Key Takeaways:

  • Sick Leave Payout Policies Vary by State: Some states mandate paid sick leave but do not require employers to cash out unused sick leave.
  • Employer Discretion on Cashing Out: Most private employers are not required to cash out sick time unless their policy explicitly states otherwise.
  • PTO vs. Sick Leave: Paid time off (PTO) is often treated as earned wages, meaning unused PTO may need to be cashed out, while sick leave does not have the same legal protections.
  • Final Pay and Sick Leave Payout: Some states require payout of accrued vacation but not sick leave at termination, except when company policy or local laws dictate otherwise.
  • Collective Bargaining Agreements: Some unionized workers may have contractual rights to sick leave payout.
  • State-by-State Variability: Some states and cities have more generous sick leave laws, making it essential to check local regulations.

Accrued Sick Leave Payout

The accrued sick leave payout is a selling back of sick leave time for equivalent pay. Annual sick leave that is paid for was required under the Healthy Families, Healthy Workplaces Act. It states that employers must provide their employees with a minimum of three days, or a total of 24 hours, for sick leave every year. It does not have to follow the calendar year, but maybe any 12-month “year” the employer designates.

At the time when California passed the Healthy Families, Healthy Workplaces Act of 2014, it was only the second state in the United States to have such a law. Connecticut law was the first to make employers give paid sick leave to their employees. The Connecticut law only applied to companies that had more than 50 employees, but California’s law applies to all employers.

Specifics on the California Sick Leave Policy following the Healthy Families, Healthy Workplaces Act

Once an employee works a minimum of 30 days, they become eligible to receive time for paid sick leave. This time cannot be used, however, until an employee has worked for at least 90 days for the company.

Some types of employees do not qualify to receive sick leave with pay. This includes some employees who work under a collective bargaining agreement, some people who are employed by air carriers, and employees who work in the California In-Home Supportive Services Program.

Sick leave is accrued at a rate of one hour for each period of 30 hours worked. It can carry over from one year to the next, but an employer can put a cap on it of 48 hours, which is equivalent of six days. An employer may also choose to limit the number of sick days that an employee uses in a year. The limit can be placed at three days, or 24 hours. An employer can also require that an employee take leave when sick in a minimum of two-hour increments, but no more than that. Employers can remove some of the complications that occur in calculating and keeping records of carry-over and accruals, simply by letting employees take three days of sick leave at the start of each year.

The sick leave law of California lets employees take sick leave for their own health problem or for a problem with a family member. Time can also be taken for preventative care.

The term “family member” can refer to anyone who is a spouse, a domestic partner, child, parent, parent-in-law, a sibling, and a grandparent or grandchild. An employee can also take sick leave if they become a victim in cases of:

  • Domestic violence
  • Stalking
  • Sexual assault

Businesses in California are required to post a sick leave poster in the workplace. It can be obtained from the California Labor Commissioner.

Employers must provide employees with how much sick leave time is available on each paystub (or whatever form is used). They are also required to keep records of the accrual of sick leave and how it was used for three years.

Some California cities have made their own rules about paid sick leave. Some of them give more benefits to employees. An employer is to follow the more generous rules for employees.

Cash Out for Unused Sick Leaves

Because sick leave is not considered a part of wages under California law, the Act does not make it mandatory for employers to pay cash in exchange for sick days while employed, or at the time of separation. The Healthy Families, Healthy Workplaces Act, does not mention that an employer needs to pay cash for employees who do not use their sick leave time.

When an employee terminates his or her employment with an employer and then is rehired within 12 months, they can claim that their previously accrued sick leave time be restored. The exception is if an employer had paid for it when the job was terminated.

For those employers who provide their employees with a lump sum of leave for sickness, the Healthy Families, Healthy Workplaces Act does not make any rule saying that the employer cannot buy back the sick time. If desired, the employer can provide the employee with the cash value of that time, as long as the employee still has unused time remaining.

Prior to cashing out an employee’s sick time, it is advisable to consult a lawyer about it. Sick time is not the same thing as vacation time, which must be paid for as part of the final paycheck the employee receives. Although sick time is paid back by some employers, who may use it like an incentive to not misuse it, it is entirely voluntary, except when a contract requires it.

Several states look at vacations and, on some occasions, sick days, as part of the employee’s wages. In those states, employee entitlement and how vacation time or sick days are accrued can be changed by the employer. In California, the amount of vacation time that can be carried over from one year to the next is limited.

