California PTO payout law
The short answer
In California earned vacation is wages. When employment ends for any reason, all earned and unused vacation must be paid at the final rate of pay (unless a collective bargaining agreement provides otherwise), and a policy cannot make vested vacation forfeit at termination. (Cal. Labor Code § 227.3)
Last verified Sep 24, 2026 · How we verify every rule
General information, not legal advice. This page is for general information only and isn’t legal, financial or tax advice. Laws vary by state and change; check the official source or talk to a qualified professional about your situation. Every rule on this page links to its official source.
Unused vacation (PTO) at separation
Do you have to pay out unused vacation when someone leaves?Yes, alwaysVerified Sep 24, 2026 · 2 official sources
In California earned vacation is wages. When employment ends for any reason, all earned and unused vacation must be paid at the final rate of pay (unless a collective bargaining agreement provides otherwise), and a policy cannot make vested vacation forfeit at termination. (Cal. Labor Code § 227.3)
“Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination.”
“Under California law, unless otherwise stipulated by a collective bargaining agreement, whenever the employment relationship ends, for any reason whatsoever, and the employee has not used all of his or her earned and accrued vacation, the employer must pay the employee at his or her final rate of pay for all of his or her earned and accrued and unused vacation days.”
What it means for an employer
- Put your vacation policy in writing, including what happens to unused time at separation.
- Check whether the state treats earned vacation as wages, which affects forfeiture ("use it or lose it") clauses.
- Pay any vacation owed with the final paycheck.
The federal default
“There are no federal laws regarding paid time off, and few state or local laws related to this policy.”
State rules can add to the federal default. The California rules above are the ones we verified; for anything not covered, ask the state labor office.
PTO payout: California and its neighbors
| State | Unused vacation paid out? |
|---|---|
| California | Yes, always |
| Oregon | Depends on your policy |
| Nevada | Not verified |
| Arizona | Not verified |
Only verified rules are shown. "Not verified" means we have not checked that state's rule yet; open its rulebook for the official source.
Related
Questions about California PTO payout law
Do you have to pay out unused vacation when someone leaves in California?
In California earned vacation is wages. When employment ends for any reason, all earned and unused vacation must be paid at the final rate of pay (unless a collective bargaining agreement provides otherwise), and a policy cannot make vested vacation forfeit at termination. (Cal. Labor Code § 227.3)
Sources (3)
Checked Sep 24, 2026 · How we verify every rule · Report an error