Paid time off (PTO) can be a huge perk for employees, and it may draw top talent to your company. Many employees are eager to utilize their paid time off for leisurely vacations or to help them get through a major life event, like moving into a new home.
But what happens if they never utilize their paid vacation days? Here’s how Mosey can help you meet compliance requirements for unused vacation time.
Are Companies Required To Offer Paid Vacation Time?
There is no federal law regarding paid vacation time. Under certain circumstances, there are laws regarding unpaid leave, where an employer must allow an employee to take time off of work. The Family and Medical Leave Act (FMLA) requires employers to allow employees up to 12 unpaid weeks off for qualifying medical purposes.
The FMLA is usually used for medical recovery, illness, or maternity leave in states where companies do not offer paid maternity leave. It’s not the same as paid sick leave, as employers are not required to compensate employees during this period.
Although it isn’t federally required, a significant majority of private employers offer some kind of paid time off (PTO) to full-time employees. Some states have laws determining how paid time off can be utilized when offered and what should happen to paid time off that hasn’t been utilized.
Are Companies Required To Pay Out Unused Vacation Time?
No federal law mandates companies to pay out for unused vacation time. State laws make the ultimate determination in whether a company must pay its employees for paid vacation time they never utilize. Companies can create their own policies for unused vacation time as long as their policies coincide with the law where laws exist.
Some states don’t have laws regarding unused vacation time, and in these cases, companies can approach the process however they see fit. They may choose to award employees a payout for unused vacation time if their budget allows for it.
Are Companies Required To Pay Out Unused Vacation Time for Terminated Employees?
Companies are only required to pay unused vacation time for employees who are terminated or laid off if state law requires them to do so. Companies may utilize a written policy regarding what happens to unused vacation time when an employee is terminated or laid off, and they’re expected to adhere to their written policy. Even if company policy offers a payout when the law doesn’t require one, they are bound to follow their policy.
If a company doesn’t abide by their own policy, they may be fined or penalized. Employees may be able to pursue a legal claim if company policy states that they were entitled to a payout that they ultimately did not receive.
What Is a “Use It or Lose It” Policy?
Some states allow employers to implement a “use it or lose it” policy where at the end of a specific period of time, like one calendar year, paid days off that aren’t used will expire. They cannot be retrieved or redeemed, and the extra funds set aside for vacation time are recycled for the coming year.
Some states have adopted laws indicating that paid vacation days are an employee’s right to use whenever they choose. These states prohibit employers from utilizing a “use it or lose it” policy for paid vacation.
California, Montana, Colorado, and Nebraska employers are prohibited by law from implementing policies that cause vacation days to expire.
Which States Require Payout of Unused Vacation Time?
Currently, employers in 19 states are required by law to pay out for unused vacation time. Employers in these states can face penalties, fines, and compliance issues if they do not pay out unused paid vacation time.
- California
- Colorado
- Illinois
- Indiana
- Louisiana
- Maine
- Maryland
- Massachusetts
- Minnesota
- Montana
- Nebraska
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Rhode Island
- West Virginia
- Wyoming
Employers in other states can write paid time off policies that suit their needs and resources, provided those policies accurately reflect state laws.
What Is the Penalty for Employers Who Don’t Pay Out for Unused Vacation Time?
There is no universal penalty for failing to pay out on unused vacation time. Each state can describe and enforce its own penalties for failure to comply with unused vacation time payout laws. In most cases, the penalty is a substantial fine.
All employers can be penalized for failing to pay out for unused vacation time if their company policy or employee contract states that an employee is entitled to a payout. Note that even if your state isn’t listed here, you’re bound by your agreement to honor a PTO payout if your employees agree to work for you under those conditions.
California
Failing to pay final wages (including those for PTO) leaves an employer liable for final wages plus an additional 30 days of wages based on the employee’s average pay rate. If it’s found that an employer willfully refused to pay final wages, the employer will owe the employee a restitution payment in addition to the standard penalty.
Colorado
Colorado employees can send a written demand for unpaid wages, including PTO. An employer has 14 calendar days to meet the employee’s demand. If the demand is not met, the employer must pay the greater amount: Double the owed wages, or an additional 10 days of the employee’s wages at their regular rate of pay.
