Most states allow employers to limit amount of unused PTO paid out at termination

Q          Can we limit the amount of unused paid time off (PTO) that’s paid out at termination?

The answer to this question depends on the state where your employees are located. Most states will allow you to place limits on the payout of PTO at termination, including on the amount of PTO you pay out. In fact, most states don’t require you to pay out PTO at all.

However, you need to be aware of the law in the state where your employees are located. Even if you can place limits on PTO, many states will require employees to strictly comply with your policies or contractual obligations. Indeed, some states will allow you to place limits on the PTO you pay out only if you have a written policy explicitly setting forth whether and under what circumstances you pay out PTO at termination. For example, in North Carolina, you’re required to pay out all accrued PTO unless you have an explicit policy stating otherwise.

In states where you’re allowed to establish payout limitations, you should ensure your policy limiting the amount of PTO paid out at termination is in writing and clear. A variety of policies are used by employers in these states. Some employers implement a “use-it-or-lose-it” policy, whereby PTO is lost if not used by a certain date. Other employers set caps on the amount of PTO that carries over from year to year and that can be paid out at termination.