“Use it or lose it” vacation policies are legal in some states. In others they are not. These policies force you to use your accrued vacation time before a certain date. If you do not, the vacation time expires and is forfeited. Even in states where these policies are legal, employers can limit how much time you accrue in other ways.
How do use it or lose it vacation policies work?
A “use it or lose it” policy for vacation time puts an expiration date on the vacation time that you accrue. If you do not use your paid time off (PTO) before the expiration date, you lose it.
While employers are not legally required to offer vacation time, most of them choose to do so. Many employers even offer vacation time to part-time employees. When employers promise vacation time in the employment contract or collective bargaining agreement, you become contractually entitled to it. However, employers can implement limitations on when and how vacation time is used.
A common limitation is a “use it or lose it” policy. Under these policies, vacation time expires either:
- at a certain date, like the end of the year, or
- after a set amount of time has passed since the vacation time was earned.
Once the vacation time expires, you lose it. You do not get compensated for it.
Some state employment laws forbid use it or lose it policies for vacation time. Other states do not forbid them. Still others limit when they can be used.
Which states allow for these policies?
Federal employment law does not forbid use it or lose it vacation policies. State employment laws, however, can either:
- forbid these policies,
- expressly permit them, or
- stay silent on the issue.
Those that stay silent tacitly allow for use it or lose it policies.
A few states forbid use it or lose it vacation policies. These states include:
- Montana,3 and
In these states, accrued but unused vacation time is generally considered a form of wages. Once you have earned these wages, your employer cannot take them back.
More states expressly permit such policies. They include:
- New York,10 and
Generally, employers in these states must give you reasonable notice of these use it or lose it provisions. This is often done in the employee handbook or employment contract.
Most states, however, do not have laws or regulations that permit or forbid use it or lose it vacation policies. In these states, employers are free to implement one. These states include:
- New Mexico,
- Washington, and
Can my employer cap my vacation pay in other ways?
Yes. Even where use it or lose it policies are forbidden by state law, employers still have other ways to limit how much vacation time you can accumulate. Rather than forfeiting old vacation time, employers can:
- set a maximum number of vacation hours or days that you can accrue,
- restrict when you can use vacation time, such as with a “blackout” period during times of the year that tend to be the busiest, and
- limit how many days you can use in a row.
Note that, while these limits do not effectively rescind accrued vacation time, like in a use it or lose it policy, they still force you to use your PTO. Rather than losing accrued time off, though, you become unable to accrue any more hours until you use some of what you have.
So long as these limitations are not discriminatory they can be used to cap your accrued vacation time.
Am I entitled to compensation for unused vacation time when I quit?
Depending on the state, you may be entitled to compensation for your unused PTO if you quit, including any unused vacation time.
Some states legally require employers to reimburse you for unused PTO when you quit or are terminated. States that let you cash out unused PTO include:
- Massachusetts,15 and
Most states, however, do not require employers to pay employees for unused vacation time. In these states, terminated employees lose whatever vacation time they have not used at the end of their employment. These states include:
- New York, and
A few states let employers withhold payment for unused vacation time, but only under limited circumstances. For example, North Dakota employers can only deny a payout for unused PTO if you:
- did not provide 5 or more days of notice,
- worked for the employer for less than a year, and
- received a written PTO policy that stated that you would not be compensated in these circumstances.17
In Rhode Island, meanwhile, unused vacation days only become “wages” if you have worked for your employer for 1 year.18 If you have worked for your employer for at least a year, you are entitled to unused vacation pay in your final paycheck.
What is the law in California?
California law bans use it or lose it vacation policies. PTO and other benefits, including vacation time that is combined with sick leave, is a form of “wage.”19 Because it is a wage, once you have earned it, you are entitled to receive it. Therefore, mandating a forfeiture of accrued vacation time without compensating you for it would violate the law. This makes use it or lose it policies unlawful.
Additionally, because vacation time is an earned wage, it also means that you are entitled to cash out unused vacation time when you leave your employment.20
However, California employers can use other ways to limit the amount of vacation accrual. So long as your employer does not take back accrued time, such limitations are generally lawful. For example, many employers cap the number of vacation days that you can build up.21 Once you hit your maximum, no more vacation time will accrue under this employment policy.
Not all limitations are permissible, though. The California Division of Labor Standards Enforcement (DLSE) has found the following limitations to be unfair and will not enforce them:
- a requirement that you use all of your vacation time in the calendar year during which it was accrued,22 and
- forcing you to use carry-over vacation time before any new vacation time would accrue in the new year.23
These legal protections for your vacation leave are important. If your California employer violates them you may have an hour and wage claim.
- Suastez v. Plastic Dress-Up Co., 31 Cal. 3d 774 (Cal. 1982).
- Nieto v. Clark’s Market, Inc., 488 P.3d 1140 (Colo. 2021).
- Langager v. Crazy Creek Products, Inc., 954 P.2d 1169 (Mont. 1998).
- Nebraska Statute 48-1229(4) and 48-1230(2)(a), as amended in 2007 by Legislative Bill 255.
- 56 Illinois Administrative Code 300.520(e).
- Mid America Aerospace, Inc. v. Department of Human Resources, 694 P.2d 1321 (Kan. 1985).
- Wyatt v. Avoyelles Parish School Board, 831 So.2d 906 (La. 2002).
- Rowell v. Jones & Vining, Inc., 524 A.2d 1208 (Me. 1987).
- Massachusetts Attorney General Advisory 1999/1.
- Gennes v. Yellow Book or New York, Inc., 23 A.D.3d 520 (N.Y. App. 2005).
- Oklahoma Administrative Code 380:30-1-5.
- California Labor Code 227.3 LAB.
- 820 ILCS 115/5.
- Beard v. Summit Institute, 707 So.2d 1233 (La. 1998).
- M. G. L. c. 149, s. 148.
- Roseland v. Strategic Staff Management, 272 Neb. 434 (Neb. 2006).
- ND Cent. Code 34-14-09.2
- Rhode Island General Laws 28-14-4(b).
- California Labor Code 200 LAB.
- California Labor Code 227.3 LAB.
- Boothby v. Atlas Mechanical, 6 Cal.App.4th 1595 (1992).
- DLSE Opinion Letter 1993.08.18.
- DLSE Opinion Letter 1991.01.07.