If failure to pay owed wages is deemed willful (a refusal, rather than an inability to pay or an issue meeting deadlines), the penalty increases by 50 percent.
Illinois
The penalty for unpaid PTO wages is the full amount, plus an additional two percent of the amount owed.
Indiana
Indiana employers can be penalized 10 percent of the full amount due per every day the payment is late or delayed for a maximum of double the owed amount.
Louisiana
If the total amount of unpaid wages owed is disputed, an employer has to pay the undisputed amount immediately.
The employee has the option to file a court claim for the remainder of the unpaid wages. The employer may be ordered to pay the lesser amount: The remainder of the unpaid wages, or 90 days of wages at an employee’s regular rate. The employee is also entitled to seek reimbursement for their legal fees.
Maine
Maine does not impose a specific penalty, but does require employees to pay out on unused vacation time. The employer is simply required to provide an employee with the total amount owed.
Maryland
Employers can be fined up to $500 by the state for failing to pay out on vacation time. Employees have the option to sue their employer for failing to pay out.
Massachusetts
Failing to pay out unpaid wages in Massachusetts is a crime. Employers can be convicted of a misdemeanor if found guilty, and they may be fined up to $1,000 in addition to the enforcement of paying an employee. If the court believes that a Massachusetts employer willfully withheld wages, they can award the employee triple the owed amount.
Minnesota
Failure to pay out on PTO is a misdemeanor crime in Minnesota. Employers can face a civil penalty of 10 percent of the unpaid wages owed, and the employee can be awarded double the unpaid amount. If the failure to pay is deemed willful or an employer has a history of failing to pay out wages, the employer may be fined up to $1,000 per violation.
Montana
Failure to pay final wages in Montana is a misdemeanor crime punishable by a penalty of up to 110 percent of the full amount of wages owed to an employee.
Nebraska
Employees have the right to sue employers for the total amount of unpaid wages plus a percentage of their court costs. If the court believes the employer’s failure to pay was a deliberate refusal, employees can recover up to two times the total amount owed.
New Mexico
Employees can sue their employers for up to 60 days of unpaid wages. In addition to civil penalties, employers can face criminal penalties. Each count of unpaid wages is a separate case. The first offense warrants a fine of up to $500 and/or up to six months imprisonment. A subsequent condition doubles the penalties to $1,000 in fines and up to one year of imprisonment.
New York
Employers face a civil fine of up to $500 per violation. If the violation is found to be deliberate, employers may be found guilty of a misdemeanor with fines ranging between $500 and $20,000 and a penalty of up to one year in prison. Employers face the same potential penalties for a second offense within six months but are more likely to be sentenced to the maximum extent.
North Carolina
Employers who fail to pay final wages are liable to unpaid wages and damages equivalent to unpaid wages, court costs, and interest on funds owed.
North Dakota
Failure to pay out owed wages is penalized by payment of final wages plus up to 30 days of additional wages and interest on the total amount owed. Each additional infraction multiplies the employee’s liability. Future incidents of failure to pay out can lead to two times or three times the penalty.
Ohio
Employers have 30 days to pay out uncontested wages or 60 days to pay out contested wages after a court process decides the amount owed. If employees don’t receive payment on time, employers can pay a penalty of up to $200.
Rhode Island
Failing to pay owed wages is a misdemeanor that can be punishable by a $400 fine and up to 90 days in jail. Employers may be liable for damages up to twice the amount of unpaid wages owed to an employee.
West Virginia
West Virginia employers may be liable for damages as great as twice the amount of unpaid wages in addition to being liable for the full amount of unpaid wages.
Wyoming
Failing to pay owed wages is a misdemeanor in Wyoming. Employers must pay a penalty of up to $750 per offense, plus an 18 percent interest charge that begins accruing from the date that an employee left the company.
Mosey Can Help You Stay on Track
Mosey helps businesses of all sizes stay on track with key compliance issues like the payout of unused vacation time. Our compliance management platform simplifies the process of keeping track of state requirements.
Focus on running your business while Mosey works in the background to help you manage the small details. Request a demo with Mosey to learn how we can help you stay compliant.
