PTO Payout

What is PTO payout?

PTO payout is compensation paid to employees for unused paid time off, typically at termination. Some states require payout of accrued vacation regardless of company policy. Others allow use-it-or-lose-it policies. PTO payout is taxable income to the employee and often subject to supplemental wage withholding rates. Plan for these payments in your termination process.

State law requirements

California, Colorado, Illinois, and other states require payout of accrued vacation upon termination regardless of policy. Some states allow forfeiture if clearly stated in policy. Know your state's rules before drafting PTO policies. Promising payout then not delivering creates legal liability. Check requirements in each state where you have employees.

Calculating the payout

Multiply unused PTO hours by the employee's regular hourly rate. For salaried employees, calculate an equivalent hourly rate. Some policies cap accrual, limiting potential payout. Pay PTO with the final paycheck or on the next regular payday depending on state law. Withhold taxes at supplemental rates or the employee's regular rate based on your payroll system configuration.