Understanding Employer Policies on Sick Leave Payout

Employers establish their own policies on sick leave payouts. While many employers allow sick time to expire at the end of the year, some offer incentives to employees who do not use their sick leave, such as a partial payout or conversion to other benefits. Here are key factors influencing an employer’s decision:

  • Company Policy: Some businesses allow employees to cash out a portion of their unused sick leave, while others prohibit it.
  • State and Local Laws: While federal law does not mandate sick leave payouts, certain states and cities may impose specific regulations.
  • Employment Agreements and Contracts: Union contracts and executive agreements sometimes guarantee payout for accrued sick leave.
  • PTO Conversion Policies: Some companies merge vacation and sick leave into a single PTO policy, increasing the likelihood of payout upon termination.

If you are unsure whether you can cash out your sick hours, review your employee handbook or speak with HR for clarification.

Proposed Bills Limiting Sick Leave Payout

Gov. Charlie Baker, who is a Republican in Massachusetts, has proposed a bill that would place a limit of 1,000 hours of sick time for executive branch employees. This is equivalent to about six months’ worth of work. There are already about 5,800 employees at this level who have more than 1,000 hours. While their hours would be grandfathered, a cap would be placed on the number of hours accrued when the legislation becomes law.

The problems with not having legislation about accrued sick leave was felt when a president of a state university was given a payout for combined unused vacation and sick leave time of almost $270,000 when he retired a year ago. This amount was given in addition to his regular annual pension of $183,000, as well as a consulting gig for $100,000.

Attempts are being made to correct abuses of getting a payout for sick leave. Some proposals are being made that will help alleviate state and local governments of this problem.

Just in Massachusetts, taxpayers had to pay almost $500 million worth of liability for vacation and sick time that was not used.

Another bill that is in the works has been filed by Colleen Garry, a Democratic state representative of Massachusetts. The bill seeks to place a limit on payouts to a maximum of 15 percent of what an employee makes in a year. She also added that the government should pay fair wages and not help pay for retirement packages.

Because of the college president (Mohler-Faria) who received such a large payout for sick days and vacation time, as well as 10 other college presidents who did the same thing, the Board of Higher Education got rid of the practice of putting unused vacation time and sick leave together. Over time, they will reduce the number of vacation days that can be accrued to just 50 days. Even this number is still an increase of 50 percent more than what other state employees are permitted.

At the University of Massachusetts, a school that is not under the jurisdiction of the Board of Higher Education, the school had already reduced the time that could be accumulated to 960 hours for employees that were non-union. Union employees, however, still have unlimited hours, which reminds employers of why benefits given post-retirement should never be dictated by collective bargaining.

The abuses of the Board of Higher Education have been eliminated, but there are still problems surrounding issues dealing with the accrual of unused vacation and sick time. Gov. Baker’s statement seems like good advice. It is a benefit to help families when they are sick, as well as an employee’s health, and it should not be considered as a retirement benefit. It should be brought into line with employer’s practices in the private and public sector. Doing it that way just makes good fiscal sense.

Final Pay and Termination of Employment

Employers are generally given some time, often about 30 days, to provide an employee with their final paycheck. Most commonly, the employee must be paid by their normal next payday. Some states require that the final paycheck must be given within just a few days of their discharge, or possibly even immediately.

Other requirements concerning the final paycheck may depend on why they are leaving. Some states have the requirement that a fired employee be paid immediately, but those who choose to resign may not get their final check until the following normal payday.

Nearly all employees are considered to be employees at will, which means they can be terminated at any time. Other employees may be under a contractual agreement.

Most often, when an employee provides a two-week notice, the company will pay for the final two weeks. This is true even if the company does not permit the employee to actually work in that period. There are not any federal laws that demands that employers pay them for this period, or even require them to work during it.

At the present time, there are 24 states that have enacted laws about paying for accrued vacation time. These states are:

  • Alaska
  • Arizona
  • California
  • Colorado
  • Illinois
  • Indiana
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Minnesota
  • Nebraska
  • New Hampshire
  • New York
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Rhode Island (only after one year of employment)
  • Tennessee
  • West Virginia
  • Wyoming
  • District of Columbia

In each of the above states, an employee who receives a final paycheck only has the legal right to make a challenge about vacation time that is unpaid if the employer promised that it would be paid in the final paycheck.

Other states do not have a law that requires employers to pay for any unused vacation time. They may, however, do it voluntarily, or if it is in a contract or company policy. If it is not required in a contract, a collective bargaining agreement, or in some other legally binding agreement, an employer is under no obligation to pay for either sick time or for personal leave when leaving a place of employment.

