Is It Legal To Cash Out Your Vacation Pay?


US employers are not obliged to provide paid vacation days to employees. However, over 90% of full-time, privately-employed workers in the USA receive at least a few days of paid time off annually. If you have not used up your vacation days and are struggling with finances, you might be tempted to cash them in for some money. 

It is legal to cash out your vacation pay when you resign or get fired provided state law and your employment contract allow it. However, most companies do not allow employees to cash out vacation pay while still employed.

The rest of this article will discuss in greater detail when it is legal to cash out your vacation pay and how many vacation days you can accrue. 

Can I Cash Out My Vacation Days When I’m Still Employed?

You usually can’t cash out your vacation days when you are still employed. Although state law doesn’t govern paid vacation, most companies have in-house regulations that require staff to take a minimum number of days off to prevent and uncover fraud, avoid burn-out, and promote mental health. 

Most companies offer workers a certain number of paid days off each year 一vacation days are also known as paid time off (or PTO).  It is rare to find a company that allows its workforce to cash out their vacation pay when they are still employed, but it is worthwhile checking your employer’s vacation pay policy just in case. 

Employers require staff to take a minimum number of vacation days per year mainly for internal control. When employees take time off work, it is an opportunity for any fraudulent activity or poor business practices to be revealed and addressed. 

Companies may also insist that employees take a certain number of days off each year to prevent burn-out, promote sound mental health, and allow employees to rest. Whatever the reason, the implication is the same: you’re better off using your vacation days to enjoy a change of scenery because you can’t cash them out. 

Can I Cash Out Unused Vacation Days if I Resign or Get Fired?

Whether you can cash out unused vacation days when you resign or get fired depends on state law. Some states require employers to pay out unused vacation days upon resignation or layoffs. Others have no such requirements, leaving everything up to the terms of your employment contract.

If you have been working at a company for a few years, chances are you’ll have a few vacation days owed to you if you resign or get fired because most states require companies to pay for unused paid time off. Here is a comprehensive list of such states:

  • Arizona
  • California
  • Colorado
  • Idaho
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Maine
  • Massachusetts
  • Minnesota
  • Montana
  • Nebraska
  • New Hampshire
  • New York
  • North Carolina
  • North Dakota
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Texas
  • Utah
  • Vermont
  • Washington
  • West Virginia
  • Wisconsin
  • Wyoming

If you live in Connecticut, Tennessee, Rhode Island, Virginia, Kansas, Maryland, South Carolina, or Delaware, you should check your employment contract regarding paid vacation time. 

Depending on your employment contract terms, your employer might be liable to pay you for unused vacation time. If the contract states that the employer is not liable to pay out unused vacation days, you can’t cash out your vacation pay in any of these states regardless of whether you’ve resigned or have been laid off.

Michigan and New Jersey have slightly different laws. Michigan does not consider vacation pay to be part of your wages and fringe benefits. Meanwhile, New Jersey state law does not treat unused vacation days as part of your wages. But if your employment contract stipulates that any unused vacation days will be paid out, you can cash out in both states. 

The remaining states do not address this issue in their state laws, meaning your employer isn’t required to pay you for unused vacation time unless your employment contract specifically covers it. 

If being paid out for vacation days is important to you, consider negotiating such a clause in your employment contract the next time you start a new job. Alternatively, move to a state where PTO is protected. 

How Many Vacation Days Can I Accrue?

You can accrue as many paid vacation days as your employment contract allows. Employment contracts may have “use-it-or-lose-it” terms that state how many vacation days you can accumulate over a certain period. Some states don’t allow it, but employers often can cap the days accrued. 

Here is a list of states that don’t allow employers to have “use-it-or-lose-it” vacation day policies:

  • California
  • Colorado
  • Montana
  • Nebraska
  • West Virginia
  • Wisconsin
  • Wyoming

In Illinois, Montana, and New York, state law stipulates that employers may give staff a reasonable amount of time to use up unused vacation days or put a cap on how many vacation days may be accrued. 

The remaining states do not address how many vacation days can be accrued. They leave it up to the employer to lay down their own rules in employment contracts.

If you read through your employment contract, you’ll likely notice a section explaining how many vacation days you can cash out or roll over and whether you must do that within a specific time frame. If there’s such a clause and your state allows employers to enact “use or lose it” policies on PTOs, you need to be vigilant with dates to avoid losing paid vacation days.

Summary

Most companies don’t allow employees to cash out vacation pay while they’re still employed, as using paid time off promotes employee wellbeing and helps uncover fraud. However, many pay out unused vacation days if you resign or get fired. 

Some states have laws governing how employers must compensate for paid time off and implement “use-it-or-lose-it” policies, so be sure to find out your state’s legal stance on both matters. More importantly, check your employment contract to understand how your vacation days accrue, how they must be used, and how you’ll be compensated if you leave the company.

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