Do we have to pay out accrued PTO to terminated employees?

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The answer to that question (wait for it) — it depends on the state.

A few states, like California, Colorado, Kentucky, and Massachusetts (there may be others), define “wages” statutorily to include vacation pay. And since an employer must pay all wages owed to terminated employees, generally, that includes accrued but unused vacation pay. 

Many other states, like Idaho, Mississippi, Montana, and Missouri, do not have laws clarifying that paid time off (PTO) is part of wages. 

New Jersey is another state with a law on the books requiring payout of accrued PTO upon separation

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