State-Specific Sick Leave Payout Laws

Sick leave payout laws vary by state, with some jurisdictions offering more worker protections than others. Below are examples of how different states approach sick leave payout:

  • California: Employers are not required to pay out unused sick leave unless company policy explicitly allows it. However, some local ordinances (e.g., San Francisco and Los Angeles) provide additional protections.
  • New York: While the state mandates sick leave accrual, unused hours do not have to be paid out upon termination.
  • Illinois: Employers offering sick leave must allow employees to use it for family-related health issues but are not required to cash it out at termination.
  • Massachusetts: Employees can accrue up to 40 hours of sick leave annually, but there is no legal requirement to cash out unused time.

Since laws change frequently, it is best to verify state-specific sick leave policies with a legal professional.

Paid Time Off

An increasing number of companies are heading toward giving their employees “paid time off” (PTO. Under this system, days are not accrued in a specific category such as vacation, sick leave, or personal leave. Instead, they are all lumped together under one heading, which enables employers to have a simpler method of keeping track of days taken or accrued.

Any PTO days that are still on the books when an employee leaves the company, will usually be treated as vacation days and will need to be paid for when the employee leaves the company.

The Difference Between PTO and Sick Leave Cash Out

Many companies have transitioned from traditional sick leave policies to Paid Time Off (PTO) systems, where vacation, sick leave, and personal days are combined into a single balance. Here’s how the two differ when it comes to cashing out:

  • PTO Payout: Many states require that accrued PTO be treated as wages, meaning it must be paid out upon termination if the employer does not have a "use-it-or-lose-it" policy.
  • Sick Leave Payout: Sick leave is typically not considered earned wages and does not require payout unless a company policy states otherwise.
  • Legal Implications: In states like California, employers must pay out unused PTO but not sick leave unless it is included in a general PTO bank.

For employees who want to maximize their benefits, understanding the differences between PTO and sick leave policies is crucial.

Who enforces the law?

The government’s wage standard law is determined by the Fair Labor Standards Act, and it is the responsibility of the Wage-Hour Division of the U.S. Department of Labor to enforce it. This Division has investigators who are stationed all over the United States. They conduct various investigations on issues that deal with wages, hours worked, and other employment practices to decide whether or not the law has been broken.

When a violation of the law is discovered, the Wage-Hour Division may also recommend that certain changes be applied in a company’s employment practices to ensure compliance. Employees may not be fired or discriminated against for filing a complaint or for being involved in a legal investigation under the Fair Labor Standards Act (FLSA).

Violations may result in prosecution and a fine of up to $10,000. If there is a second conviction, it could result in imprisonment. Employers who violate the minimum wage laws may be subject to a fine of up to $1,000 for each violation. In addition, the Secretary of Labor may get an injunction against anyone who violates the FLSA, which includes unlawfully withholding of a proper minimum wage or pay for overtime hours.

How can I file a complaint / how long do I have to file for unpaid wages?

In order to file a complaint about wages that have not been paid, an employee can go to the Wage and Hour Division (WHD) of the Department of Labor, or they may file a lawsuit, which will likely mean getting an attorney for your case. A time limit of two years applies in cases of back wages unless an employer is committing a willful violation, which has a three-year limitation.

Frequently Asked Questions

1. Can I cash out my sick hours when I leave a job?

It depends on your employer’s policy and state laws. Some employers allow sick leave payouts, but most do not unless it is part of a PTO system.

2. Are companies required to pay for unused sick leave?

No, unless state or local laws specify otherwise. Most businesses do not pay out sick leave at termination unless they have a policy in place that allows it.

3. Does sick leave roll over into the next year?

In some states, accrued sick leave must roll over, but employers may cap the total amount of sick leave an employee can accrue.

4. How do I know if my employer offers sick leave payout?

Check your employee handbook, employment contract, or speak with HR to understand your company's sick leave payout policy.

5. What should I do if I believe my employer violated sick leave laws?

You can file a complaint with your state’s labor board or consult an employment attorney for guidance. If needed, UpCounsel can connect you with experienced legal professionals.

If you need help in understanding more about accrued sick leave payout, or what your state requires, you can post your legal need on the UpCounsel’s marketplace. UpCounsel only uses lawyers who have graduated in the top 5 percent of the top law schools such as Harvard Law and Yale Law, and average of at least 14 years of legal experience, including work with or on behalf of such companies as Google, Menlo Ventures, and Airbnb.