FAQ: Being Paid Accrued, Unused Vacation Days Upon Termination

In some states, workers who quit or who are terminated are entitled to receive payment for any and all accrued and unused vacation days. Some states, such as Colorado, specifically define paid vacation days as a form of compensation. Thus, in places like Colorado, it is a form of wage theft for an employer to fail to pay an employee for accrued and unused vacation days. Generally, in states where it is required, payment for vacation days must be issued with the final paycheck and must be paid regardless of whether the employee quits or is terminated. Here are answers to some FAQs:

Am I entitled to paid vacation days?

In general, employers do not have to provide paid vacation days. For example, the main federal statute, the Fair Labor Standards Act, does not require that employers provide paid vacation days for workers. Likewise, states do not require paid vacation days, although several states now require paid medical leave/sick days.

What does “accrued” vacation days mean?

Generally, if an employer voluntarily offers paid vacation days, and about two-thirds of employers do, the employer will establish company policies for when vacation days are earned and how many. For example, an employer might say that vacation days can be earned after the first three full months of employment, that only full-time employees are eligible, and that 40 hours of paid vacation time will be earned after each six months of employment. “Accrued” means vacation time for which the employee has become eligible per the company’s policies. In our example, a worker who has worked for only four months has earned — accrued — no paid vacation time. However, on the nine-month anniversary, said worker will have accrued one week of paid vacation time.

Which states require that unused, accrued vacation time be paid at termination?

24 states and the District of Columbia require that workers must be paid for their vacation days. Among these states are California, Illinois, Indiana, New York, Wisconsin, Louisiana, and others.

What are “use-it-or-lose-it” policies?

In most states, employers can create company policies that require eligible workers to use their vacation days or lose the benefits. These types of rules are often called “use-it-or-lose-it” or “no-rollover” policies. For example, many employers require that vacation time be used during a calendar year and do not allow vacation days to “rollover” from one year to the next. Some states, notably California, Nebraska, and Montana, forbid “use-it-or-lose-it” policies. Many other states, such as Michigan, regulate how employers implement their no-rollover policies. For example, in Michigan, if the vacation days accrue in January, then an employer can have a no-annual-rollover policy. However, if the paid vacation days accrue on shorter time increments, then the no-rollover policy must track the increments.

Note that, in many states, failure of an employer to have a written policy means that vacation days will automatically rollover and accumulate. Many states will construe the failure to have a written policy as proof that the employer views paid vacation time as a form of compensation. Thus, for those companies, long-term employees may have a claim for a large payout of vacation time when they quit or are terminated.

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