Do Companies Have to Pay Out PTO When You Leave?

Yes. When an employee leaves a job in California, unused PTO is not optional pay. California requires employers to pay out any accrued vacation time upon an employee’s termination or departure. The PTO payout laws apply whether the employee quits or are terminated. The law cannot be overridden by company policy.

While California’s PTO payout and final paycheck laws are clear, it can be difficult to recover wages from a former employer. In many cases, employees have the best chance to recover wages if they talk to an attorney. If an employer refuses to pay out PTO, employees should fill out our contact form or call (818) JUSTICE for a free consultation.

Understanding PTO Payout Laws in California

California law treats earned vacation time as wages. Once vacation or vacation-based PTO is earned, it belongs to the employee and cannot be taken away. PTO laws require employers to pay out all accrued and unused vacation time when employment ends.

California prohibits “use it or lose it” vacation policies. Employers may place reasonable caps on how much vacation an employee can accrue.  However, employers cannot require forfeiture of earned time for any reason, including resignation or termination. Any accrued balance must carry over and be paid out at separation.

The structure of a company’s time-off policy does not change its obligation to pay out time off. Sometimes, vacation is combined with sick leave in a single PTO bank.  The portion that functions as vacation is still treated as earned wages under California law. Employers cannot avoid PTO payout requirements by re-labeling vacation time.

Because unused vacation is considered wages, failure to pay it at separation may qualify as a wage violation. California enforces PTO regulations strictly, and employers that fail to comply can face penalties in addition to paying the unpaid paid time off.

Do Companies Legally Have to Pay Out Unused PTO?

Yes. In California, employers are legally required to pay out all earned and unused vacation time when an employee leaves a job. California law treats vacation and vacation-based PTO as wages. As a result, time cannot be forfeited and must be included in the employee’s final paycheck.

The requirement to pay out PTO applies regardless of how employment ends. Employees who quit, are laid off, or are terminated for cause are all entitled to payment of their accrued vacation balance. Employers cannot condition payout on giving notice, staying employed through a certain date, or complying with internal rules that conflict with state law. In other words, California still requires PTO payout regardless of how an employee leaves, or the company’s PTO policy.

Labeling vacation time as PTO does not change the outcome. If the time functions as a vacation, it must be paid. Employers that fail to include unused vacation in final pay may be committing a wage violation. Employers with wage violations may be forced to pay waiting time penalties and other consequences under California law.

What Happens to PTO When You Quit?

In California, unused and accrued vacation time must be paid out when an employee quits. State law treats vacation and vacation-based PTO as earned wages, which means employees do not lose that time simply because they resign.

Whether notice was given does not change the obligation to pay. Employers cannot lawfully require two weeks’ notice, continued employment through a future date in order to receive payout of earned vacation. Any employee handbook or employment contract attempting to do so conflicts with California wage law and is unenforceable.

Timing depends on how the resignation occurs. If an employee gives at least 72 hours’ notice, the final paycheck, including unused vacation, is due on the last day of work. If the employee quits without notice, the employer has up to 72 hours to provide full payment.

As long as the PTO was accrued and functions as vacation, it must be included in final pay under California law.

Final Paycheck Laws in California

California has some of the strictest final wages requirements in the country. When employment ends, employers must provide a timely final paycheck that includes all wages owed, including earned and unused vacation time.

If an employee is fired or laid off, the final paycheck is due immediately upon termination. If an employee resigns with at least 72 hours’ notice, payment is also due on the last day of work. When an employee resigns without giving 72 hours’ notice, the employer has up to 72 hours to provide the final paycheck.

Final pay in California must cover:

• All unpaid hourly wages or salary
• Earned commissions, if calculable
• Accrued and unused vacation or vacation-based PTO

California law treats vacation as earned wages. Employers cannot delay, reduce, or withhold vacation payout in the final paycheck, regardless of company policy.

Employers that fail to comply may face waiting time penalties. Employees may be entitled to continued wages for up to 30 days if the employer willfully fails to send the final paycheck. Payment must be made by check or direct deposit, depending on how wages are normally paid and where the separation occurs.

California’s final paycheck laws are enforced aggressively by the Labor Commissioner, and violations often lead to claims that exceed the original unpaid amount.

What To Do if the Employer’s Policy Conflicts With State Law?

When an employer’s PTO policy conflicts with California law, California law controls. A company cannot avoid legal obligations by writing an internal policy that takes away employee rights protected by statute or case law. If the law requires payout of accrued vacation or PTO, a handbook provision stating otherwise is typically unenforceable. Keep in mind, laws by state can vary, so unsure employees should speak with an attorney.

Unused paid leave conflicts often appear after an employee leaves a job. Employers may deny payout based on a forfeiture clause or internal rule that does not comply with state wage laws. When that happens, the issue may go beyond PTO and become a broader final paycheck or unpaid wages violation.

State labor courts regularly side with employees when employers fail to follow mandatory payout rules. The consequences include penalties, interest, and attorney’s fees in addition to the unpaid PTO. Any employee who suspects their employer owes them additional wages, should contact an employment law firm like Lawyers for Justice, P.C.

How a Wage & Hour Attorney Can Help

When an employer fails to pay unused PTO, the employee may be entitled to compensation. A wage and hour lawyer can help navigate the legal process, giving the best chance at maximum compensation.

Most companies have layers of protection, such as written policies or employee contracts to prevent former employees from getting paid for unused paid time. A lawyer can help sort through employer policies, pay records, and separation documents. A lawyer can also determine any other violations involving final pay, minimum wage, or overtime.

An attorney can identify whether the employer’s PTO policy complies with current state requirements and whether withholding payment was lawful. In states with strict wage laws, a single paycheck error can expose an employer to waiting-time penalties, interest, and attorney’s fees that significantly increase the value of a claim.

Legal counsel can also handle communication with the employer, labor agency filings, or litigation if necessary. For many employees, a lawyer can relieve the pressure of dealing directly with a former employer while protecting the right to recover all wages owed.

If unused PTO was missing on a final paycheck, consider speaking with a wage attorney like Lawyers for Justice, P.C. A strong law firm can clarify options and help determine whether pursuing a claim makes sense under the law. Any employee who thinks they are owed accrued PTO, vacation pay, or any other promised wages should call Lawyers for Justice, P.C. at (818) JUSTICE for a free consultation.