Key Takeaways

  • No federal law requires vacation pay, but most employers offer it as a benefit to attract and retain employees.
  • Vacation pay policies vary by state—some states require payout of accrued vacation upon termination, while others leave it to company policy.
  • Use-it-or-lose-it policies may be illegal in states like California and Illinois but permitted in others if disclosed clearly.
  • Accrual caps are allowed in many states to encourage employees to take time off, but caps must be reasonable.
  • Documentation matters: Employee handbooks and contracts determine whether unused vacation must be paid out.
  • Certain leaves are legally protected under federal and state law, including jury duty, voting leave, military leave, and FMLA.
  • Employees can negotiate vacation terms during hiring or promotion discussions, especially in competitive industries.

Vacation Pay

Employees have rights when it comes to vacation pay, but employers are not required by federal law to give their employees vacation time. However, many provide it as a benefit that improves morale and prevents burnout. In some cases, employee contracts or collective bargaining agreements may require paid time off. State laws about vacation pay vary. It is also dictated by each company's specific policy. Common policies regarding vacation time include:

  • Paid or unpaid vacation
  • Carry over or lose unused time
  • Offering paid time off instead of vacation days

In many other countries, employers are required to give employees up to six weeks of paid vacation. In the U.S., however, the Fair Labor Standards Act (FLSA) does not mandate paid leave. Many states require employers to pay employees for the value of accrued vacation time, but not necessarily to provide paid vacation.

When employers do offer paid vacation time, only some employees may be eligible. Part-time and temporary workers are typically excluded although they sometimes accrue time on a pro-rated schedule. Some companies make vacation time available to employees only after six months or a year on the job. Most jobs offer more vacation time to higher-level employees than to lower-level employees.

In some cases, employees negotiate additional vacation time as part of their job offer. These policies are all legal, provided that they are applied in a discrimination free way, and rooted in established company policy. Discrimination constitutes equal treatment for employees who have jobs with roughly equal responsibility, skill, and effort, and done in identical conditions. Eligibility for vacation pay among employees can't be decided based on religion, race, gender, disability, or other protected class.

Most companies prevent employees from carrying over vacation days from one year to the next. They typically institute this policy to:

  • Keep employees from burning out from not taking vacation for a long time period
  • Because taking a long vacation would put undue burden on other workers
  • Because if the employee leaves the company, the business will not want to be required to pay a substantial sum for accrued, but unused vacation time

In states where payoff of unused vacation time is required by law, use it or lose it vacation policies are not legal and is considered equal to withholding compensation. However, accrual caps are still legal in these states.

Employees sometimes note that they lose their vacation days when they are unable to bank them for use in the future, because they will miss deadlines by taking time off or because their supervisor denies requests for time off. In the latter situation, you should work with human resources, management, and other employees to reach a solution. If this is not effective, it may be time to seek a job where you are permitted and encouraged to take vacation time.

Many companies are now using a paid time off (PTO) system, in which days off are not designated as sick, vacation, or personal. Instead, they can be used in any way you choose. This policy is designed to provide additional flexibility and reduce time spent tracking employee hours. It also keeps workers from running out of sick days and having to use vacation time. With most PTO policies, accrued time is paid out when the employee leaves the job. There are laws about payment of accrued vacation time in 27 states. Some states allow employees to legally challenge the employer if they were promised to be paid for accrued time that was not paid in the final check. In these states, a lawyer or state government agency can instruct you on how to move forward with this challenge. Another option is small claims court.

When a workplace closes for inclement weather, employees may be required to use vacation time to cover the day off. This policy must already be in place when the snow day occurs, and be posted and accessible to workers. Employees who work from home in the case of inclement weather, or who already had vacation scheduled, may or may not have to use a vacation day. Some employees can opt to forgo pay for that day and keep the vacation day.

For more information about your state's laws about vacation pay and accrual, or to report a violation, the agency that handles labor standards, wages, and hours can help. The state laws should govern unpaid wage recovery, vacation time, and the method for resolving a complaint. There are often deadlines for unpaid wage recovery, so contact the agency in your state as soon as possible. Your employee handbook is also an important resource, and its policies can be used to prove legal unfairness if they are administered unfairly, are vague, or violate federal or state laws.

California law prohibits a use it or lose it vacation policy.

Vacation pay may not be deducted without the employee's consent, and may not be deducted as a disciplinary measure.

