California PTO payout rules when an employee leaves

“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.”

PTO policy template

What it means for California employers

California does not require any employer to offer vacation. The obligation starts only once a policy, practice or agreement provides paid vacation. From then on, the Labor Commissioner (DLSE) treats vacation as wages that vest day by day as the work is done, following Suastez v. Plastic Dress Up (1982). (California Labor Commissioner (DLSE), Vacation FAQ)

Because it vests as it is earned, use-it-or-lose-it is illegal in California: a policy that wipes out unused vacation at a set date is not recognized by the Labor Commissioner. What an employer can do instead is cap accrual. Once the balance reaches the cap (the DLSE uses 200 hours as an example), no more vacation accrues until it drops, as long as employees have a reasonable chance to take the time (Boothby v. Atlas Mechanical). (California Labor Commissioner (DLSE), Vacation FAQ)

Combined PTO banks do not escape the rule. The DLSE applies the same vacation principles to a single paid time off plan usable for any purpose: it is earned day by day, cannot be forfeited, may be capped, and unused days are paid out when employment ends. Separate, sick-only leave is a different benefit. (California Labor Commissioner (DLSE), Vacation FAQ)

At separation, the payout is prorated on a daily basis and paid at the final rate in effect on the date of separation, whether the person quit, was discharged, or the contract ended. The money is part of the final wages, so it follows California's final pay timing: immediately at discharge, and at the time of quitting (72 hours' notice) or within 72 hours (without notice). (California Labor Commissioner (DLSE), Paydays, Pay Periods, and the Final Payment of Wages FAQ)

Exceptions and special cases

• Waiting periods: a plan may say no vacation is earned during an initial period, even the whole first year, if no vacation is actually accruing in that period. The DLSE rejects a disguised waiting period, such as no vacation in year 1 followed by an inflated year 2 that pays back year 1; in that case employees who leave during the waiting period are owed prorated vacation. (California Labor Commissioner (DLSE), Vacation FAQ)
• Excluded classes: a plan may leave out part-time, temporary or probationary employees, if the policy says so clearly. (California Labor Commissioner (DLSE), Vacation FAQ)
• Year-end cash-out: the employer may pay out, each year, vacation earned that year but not taken. It may also control when vacation is taken. (California Labor Commissioner (DLSE), Vacation FAQ)
• Advanced vacation: if an employee takes vacation before earning it and then leaves, the DLSE says the employer cannot deduct the unearned days from the final paycheck. (California Labor Commissioner (DLSE), Vacation FAQ)

Worked examples

The DLSE's daily proration, with 2026 dates

An employee entitled to 120 hours of vacation a year (three weeks of 8-hour days) quits on Friday, August 7, 2026, the 219th day of the year, with no carryover and nothing used. 219 divided by 365 is 60 percent, so 72 hours are earned. At a final rate of $28 an hour, the payout is $2,016, included with the final wages. (California Labor Commissioner (DLSE), Paydays, Pay Periods, and the Final Payment of Wages FAQ)

A raise the week before leaving

An employee with 40 unused hours earns $25 an hour until a raise to $27 takes effect two weeks before the resignation. The payout uses the final rate, so 40 x $27 = $1,080. (California Labor Commissioner (DLSE), Paydays, Pay Periods, and the Final Payment of Wages FAQ)

Earning vacation weekly

A full-time employee entitled to 80 hours a year who earns vacation for each week with at least one full day worked accrues 80 divided by 52, about 1.538 hours a week, the method the DLSE describes. (California Labor Commissioner (DLSE), Vacation FAQ)

How to act on it

PTO payout: California and neighboring states

Each state links to its rulebook. Only rules we verified are shown.

Questions about California PTO payout rules

The verified rules behind this page (4)

• 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; verified Sep 24, 2026)
• When an employer discharges an employee, all earned and unpaid wages are due immediately at the time of discharge. (California Labor Code § 201(a); verified Sep 27, 2026)
• With 72 hours notice: An employee without a written contract for a definite period who gives at least 72 hours notice of quitting must be paid all wages at the time of quitting. (California Labor Code § 202(a); verified Sep 27, 2026)
• Without 72 hours notice: An employee without a written contract for a definite period who quits without giving 72 hours notice must be paid all wages within 72 hours of quitting. (California Labor Code § 202(a); verified Sep 27, 2026)

Sources (5)

• Cal. Labor Code 227.3
• California Labor Commissioner (DLSE), Vacation FAQ
• Cal. Labor Code 201
• Cal. Labor Code 202
• California Labor Commissioner (DLSE), Paydays, Pay Periods, and the Final Payment of Wages FAQ

Checked Sep 27, 2026 · How we verify every rule · Report an error

Where this goes next

StateCalifornia employer rulebookAll 51 statesPTO payout laws by stateAlso in CaliforniaCalifornia final paycheck rulesStep by stepAn employee resigned: what to do next