Can an employer take away earned PTO?

Paid Time Off or PTO cannot be taken away or forfeited when the pay accrues as earned. An employer is prohibited from taking away earned vacation time to punish you.

Author: Brad Nakase, Attorney

Email  |  Call (888) 600-8654

An employer is not required to provide paid time off under California vacation law. However, paid vacation is considered earned wages and cannot be taken away or forfeited. An employer may not rescind employees’ accrued PTO once the employees earn vacation hours.

Employees typically earn paid leave (PTO) over time as they work. “Accrued” time off is earned leave that has not yet been used. An employee has the right to do the following with accrued PTO:

  • Use it by taking time off or going on vacation
  • Cash it out by accepting a check in lieu of time off
  • Roll it over into the next year
  • Give it up

Normally, employees decide what to do with unused PTO at the end of a calendar year. But their decision might depend on the employer’s specific policies or even their state’s laws.

Use-It-Or-Lose-It Policy

An employer taking away earned PTO through a use-it-or-lose-it policy is illegal. California law bans use it or lose it vacation policies. A use-it-or-lose-it employee vacation policy generally requires that employees forfeit their unused vacation time if not used by a specific date.

If a company enforces a use-it-or-lose-it policy, employees are required to use their PTO by a certain date or else give up their right to it. This type of policy prevents an employee from cashing out or rolling over unused time.

Employers who enforce this type of policy must make sure that is clearly expressed to their employees. To refer to the above example, Cassidy was obviously not made aware of her company’s use-it-or-lose-it policy and suffered the consequences. Her employer should have made sure Cassidy and other employees were aware of the PTO policy.

While use-it-or-lose-it policies may save an employer the cost of paying out employees who don’t use their PTO, it can also frustrate employees who wanted to save their PTO for the next year or receive cash instead.

Importantly, use-it-or-lose-it policies are illegal in certain states.

Accrued PTO

An employer may not take away accrued PTO. The accumulation or increase of paid time off hours over time. Accrued time off is PTO that someone earns over time. Accrued time off is time off an employee has earned but has yet to use. If an employer offers PTO as part of an employment package, they usually define how time off is earned. PTO can be calculated by hours worked, days worked, weeks worked, or pay periods worked.

State PTO Payout Laws

States have different laws regarding how PTO is managed. Some states might regulate unused vacation time by requiring employers to:

  • Payout unused vacation time to employees or rollover unused time to the next year (effectively banning use-it-or-lose-it policies)
  • Pay unused PTO as wages in an employee’s final paycheck
  • Both of the above

Many states allow use-it-or-lose-it policies. These states include Pennsylvania, Virginia, Georgia, Florida, Texas, Iowa, Missouri, Louisiana, Mississippi, New Mexico, Arizona, Oregon, Washington, New York*, and Illinois*. This means that in the above states, employees who do not use their PTO by a certain date, such as the end of the calendar year, could lose their earned PTO entirely.

*with exceptions

The states that have laws banning use-it-or-lose-it policies include California, Montana, Wisconsin, West Virginia, Colorado, Wyoming, and Nebraska. In these states, PTO is considered a form of wages. Therefore, if an employee in one of these states does not use a portion or all their PTO, the employee should receive either a payout, rollover, or be allowed to forfeit the time off. Specific laws depend on the state in question, but all agree that employers who offer PTO cannot simply cancel an employee’s earned time off.

For both employers and employees, it is important to know the relevant state laws.

Example: Heidi lives in Virginia and works for a deli selling honey-baked hams. She doesn’t have enough money to go on vacation this year, so she doesn’t feel the need to use her PTO time. In June, Heidi decides to quit her job. She has five days of paid vacation time accrued and, since she hasn’t used it, would like to be paid their value in her final paycheck instead. Heidi’s boss denies her request, because in Virginia, employers do not have to provide PTO payout at termination.

Example: Derek lives in Colorado and works for a recreation company that sells outdoor equipment. Derek is saving up his paid vacation days for a February trip to the Alps with his girlfriend. In December, a couple months before his trip, Derek learns that he must use his PTO before the new year, when it will be cancelled. Upset, he learns that his employer has a use-it-or-lose-it policy, where all unused PTO expires on December 31. Derek does his research and discovers that Colorado has a law banning use-it-or-lose-it policies. He hires a lawyer and sues his employer.

California law

In California, employers are prohibited from having a use-it-or-lose-it policy. Employers can, however, have a cap on how much time is earned.

Under California law, PTO is considered a form of wages and any unused PTO time must be paid out to an employee in their final paycheck upon termination.

Have a quick question? We answered nearly 2000 FAQs.

