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PTO payout if laid off

We currently have a vacation policy that allows terminated employees (voluntary or involutary) to be paid out any earned but unused vacation. We are considering a move to a full “use it or lose it” PTO plan (no vacation or sick time just PTO) with no carryover allowed each year and no payout of any unused PTO at the time or termination unless the employee is terminated via an official layoff. Would this policy be considered discrimanatory or is it OK to define only a small group that is eligible for payout of unused PTO? (We do not have a union and we are located in Washington State.)

The PTO policy that you propose sounds fine. Washington has no law that requires employers to pay workers for unused vacation at termination.

If a Washington employer grants vacation, state law requires that the employer honor any writtten or oral agreement or contract in place regarding those benfits. In other words, if you implement a written PTO policy, you would be required to honor it.

An employer who pays unused vacation only to employees who have been laid off (not those fired for cause or who resign) would not be committing illegal discrimination. If the employer decided to pay unused vacation to all male employees at termination, and not to female employees, that would be illegal discrimination.

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6 Responses to “PTO payout if laid off”

  1. Hal Says:

    I have accumulated 160 hours of unused PTO at my current employer over the past 2.5 years. I am in the final stages of preparing to resign to pursue another career option.

    Am I understanding correctly that my current employer has no obligation to pay me ANY of this unused PTO at my resignation? Even though these hours were an “earned” benefit? (There is no union at this company and we are located in Washington State)

  2. Caitlin Says:

    Hi Hal! You are absolutely correct. Under Washington law, the employee is not automatically entitled to payment for any portion of PTO upon termination.
    Much misery could be avoided if employees stopped thinking of PTO as money in the bank, and started thinking of it more realistically: as a promise of paid time off at some point in the future (unless the employer changes the policy first.)
    State law simply requires that the employer follow their own company policy regarding PTO or vacation pay.If the employer has a written policy or past practice of paying PTO at termination, then the employer must honor it. If you were in any one of a dozen states like Illinois or California, this answer would be different. HTH, and thanks for reading the blogs!~ Caitlin

  3. Dan McCarthy Says:

    what states do require a payout of pto or any otehr unused benefit time? Thanks.

  4. Caitlin Says:

    Hi Dan! Most notably, California requires a payout of all earned PTO. About a dozen states including Illinois, Louisiana,Maine, Massachusetts, North Carolina, Oregon, Rhode Island, Tennessee, Colorado and North Dakota require payout of vacation at termination. However,in most cases only the portion of PTO that is equivilant to vacation must be paid out — not the entire balance.
    A number of states require that the employer payout vacation at termination unless the employer specifically has a written policy denying this benefit to the employee. These states include Iowa, Indiana, Oklahoma, Wyoming and New York.
    In a few states like Maryland, cases that are currently in court may change the employers obligations. If you have a question about a specific state, feel free to post a question, rather than a comment. But please — only one state per question. HTH, and thanks for reading the blogs.~ Caitlin

  5. Michelle Says:

    We have a combined (bucket) of PTO and we are in North Carolina. How would we go about deciding how much of the PTO is only for vacations? It would seem we could only back out our recognized holidays.

  6. Caitlin Says:

    Hi Michelle! If the PTO bucket includes sick leave and personal days, you can back them out, too. And, there is no law that requires you to limit the number of *paid holidays* in the PTO bucket to holidays when the office is closed. Many companies allow the employee additional floating holidays such as their birthday, the first day of school, etc. to use when the employee chooses.
    In North Carolina as in other states, the department of labor requires you to designate what portion of the PTO bucket is paid vacation. That allocation should be reasonable, but it is reasonable to designate up to 50 percent (and sometimes more) PTO as for other purposes. HTH, and thanks for reading the blogs!~ Caitlin

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