If your state doesn't have laws about final wages, you can still sue in civil court. Applicable federal laws include the Equal Pay Act of 1963 (EPA), Title VII of the Civil Rights Act of 1964, Age Discrimination in Employment Act of 1967 (ADEA), Sections 501 and 505 of the Rehabilitation Act of 1973, Title I and V of the Americans with Disabilities Act of 1990 (ADA), and the Civil Rights Act of 1991.

Understanding Federal vs. State Vacation Pay Laws

While the Fair Labor Standards Act (FLSA) does not mandate employers to provide paid vacation, most companies do so as part of competitive benefits packages. However, once vacation pay is promised through an employment contract, handbook, or policy, it becomes a binding obligation under both federal and state law.

Each state sets its own rules about how vacation pay must be handled:

  • California, Montana, and Nebraska treat accrued vacation as earned wages that must be paid upon termination.
  • Georgia, Florida, and Alabama have no specific vacation pay laws, leaving policy decisions to employers.
  • Illinois and Massachusetts require payout of accrued vacation when employment ends unless a clear policy states otherwise.
  • Use-it-or-lose-it policies are banned in some states but permitted in others if they are communicated in writing and applied consistently.

Employers should ensure their vacation pay policy complies with their state’s wage payment laws to avoid wage claims or penalties. Employees should review their offer letters, handbooks, and pay statements to confirm how unused vacation is treated.

Vacation Accrual and Caps

Vacation accrual is based on company policy. Common policies include earning a certain number of days per month or hours per pay period. New employees may be subject to a waiting period before they start earning vacation time. In some states, companies can legally cap the accrual of vacation time and often do so to encourage employees to take the time they earn. After they reach the cap, they won't accrue more vacation time. Certain states have laws that specify the cap, such as California's cap of 1.5 times the yearly accrual rate.

State Laws on Vacation Accrual and Payout

Vacation accrual and payout laws vary significantly across the U.S. According to Paycor’s 2025 data, 27 states require payout of unused vacation time, while others leave it to the employer’s discretion.

Examples of state-specific regulations:

  • California: Treats vacation as earned wages and prohibits “use-it-or-lose-it” policies. Employers may cap accrual at a reasonable limit (e.g., 1.5 times the annual accrual).
  • Colorado and Illinois: Require employers to pay out all unused, earned vacation upon separation.
  • Georgia and North Carolina: No requirement to provide or pay out unused vacation unless promised by company policy.
  • New York: Employers must follow written policy terms on vacation payout; if unclear, courts typically favor the employee.
  • Massachusetts: Requires payout unless a clear policy says otherwise.
  • Texas: Employers can limit accrual or payout through written agreements, but policies must be communicated clearly.

Employers often use caps on accrual to prevent excessive accumulation, but these must be reasonable and disclosed to employees. Companies should also be aware of how paid time off (PTO) systems integrate with vacation pay—since PTO is treated as a combined leave bank, state payout rules typically apply the same way as vacation.

What Is Vacation Pay?

Businesses can establish their own policies about vacation pay provided they accord with applicable state and federal laws. Legally, though, once vacation time is promised it must be given. Competition for employees means that most employers will continue to offer vacation time even though it isn't required by federal law. As of 2015, Bureau of Labor Statistics data indicated that 90 percent of employees who work full time in private industry earn vacation pay, compared to just 34 percent of part-time employees.

The amount of paid vacation offered varies by industry and with employee expectations. This includes 80 percent of office and sales workers, as well as those in transportation and production; 79 percent of construction and resources jobs; and 76 percent of professional and management jobs. This is compared with just 55 percent of those in the service industry. Each employer must specify their vacation policies in the employment contract, handbook, or collective bargaining agreement.

The average amount of vacation time reported by the BLS is 11 days for workers with one year of experience, 15 days for those with at least five years of experience, and 20 days for those with 20 years of experience or more. In Japan, Australia, New Zealand, and India, all employees average 20 to 30 days of paid vacation time.

Vacation Pay Upon Termination or Resignation

Whether employees receive payment for unused vacation upon leaving a company depends on state law and company policy.

  • In states like California, Colorado, and Massachusetts, unused vacation must be paid in the employee’s final paycheck.
  • In Georgia, Florida, and Texas, payout is not required unless stated in an employment contract or handbook.
  • Employers cannot retroactively change policies to avoid paying accrued vacation that employees have already earned.

If vacation pay is considered earned compensation, withholding it may violate wage payment laws. Employees who are denied owed vacation pay may file a wage claim with their state’s labor department or pursue a civil lawsuit. Employers should document accruals accurately and ensure prompt payment to avoid penalties.