See all blogs: Business | Corporate | Employment Law

Most recent blogs:



Navigate the world of HR KPIs to measure and enhance your human resources management effectiveness and align with organizational goals. Understand the vital role of KPIs in achieving fair compensation and strategic HR outcomes.
Job evaluation in HRM

Job evaluation in HRM

Delve into the essentials of job evaluation in HRM, offering insights into its importance for pay equity and the top methods used. Understand how this systematic process helps determine fair compensation and supports equal, uniform pay structures.
HR Classes

HR Classes

Kickstart your HR career with the best beginner courses, offering foundational knowledge and practical skills for success in the field. Navigate the array of options for online certifications and real-world seminars to enhance your HR expertise.
Employee Value Proposition

Employee Value Proposition

Unlock the secrets to a compelling Employee Value Proposition (EVP) that attracts and retains top talent, boosting your employer brand. Dive into how an effective EVP enhances company culture, employee engagement, and business growth.
Recruiter Metrics

Recruiter Metrics

Discover the top 21 recruiter metrics that measure hiring effectiveness and refine your organization's talent acquisition process. Learn how to leverage these insights for a more efficient hiring strategy and improved candidate quality.
Leadership Competencies

Leadership Competencies

Enhance leadership qualities within your organization to boost innovation and teamwork, with a focus on nurturing a broad spectrum of competencies. Dive into practical methods for developing essential leadership skills for organizational success and employee growth.
Human Resources Management Strategies

Human Resources Management Strategies

Uncover the keys to a successful HR management strategy that boosts business growth by aligning HR activities with organizational goals. Delve into effective HR practices, from recruitment to talent management, for enhancing workforce efficiency and productivity.
Books For HR

Books For HR

Discover the essential HR books for professionals eager to excel in human resources, spanning analytics, fundamentals, and management insights. These 21 recommended reads cover crucial skills, strategies, and innovations in HR.
Part time California Hours

Part time California Hours

Dive into the nuances of part-time employment in California, including work hours, rights, and common employer misconceptions. Protect your rights as a part-time worker against wage, overtime, and benefit discrimination.
What is OASDI tax

What Is OASDI Tax

Understand the OASDI tax, a crucial component of the US Social Security program, deducted from earnings to support retirement. It ensures financial stability for retirees, the disabled, and their families, with a 6.2% rate matched by employers.
What Does “Biweekly” Mean - Definition and Examples

What does “biweekly” mean? Definition and examples

Unravel the dual meanings of "biweekly" with examples and tips for clear communication, whether it means twice a week or every two weeks. Discover the correct usage and alternatives to avoid confusion in scheduling and terminology.
Bereavement Leave

Bereavement Leave

California workers now have the right to 5 days of bereavement leave for the loss of an immediate family member, effective January 1, 2023. This guide, by the CRD, outlines eligibility, usage, and employer obligations for employees and employers.
5 Examples of Insubordination in the Workplace (With Tips)

5 examples of insubordination in the workplace (with tips)

Learn how to identify and manage insubordination in the workplace with practical examples and effective resolution strategies for maintaining harmony. Discover tips for addressing workplace disputes and fostering a productive environment.

How To Get High School Transcript

Whether you're apply for college or or a job, you may need to get your high school transcript. This article walks you through the process of getting a high school transcript.

Is the patient or IHSS responsible for a caregiver wage?

This article highlights the legal protections and remedies available to caregivers for recovering unpaid wages, additional compensation, and late payment fees, demonstrating the legal channels caregivers can utilize to secure justice and proper payment.

How much money does a stripper make?

A stripper's earnings can range from $300 to $5,000 nightly or $6,000 to $100,000 monthly, influenced by factors such as location, attractiveness, skills, and the number of hours worked.

What does Job outlook mean and Why is it important?

A job outlook is a statement that project rate of growth or decline in employment for a position or occupation. Job outlook is important because it predicts if a career will grow or job availability for an occupation.

20 Types of Interviews and Tips to Succeed at Each

Interviews are pivotal in the hiring process, offering deeper insights into candidates' abilities. This article explores 20 common interview types, providing strategies for success. Preparation tips help candidates navigate each format, showcasing their qualifications effectively.

What is California Pay Transparency Law?

California's pay transparency law mandates businesses to publish pay ranges in job descriptions, aiming to eliminate wage disparities and promote equitable compensation practices. The law impacts both employers and employees by requiring transparent salary structures, prohibiting salary history inquiries, and empowering employees with the right to know and negotiate fair pay.

Employee Law in California

Employment law in California comprises a set of regulations and legal standards that govern the relationship between employers and employees in the state. These laws cover a wide range of areas including wage and hour requirements, anti-discrimination policies, workplace safety, and employee rights.

Laws that Prohibits Wrongful Termination

There are different types of federal and California laws that prohibit wrongful termination. This article identifies and discusses the different types of wrongful termination laws.

Contact our attorney.

Please tell us your story:

3 + 5 = ?

© Copyright | Nakase Law Firm (2019)