid out as part of final wages unless the company’s written policy states otherwise.
North Carolina Earned vacation pay, commissions, and bonuses cannot be forfeited unless the employer has a written forfeiture clause in its vacation, commission, or bonus policy or termination policy pursuant to N.C.G.S. 95-25.13(2) of the WHA.
North Dakota All accrued vacation time is considered earned wages, and as such, must be paid out upon termination of employment at his or her final rate of pay, unless the employer has a written forfeiture clause in its policy or contract that states that an employee must take vacation by a certain date or lose the vacation (provided that the employee is given a reasonable opportunity to take the vacation).
Ohio Vacation pay earned must be paid out as part of final wages unless the company’s written policy states otherwise.
Oregon Vacation pay earned must be paid out as part of final wages unless the company’s written policy states otherwise.
Rhode Island After completing at least one year of service, vacation pay earned shall become wages and payable in full or on a prorated basis with all other due wages on the next regular payday for the employee.
West Virginia Vacation pay and fringe benefits earned must be paid out as part of final wages unless the company’s written policy states otherwise.
Wyoming Vacation pay earned must be paid out as part of final wages unless the the company’s written policy states otherwise and is acknowledged in writing by the employee (WY Stat. Sec. 27-4-501 et seq.).

Whether you are an employee or an employer, knowing the vacation pay laws in your state can help you honor the rights the law provides.

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Katherine is a New York-based digital writer who joined Fingercheck in 2015. She promotes Fingercheck through the power of the written word. She graduated from Fordham University with a B.A. in Communications and Media Studies with a focus on Journalism. Connect with her on LinkedIn

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