Use-It-or-Lose-It PTO Policy: Legal in Your State?

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What is a use-it-or-lose-it PTO policy?

A use-it-or-lose-it policy requires employees to use their accrued PTO by a specific date (typically year-end) or forfeit it. These policies are common because they prevent large liability accumulations on employer balance sheets.

States where use-it-or-lose-it is illegal

State	Status	Reason
California	Illegal	Accrued vacation = earned wages, cannot be forfeited
Colorado	Illegal	COMPS Order treats accrued vacation as wages
Illinois	Generally illegal	Without very specific written policy language
Montana	Likely illegal	After probationary period, vacation is earned

What's different from a PTO cap?

A PTO cap (accrual cap) is legal even in California. Once you hit the cap, you stop accruing new PTO until you use some. This is different from forfeiting already-accrued PTO. California and similar states allow caps but not forfeitures.

If your employer has an illegal use-it-or-lose-it policy

If you're in California or another state that prohibits forfeiture and your employer enforced such a policy, you may have a claim for the forfeited vacation as unpaid wages. The statute of limitations in California is 3 years for wage claims.

Frequently Asked Questions

Yes. California allows employers to cap how much PTO you can accrue (e.g., no new accrual once you hit 200 hours). But they cannot take away PTO you've already earned. A cap stops accumulation; it doesn't forfeit existing balance.

Key items: accrual rate (per hour or per pay period), maximum accrual cap, what happens to unused PTO at year-end, what happens at termination, and whether PTO and sick leave are combined or separate banks.

Yes, especially if you have a large balance. Even in states that don't require it, employers may agree to pay out some or all of your unused PTO as part of your exit negotiations, particularly for long-tenured or senior employees.

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