You’re leaving your job, and you have unused vacation time. Does your employer have to pay you for it? Many employees assume this is a guaranteed payout, potentially leaving compensation unclaimed.
Does your employer have to pay you for unused vacation time when you quit? The answer is complicated. It depends almost entirely on your state’s laws and your specific employer’s policies. There is no federal law that mandates employers provide or pay out vacation time. This post explores the legal nuances, the critical differences between state laws (focusing on Illinois and Minnesota), and the steps you should take to protect your earned benefits.
Before looking at state-specific rules for whether your employer must pay you for unused time off, we must first define “accrued vacation time.” This is vacation time that you’ve earned over the course of your employment. It is not simply a gift from your employer; it is a form of deferred compensation. How you earn this time is dictated by your employment agreement or your employer’s written policy.
Many employees earn a set number of vacation hours for each pay period they complete.
Other employers may advance the full allotment of vacation days at the beginning of the year (or on your work anniversary) for use throughout the year.
This distinction between time that is “given” versus time that is “earned” can be a critical legal point. It is also essential to differentiate between a company’s internal policies and the overarching state laws that govern them. Your employer’s handbook may spell out the vacation policy, but state law ultimately controls.
State laws vary significantly. Some states, like California and Illinois, view accrued vacation time as an “earned wage” that cannot be forfeited. Other states offer employers more flexibility. Because our firm operates in both Illinois and Minnesota, it is helpful to compare their differing approaches.
Illinois takes a strong, pro-employee stance. The Illinois Wage Payment and Collection Act (IWPCA) is clear: All earned vacation time must be paid to an employee upon separation. Illinois courts consistently hold that earned vacation is treated like wages. Therefore, a “use it or lose it” policy that requires an employee to forfeit accrued vacation time (for example, at the end of the year) is not lawful in Illinois for time that has already been earned.
Minnesota provides employers with more discretion. There is no state law explicitly requiring employers to pay out unused vacation time upon termination. Instead, the question turns on what the employer has promised in its written policies. If an employer has a clear policy stating vacation will be paid out upon termination, it must follow that promise. If the employer’s policy states vacation is forfeited or silent on payout, employees generally have no legal right to receive unused vacation upon separation.
Many employers implement “use it or lose it” vacation policies—requiring employees to use their accrued vacation by a certain date or risk forfeiting it. The legality of these policies depends heavily on where you work.
If vacation time has been earned, it cannot be forfeited through a “use it or lose it” policy. Illinois views forfeiture of earned vacation as an unlawful attempt to deny earned wages.
Employers can generally enforce “use it or lose it” policies as long as they are clearly communicated in writing and applied consistently. However, if an employer’s handbook promises payout or is silent in a way that creates ambiguity, the employer must honor what it has promised.
Some employers implement caps on how much vacation time an employee can accrue. For example, an employer may limit accrual to a maximum of two weeks. Once an employee reaches this cap, they stop earning additional vacation time until they use some of their accrued time.
Accrual caps can be problematic if they result in the loss of already-earned vacation time. Courts have held that earned vacation time is a wage, and employers cannot unilaterally take away earned wages through accrual caps. However, a cap that limits future accrual—without forfeiting already-earned time—may be permissible.
Accrual caps are generally enforceable as long as they are clearly stated in the employer’s written policy and applied consistently.
When vacation time is paid out, the calculation is typically straightforward: multiply the number of unused vacation hours by the employee’s regular hourly rate. For salaried employees, this usually means dividing the annual salary by the standard number of work hours (typically 2,080 hours per year) to determine an hourly equivalent. However, complications sometimes arise.
If an employee’s compensation includes commissions or bonuses, determining the “regular rate” for vacation payout may be more complex. Some employers attempt to exclude variable components, which may or may not be legally permissible depending on how compensation is structured.
Many employers use a combined PTO (Paid Time Off) system that merges vacation and sick leave. The legal treatment of unused sick leave may differ from vacation time, particularly in states with specific sick leave laws.
When determining whether your employer must pay you for unused time off before you quit, an employment lawyer from our firm can help you understand these important concepts.
Your employer’s written vacation policy matters, as in many cases, it determines your rights to an unused vacation payout upon leaving your job.
The employer’s policy is often determinative. If the handbook promises payout upon termination, the employer must follow through. If it states unused vacation is forfeited, employees often have no recourse (absent a discrimination or retaliation claim).
Employer policies matter less because state law sets a minimum standard. Even if a handbook says vacation is forfeited, the IWPCA requires payout of earned vacation time. An employer’s policy cannot override state law protecting earned wages.
If you’re planning to leave your job, take these steps to protect your right to unused vacation pay:
If your employer doesn’t pay out unused vacation time that you believe you’re owed, you have options.
You can file a wage claim with the Illinois Department of Labor or file a lawsuit. The IWPCA provides strong remedies, including recovery of unpaid wages, penalties of up to 2% per month on the unpaid amount, and attorney’s fees. Because of fee-shifting, many employment lawyers will take these cases on a contingency basis.
You can file a wage claim with the Minnesota Department of Labor and Industry. The process is designed to be accessible without representation, though legal counsel can be helpful when an employer disputes a claim.
Whether your employer must pay you for unused vacation time when you quit depends on your state’s laws and your employer’s written policies. In Illinois, state law strongly protects employees by treating accrued vacation as earned wages that must be paid out. In Minnesota, employer policies typically control, and there is no blanket requirement for vacation payout.
Don’t assume your employer will automatically do the right thing. Know your rights, document your accrued vacation, and review your final paycheck carefully. If you believe you’re owed money for unused vacation time that wasn’t paid, you may have legal recourse.
If you’re in Illinois or Minnesota and have questions about unpaid vacation time or other wage issues, Wanta Thome Employment Lawyers can help. We represent employees on a contingency fee basis—you don’t pay us unless we recover compensation for you.
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