PTO laws by state in 2025: Payout laws explained

Paid time off (PTO) enhances employee satisfaction, boosts productivity, and helps businesses retain talent. It also allows employees to rest, recharge, and manage personal matters without financial strain, leading to better job performance and morale.

However, paid sick leave, vacation time, and personal days are more than just valuable employee perks—they’re often legal requirements, and failure to follow PTO regulations can result in hefty fines and legal battles. Employers and employees in the United States should understand their state’s PTO laws, as these regulations vary significantly across the U.S.

This article will explore the key differences in PTO laws by state, highlighting regulations regarding PTO payouts and use-it-or-lose-it policies. But first, let’s define these terms.

PTO laws by state: Which states require PTO payouts?

State laws outline how PTO accrues for employees and independent contractors. They define parameters for company policy regarding advance notice, restrictions during specific periods, and types of leave. This list will summarize each state’s regulations regarding PTO payouts upon termination and use-it-or-lose-it policies. For more info, check your state government’s website.

These laws can also vary based on local jurisdictions or individual employer policies, so be sure to look into the specific requirements, if any, in the county or municipality where your employees work.

Alabama

• No PTO payout requirement: Not required by law.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Alaska

• No PTO payout requirement: Not required unless company PTO policy states otherwise.
• Use-it-or-lose-it allowed: Permitted if outlined in company PTO policy.

Arizona

• No PTO payout requirement: Payout is not mandatory unless company PTO policy requires it.
• Use-it-or-lose-it allowed: Unused PTO is lost unless otherwise stated in company policy.

Arkansas

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated in company policy.

California

• PTO payout required: Unused PTO must be paid out upon termination.
• Use-it-or-lose-it prohibited: PTO must roll over or be paid out. However, employers can implement a cap on vacation accrual.

Colorado

• PTO payout required: Must be paid out upon termination.
• Use-it-or-lose-it prohibited: PTO must roll over or be paid out. However, employers can implement a cap on vacation accrual.

Connecticut

• No PTO payout requirement: Employers are not required to pay out PTO unless stated in the company policy.
• Use-it-or-lose-it allowed: Permitted if clearly communicated.

Delaware

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if part of company policy.

Florida

• No PTO payout requirement: Not required by state law.
• Use-it-or-lose-it allowed: Permitted if outlined in company policy.

Georgia

• No PTO payout requirement: No law mandates PTO payout.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Hawaii

• No PTO payout requirement: Not required unless company policy specifies it.
• Use-it-or-lose-it allowed: Permitted if stated in company policy.

Idaho

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly stated in company policy.

Illinois

• PTO payout required: Employers must pay out earned PTO at termination.
• Use-it-or-lose-it allowed: Permitted if stated clearly in company policy.

Indiana

• PTO payout required: Employers must pay out all accrued PTO upon termination.
• Use-it-or-lose-it allowed: Permitted if clearly outlined.

Iowa

• No PTO payout requirement: Not required unless part of the employer’s policy.
• Use-it-or-lose-it allowed: Permitted if adequately communicated to employees.

Kansas

• No PTO payout requirement: Not mandated unless company policy dictates otherwise.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Kentucky

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly stated in the employer’s policy.

Louisiana

• PTO payout required: Employers must pay out accrued PTO when an employee leaves the company.
• Use-it-or-lose-it allowed: Permitted if clearly defined in company policy.

Maine

• Conditional PTO payout requirement: Unless an employer has 10 or fewer employees, they must pay out unused PTO when an employee quits or is terminated.
• Use-it-or-lose-it allowed: Permitted if stated clearly in company policy.

Maryland

• Conditional PTO payout requirement: Required unless the employee is provided a written policy limiting PTO payout at the time of hiring.
• Use-it-or-lose-it allowed: Permitted if communicated clearly to employees.

Massachusetts

• PTO payout required: Unused vacation must be paid out upon termination.
• Use-it-or-lose-it allowed: Permitted only if employees are given adequate notice.

Michigan

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Minnesota

• No PTO payout requirement: Only mandatory if the company policy specifies it.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Mississippi

• No PTO payout requirement: Employers are not obligated to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if the policy is communicated to employees.

Missouri

• No PTO payout requirement: Not required unless stated in company policy.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Montana

• PTO payout required: Employers must pay out unused PTO upon termination.
• Use-it-or-lose-it prohibited: Unused PTO must be paid out or rolled over.

Nebraska

• Conditional PTO payout requirement: Unused PTO must be paid out unless stated otherwise in the policy.
• Use-it-or-lose-it allowed: Permitted if communicated clearly to employees.

Nevada

• No PTO payout requirement: No obligation unless the company policy specifies it.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

New Hampshire

• Conditional PTO payout requirement: State law says unused PTO must be paid out upon termination, but this can be overridden by employer policy.
• Use-it-or-lose-it allowed: Permitted with proper notice.