Employers and Vacation Pay

Business owners must familiarize themselves with all state labor laws regarding vacation, and take eligibility for different types of employees into account. For example, consider pro-rating vacation accrual for part-time employees, how days are accrued, and other relevant policies.

Best Practices for Employers Managing Vacation Pay

To ensure compliance and maintain employee satisfaction, employers should adopt transparent, written policies covering:

  • Eligibility: Define whether part-time, temporary, and probationary employees earn vacation pay.
  • Accrual methods: Specify accrual rates (e.g., monthly or per pay period) and start dates for eligibility.
  • Carryover and payout rules: Clarify whether unused vacation rolls over, is capped, or forfeited.
  • Notice requirements: Explain how employees should request vacation and how approval is granted.
  • Separation policies: State explicitly if accrued vacation is paid upon termination or resignation.

Employers should regularly review policies with HR and legal professionals to ensure alignment with evolving state labor laws. Keeping accurate records of accrual and usage also helps prevent disputes and wage claims.

Government Protected Leave

Some types of time off are protected by law, including:

  • Military leave
  • Family and medical leave
  • Jury duty
  • Leave to vote

In some cases, it's illegal for employers to require employees to use vacation time for these absences. Paid time off for the employee to vote is mandated in 32 states, with penalties including fines and jail time.

Permanent employees called to serve in the military or reserves, or to training for these duties, are not required to use vacation time to cover this time off.

Federal and state laws require employers to provide paid time off for employees serving on a jury. If this time is not provided, the employer can be found in contempt of court and/or charged with a misdemeanor.

FMLA requires employers with more than 50 employees to give employees who qualify up to 12 weeks of unpaid leave during a given year. Some states require this provision from smaller employers as well.

Paid vs. Unpaid Leave and Interaction with Vacation Time

Protected leave under federal laws—such as FMLA, USERRA, and state-specific family leave laws—may intersect with vacation pay. Employers cannot force employees to use vacation days during protected leave unless permitted by company policy and consistent with law.

Examples:

  • Military leave (USERRA): Employees returning from active duty must be reinstated with the same vacation benefits accrued before service.
  • FMLA: Employers may require employees to use accrued vacation for part of unpaid family or medical leave, but policies must be applied uniformly.
  • Voting and jury duty: Many states prohibit employers from requiring employees to use vacation pay for civic duties.

Employers should coordinate their leave and vacation policies carefully to prevent conflicts or violations of employee rights.

Tips for Negotiating Vacation

Give your employer plenty of notice when requesting vacation time. Try to choose times when your services are less in demand. Submit your request in writing and have backup dates in mind in case your first choice cannot be accommodated. In some cases, employees who do not get paid vacation can negotiate for unpaid time off. Vacation time approval is not guaranteed. Experienced workers can sometimes negotiate additional vacation time.

Legal Remedies for Vacation Pay Disputes

Employees who believe their employer has unlawfully withheld vacation pay can take several steps:

  1. Review the company policy or employment contract for payout terms.
  2. Contact HR or payroll to resolve discrepancies internally.
  3. File a wage claim with the state labor department if vacation pay is legally owed but unpaid.
  4. Consult an employment attorney to evaluate potential claims under wage payment laws or breach of contract.

Workers in states with strong wage protection laws—such as California, Massachusetts, and Illinois—may also recover penalty damages and attorney’s fees. If informal resolutions fail, filing in small claims court may be an accessible option.

If you need legal guidance on recovering unpaid vacation pay or ensuring compliance as an employer, you can find an experienced employment attorney on UpCounsel’s marketplace.

Frequently Asked Questions

1. Is vacation pay mandatory in the U.S.? No. Federal law does not require paid vacation, but many employers offer it voluntarily or as part of employment agreements.

2. Can my employer take away unused vacation days? Only if allowed under a clear, written policy and if state law permits it. Some states, like California, prohibit “use-it-or-lose-it” policies.

3. Do I get paid for unused vacation when I quit? It depends on your state. Many states require payout of earned vacation upon separation, but others leave it to company policy.

4. Can part-time employees receive vacation pay? Yes, but it’s up to the employer. Some companies prorate vacation accrual for part-time workers.

5. How can I resolve a vacation pay dispute? Start by reviewing your company’s policy and contacting HR. If unresolved, you can file a wage claim or seek legal assistance through UpCounsel.

If you need help with vacation pay, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools, such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of, companies like Google, Menlo Ventures, and Airbnb.