Must PTO be paid out upon separation?

My employer created PTO, called “Personal Holidays” – 3 days per year. It can be taken any time during the year for whatever reason the employee decides but per written employers policy, is not paid out during separation. Is it legal? I thought if PTO offered is available any time it becomes like vacation and must be paid out at separation.

Asked on December 1, 2015 under Employment Labor Law, California


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

CA does not allow “use-it-or-lose-it” vacation policies, unlike soe other states. Accordingly, accrued vacation doesn't need to be used by a certain date or else it is forfeited. This is because accrued vacation is considered earned wages, which must be paid out. Employers can, however, place a cap on vacation accrual.
In CA, employers are not required to provide any paid vacation or paid time off (PTO) to their employees. However, for those who do, certain guidelines must be followed. CA law considers accrued vacation to be a form of wages that have already been earned by the employee. This means that accrued vacation cannot expire and must be paid out to an employee upon termination or separation from the employer (the same rules apply to PTO).
Note: Sick leave is not subject to the same rules as vacation and PTO.

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