Does a Company Have to Pay Out PTO When You Quit?
Corey Hanrahan
Unpaid Wage Lawyer
Does a company have to pay out PTO when you quit? In California, the answer is “yes.” Employers are required to pay out accrued and unused Paid Time Off (PTO) when an employee’s employment is terminated. This is because California law considers accrued PTO to be earned wages, which must be compensated upon separation from the company.
Legal Basis
California Labor Code Section 227.3 is the law that requires employers to pay employees the value of any earned and unused vacation time at their final rate of pay upon termination or resignation. It is important to note that this applies to both voluntary resignations and involuntary terminations. So, it does not matter if you quit or are terminated, you are entitled to receive compensation for the PTO that you earned during your employment.
Timing of Payout
The timing of the PTO payout depends on the circumstances of the employment termination:
Termination or Layoff: If your employer terminates your employment (or lays you off), all earned wages, including accrued PTO, must be paid immediately upon termination.
Resignation With Notice: If you resign your employment with at least 72 hours’ notice, your final paycheck, including PTO payout, must be provided on your last day of work.
Resignation Without Notice: If you resign without giving 72 hours’ notice, the employer has up to 72 hours after your resignation to provide you with your final paycheck, which needs to include PTO payout
Calculation of PTO Payout
Your PTO payout should be calculated based on your final rate of pay. This is important, for you to know. Even though many of your PTO hours may have accrued at a lower pay rate, your final PTO must all e paid out at your final rate of pay. For example, if you were a full-time employee making $80,000 per year and you have 40 hours of accrued PTO, the calculation for your PTO payout would be:
Find your hourly rate: $80,000 / 2,080 hours (full-time equivalent) = $38.46 per hour.
Find your PTO payout: $38.46 x 40 hours = $1,538.40
Don't Fall Victim to a "Use It or Lose It" Policy
I can’t tell you how many times I’ve seen a “use it or lose it” policy when it comes to PTO. Regardless of what your employer may think, California law Expresse prohibits “use it or lose it” PTO policies. Employers cannot implement policies that force employees to forfeit their accrued paid time off if they do not use it by a certain time. PTO must carry over year to year unless the employer has a reasonable cap on accrual.
That being said, the rule is different for sick leave/pay. California law treats PTO differently from sick leave. While PTO must be paid out upon termination, sick leave does not have to be paid out unless it’s combined with other paid leave that must be paid out. So do not warrior through being sick and go to work thinking you are saving your sick leave/pay for a nice lump sum at termination.
Conclusion
California employees must be educated on their right to PTO payout requirements. By understanding and enforcing these regulations, employees can make sure that their employer is not stealing from them. If you were not paid all of your accrued and unused PTO timely, reach out to unpaid wages lawyer Corey Hanrahan to see if you have a case.