Whether unused PTO has to be paid out when someone leaves depends on where they work. US federal law doesn't require it, because vacation pay is a matter of agreement between employer and employee, but some states do, and California treats earned vacation and PTO as wages that must be paid out at the final rate of pay.
Canada works differently again: provincial employment standards build vacation pay into wages, so a leaving employee is owed what they've earned. Here's how the main rules line up, and what to put in your own policy.
The federal starting point in the US
The US Department of Labor says the Fair Labor Standards Act doesn't require payment for time not worked, such as vacations, sick leave or holidays. Those benefits are matters of agreement between an employer and an employee or their representative. So at the federal level, payout of unused PTO comes down to your policy, your contracts and your state's law.
That's why the same question, "do I get my PTO when I leave?", has different answers in different states. Your written policy matters, and in some states the state rule overrides the policy.
California: the strictest well-known rule
California's Labor Commissioner (DLSE) publishes a detailed vacation FAQ, and it's the clearest example of a state that requires payout. The key points:
- There's no legal requirement to offer vacation at all. But if you do, earned vacation counts as wages and vests as it's earned.
- A use-it-or-lose-it policy is illegal, because it forfeits wages already earned.
- A cap is allowed. The DLSE's own example is a policy that stops further accrual once an employee has 200 hours banked.
- A real waiting period at the start of employment, during which no vacation is earned, is allowed, as long as it isn't a disguise for vacation that's really being earned.
- You can exclude classes of employees, such as part-time or temporary staff, if the policy says so clearly.
- Combining vacation and sick leave into one PTO plan doesn't get around the rules. The DLSE treats PTO like vacation: earned day by day, never forfeited, can be capped, and paid out at the end.
How a California payout is calculated
Unused vacation for a leaving employee is prorated on a daily basis and paid at the final rate of pay in effect on the date of separation. The DLSE's worked example, checked as of October 2026: an employee who had earned 72 hours of vacation by their last day, on a final rate of $13.00 an hour, is owed $936.00 for that vacation.
Timing is tight too. California says a discharged employee must be paid all wages, including accrued vacation, immediately at termination. An employee without a fixed-term contract who gives at least 72 hours' notice must be paid when they quit, and one who quits without 72 hours' notice must be paid within 72 hours.
One more California rule catches employers out. If you let someone take vacation before they've earned it and they leave before earning it back, you can't simply deduct the advanced vacation from their final paycheck. The DLSE treats it as an overpayment of wages, a debt, not something you can take from final pay.
The final statement should show any vacation settled, and our guide to wage statements explains what it must include.
Canada: vacation pay is owed when the job ends
| Province or territory | Vacation pay | When a leaver is paid |
|---|---|---|
| Ontario | At least four per cent of gross wages, six per cent after five years | Earned as wages are earned, even for a single hour of work |
| New Brunswick | Four per cent, or six per cent after eight years | No later than the employee's final pay |
| Newfoundland and Labrador | Four per cent after five days' work, six per cent after 15 years | Within one week of the job ending |
Ontario's guide makes the point most clearly: an employee who doesn't complete a full vacation entitlement year doesn't qualify for vacation time, but they earn vacation pay as they earn wages, so even one hour's work earns at least four per cent of that hour's pay. In Ontario, our guide to vacation pay in Ontario covers the 4% and 6% rules in detail.
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How to work out a PTO payout
- Check what applies: your written policy, any employment contract and the law where the employee works.
- Work out the hours earned and not used up to the last day, prorated if your plan accrues by day, week or pay period.
- Multiply the unused hours by the employee's final rate of pay.
- Run it through payroll with the final paycheck, with the usual tax withholding, and meet the local deadline.
- Keep the calculation on file with the final pay records.
What to put in your PTO policy
- Say plainly whether unused PTO is paid out at termination, and check that your state allows the answer you've written.
- If you want to limit balances, use an accrual cap rather than a forfeiture rule, which some states don't allow.
- Say who's eligible, if some classes of staff are excluded.
- Explain how advanced PTO is handled if someone leaves before earning it.
Our guide to writing a PTO policy walks through the rest, and a PTO tracker makes the balance at termination easy to prove.
My verdict
If you're an employer, assume payout will be required unless you've checked the state law where each employee works, and write your policy around a cap, not forfeiture. If you're leaving a job, look at the written policy and your state's labor department page before you accept that your balance is gone. In California, it almost never is.
If an employee simply stops turning up, our job abandonment guide explains what to do before you treat it as a resignation.
Frequently asked questions
Does unused PTO have to be paid out?
Not under US federal law, which leaves vacation pay to agreement between employer and employee. Some states require payout, and California treats earned vacation and PTO as wages that must be paid when employment ends.
Is use-it-or-lose-it PTO legal?
It depends on the state. California's Labor Commissioner says use-it-or-lose-it policies are illegal there, though a cap on accrual is allowed.
How is a PTO payout calculated in California?
Unused vacation earned up to the last day is prorated daily and paid at the final rate of pay. In the state's example, 72 hours at $13.00 an hour comes to $936.00.
When must a PTO payout be made in California?
Immediately at termination for a discharged employee, at the time of quitting if 72 hours' notice was given, or within 72 hours if it wasn't.
Do employees in Canada get vacation pay when they leave?
Yes. Provinces build vacation pay into wages. New Brunswick requires it no later than the final pay, and Newfoundland and Labrador within one week of the job ending.
