NOV 16, 2023

PTO Laws by State: How the Requirements Can Vary


As a small business owner, navigating the intricacies of Paid Time Off (PTO) laws is essential to ensuring you remain compliant with state regulations while providing your employees with fair and consistent benefits. However, understanding how PTO laws vary by state can be a daunting task. In this guide, we'll break down the key differences you need to be aware of to maintain compliance and ensure your employees receive the PTO they deserve.

Statutory Requirements Addressing Vacation Pay


PTO laws by state can vary significantly when it comes to statutory requirements addressing vacation pay. Some states have no specific laws governing vacation pay, leaving it largely to the discretion of the employer. Others, however, have stringent regulations in place. For example:

  • California mandates that vacation days are treated as wages, which means they cannot be forfeited, even upon termination. This places the responsibility on employers to accurately track and compensate accrued vacation time.
  • Montana requires employers to pay out accrued but unused vacation time upon termination, provided the employee meets certain criteria.

‘Use It or Lose It’ PTO Policies


Vacation pay laws by state also vary in their approach to "use it or lose it" PTO policies. Some states allow employers to implement such policies, while others strictly prohibit them.

For instance:

  • New York prohibits "use it or lose it" policies, ensuring that employees can carry over accrued but unused PTO into the following year.
  • Colorado permits "use it or lose it" policies, as long as the employer clearly communicates the policy and any potential forfeiture consequences.


Be aware of your state's stance on "use it or lose it" policies and ensure your PTO policies align with these regulations to avoid legal complications.

Payment of Accrued Vacation on Separation


When it comes to the payment of accrued vacation upon separation from the company, PTO laws by state differ in their requirements. Some states mandate that employers must pay out accrued PTO, while others leave it to the employer's discretion 

  • In New Jersey, accrued vacation time is considered wages and must be paid out upon separation, regardless of the reason.
  • In Texas, there are no state laws requiring the payout of accrued vacation time upon separation. Employers in Texas have the flexibility to establish their own policies in this regard.

Employer Penalties for Failure to Pay PTO


Failure to adhere to state PTO laws can result in significant penalties for employers. These penalties can include fines, back pay for employees, and even legal action.

  • In Oregon, if an employer fails to pay out accrued vacation upon termination, they may be liable for penalties equivalent to the employee's daily wage for each day the payment is delayed.
  • Massachusetts imposes treble damages on employers who fail to make timely payments of accrued vacation upon termination.

Family and Medical Leave and Paid Sick Leave


Family and medical leave and paid sick leave policies are another area where state laws can significantly differ. Some states have their own family and medical leave laws, while others adhere to federal standards, such as the Family and Medical Leave Act (FMLA).

Additionally, paid sick leave laws vary widely. Some states mandate paid sick leave for employees, while others leave it to the discretion of the employer.


For example:

  • California provides paid family leave benefits through the California Paid Family Leave (PFL) program, which is separate from the federal FMLA.
  • Connecticut requires employers to provide paid sick leave to eligible employees.

Staying in Compliance


Understanding the variations of PTO laws by state is essential for both legal compliance and creating a positive work environment. You need to familiarize yourself with your state's specific requirements regarding PTO and implement clear PTO policies. You also need to ensure that your company's PTO policies align with your state's regulations to avoid potential legal issues and uphold your obligations to your employees. Finally, you need to stay informed about your state's PTO laws and consistently follow your company's PTO policies to avoid legal penalties. 


As an employer, you can take it upon yourself to keep up with the PTO laws in the states where you operate or hire a full-time payroll manager. Both of these solutions, however, will add to your responsibilities or significantly add to your business expenses. 


A third option is to outsource your payroll to a third-party payroll provider. This service will handle managing your staff compensation and timekeeping, including PTO. 

Let Payroll Vault Handle Your PTO


We’re pleased to offer you a wide selection of payroll solutions for your business. We not only help with payroll calculation and distribution, but we also provide HR solutions, policy resources, and timekeeping services. Find your nearest Payroll Vault location and visit today to learn more.