A PTO plan or policy does not allow an employer to circumvent the law with respect to vacations. Where an employer replaces its separate arrangements for vacation and sick leave with a program whereby employees are granted a certain number of paid days off each year that can be used for any purpose, including vacation and sick leave, the employees have an absolute right to take these days off. Consequently, again applying the principles of equity and fairness, the DLSE takes the position that such a program is subject to the same rules as other vacation policies. Thus, for example, PTO is earned on a day-by-day basis, vested PTO days cannot be forfeited, the number of earned and accrued PTO days can be capped and if an employee has earned and accrued PTO days that have not been used at the time the employment relationship ends, the employee must be paid for these days.
Unless otherwise stipulated by a collective bargaining agreement, whenever the employment relationship ends, for any reason whatsoever, and the employee has not used all of his or her earned and accrued vacation, the employer must pay the employee at his or her final rate of pay for all earned and accrued and unused vacation days. Because paid vacation benefits are considered wages, such pay must be included in the employee’s final paycheck.