New Jersey

• No PTO payout requirement: No legal obligation unless company policy states otherwise.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

New Mexico

• PTO payout required: Accrued PTO must be paid out upon termination.
• Use-it-or-lose-it allowed: Permitted if clearly stated in company policy.

New York

• Conditional PTO payout requirement: State law says unused PTO must be paid out upon termination, but this can be overridden by employer policy.
• Use-it-or-lose-it allowed: Permitted if clearly communicated in company policy.

North Carolina

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

North Dakota

• PTO payout required: Employers must pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Ohio

• No PTO payout requirement: Not required by law unless company policy specifies it.
• Use-it-or-lose-it allowed: Permitted if communicated clearly to employees.

Oklahoma

• No PTO payout requirement: Employers are not obligated to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Oregon

• No PTO payout requirement: Not required unless specified by company policy.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Pennsylvania

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if stated clearly in company policy.

Rhode Island

• No PTO payout requirement: No legal obligation unless specified by the employer.
• Use-it-or-lose-it allowed: Permitted if clearly outlined in PTO policy.

South Carolina

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

South Dakota

• No PTO payout requirement: No law mandates payout unless company policy requires it.
• Use-it-or-lose-it allowed: Permitted if clearly stated to employees.

Tennessee

• No PTO payout requirement: Not required by law unless company policy dictates otherwise.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Texas

• No PTO payout requirement: Employers are not required to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly outlined in company policy.

Utah

• No PTO payout requirement: Not required unless specified in the employer’s policy.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Vermont

• No PTO payout requirement: No law mandates payout unless company policy specifies it.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Virginia

• No PTO payout requirement: Employers are not obligated to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly outlined in company policy.

Washington

• No PTO payout requirement: Not required unless company policy dictates otherwise.
• Use-it-or-lose-it allowed: Permitted with clear communication in company policy.

West Virginia

• No PTO payout requirement: Employers are not required to pay out unused PTO unless specified by company policy.
• Use-it-or-lose-it allowed: Permitted if clearly stated in company policy.

Wisconsin

• No PTO payout requirement: Not required unless specified by company policy.
• Use-it-or-lose-it allowed: Permitted if clearly communicated to employees.

Wyoming

• No PTO payout requirement: Employers are not obligated to pay out unused PTO.
• Use-it-or-lose-it allowed: Permitted if clearly communicated in company policy.

What is a PTO payout?

PTO payouts refer to compensation employees receive for unused paid time off (e.g., vacation, personal, or sick leave). Instead of losing the accrued time, the employee is paid the equivalent of their unused PTO wages in cash.

Policies governing PTO payouts vary by company and jurisdiction. Workers may receive a PTO payout when they leave a company or in certain situations, such as at the end of a calendar year.

Employers should clearly communicate accrual rates and usage policies to employees. Transparency regarding PTO payout policy helps build trust between employers and employees while preventing disputes and confusion.

What is a use-it-or-lose-it PTO policy?

A use-it-or-lose-it PTO policy requires employees to use their accrued paid time off within a certain period, typically by the end of a year or a specific date, or they forfeit any unused time. Under this policy, unused PTO does not roll over into the next year, and employees lose any remaining time.

Use-it-or-lose-it policies push employees to take time off regularly to rest and recharge while preventing them from stockpiling excessive PTO, which can present a financial liability for employers.

However, as previously mentioned, some states consider PTO to be earned wages, meaning employers are shortchanging their workers by taking it away.

Compliant, legal PTO and benefits for your global team

Carefully crafting a PTO plan is a must to provide a compelling benefits package for workers while maintaining legal compliance. Fortunately, an experienced HR partner can help streamline benefits administration and ensure compliance across every jurisdiction. 

Oyster’s Total Rewards can help you optimize PTO policies and benefits packages for a distributed team. Schedule a demo today to learn how Oyster can help you attract and retain top talent while adhering to labor laws worldwide.

FAQs

Is PTO required by federal law?

No, federal laws don’t mandate that employers provide PTO. However, some state and local jurisdictions have specific rules on the topic. Regardless of legal requirements, many employers offer PTO as a benefit to attract and retain employees.

Do companies have to pay out PTO when an employee is laid off?

This varies by state and company policy. In many states where PTO is considered part of wages (e.g., California and Colorado), employers must pay out accrued PTO upon termination, although this isn’t universal. Typically, payouts depend on the employer’s PTO policy outlined in the initial employment contract.

What happens to PTO hours when you quit?

When an employee resigns, the payout of unused PTO depends on state laws and company policies. States like New York, Illinois, and California require employers to pay out accrued PTO upon resignation. In states that lack specific rules, payouts are governed by the employer’s PTO policy.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.