We all need vacation time. Taking time off is one of the best ways for employees to maintain work-life balance (and for employers to maintain employee retention).
Still, just because employees should take a vacation doesn’t mean they will—in fact, according to a 2025 FlexJobs survey, 23% of U.S. workers took no vacation days in the past year. When employees still have unused paid time off (PTO) at the end of the year, they’ll look to your PTO accrual policy to figure out what they can do with it.
In this article, we’ll review your options for what you can do with your employees’ accumulated PTO at the end of the year.
Which PTO rollover policy should I choose?
Generally speaking, you have two options when it comes to how your company treats unused vacation leave:
With a PTO rollover policy, you can choose to let employees “roll over” or carry forward some or all of that time into the next year in addition to the PTO they’ll get in the new year.
If you opt for a PTO payout, you can choose to pay out those days at the end of the year.
Alternatively, depending on your state’s requirements, you can let unused PTO days expire.
On a more granular level, you can choose any of the following PTO rollover policies, provided they align with your state’s PTO rollover laws:
Unlimited rollover: All unused PTO carries into the next year. This is often paired with an accrual cap.
Limited rollover: Only a set number of hours or days carry over (e.g., up to 40 hours). Anything above that is subject to rollover limits and therefore lost.
Use-it-or-lose-it policies: Unused PTO is forfeited at year-end. Some states, including California, Colorado, and Montana, treat PTO as earned wages.
Payout of unused PTO: Employers cash out some or all of the balance at year-end. Some offer it as an option, such as converting leftover PTO to a 401(k) contribution or a cash payout.
Grace period: Employees get a short window into the new year (e.g., 60-90 days) to carry over unused PTO and use the balance before it expires.
Rollover into a separate bank: Carried-over time moves into a separate bucket (e.g., sick leave, personal days, or extended leave) with its own usage rules.
Accrual cap only (no year-end reset): There’s no year-end event, and the balance simply can’t exceed a ceiling.
Unlimited PTO: Nothing accrues, so there is no balance to roll over, forfeit, or pay out. Some states and employer policies still require careful documentation.
The right PTO rollover policy is one that gets used
Whichever approach you choose, remember that a policy only works if your team understands it. Spell out how PTO accrues, what happens to accrued PTO at year-end, and any caps or deadlines, then add it to your employee handbook. Clear, written expectations help employees plan their time off, and they give you something to direct them to if questions come up later.
And before you finalize anything, check your state’s labor laws. Rules on forfeiture, payout, and accrual caps vary widely, and a policy that isn’t compliant could expose your business to back pay, penalties, or other financial liabilities. If you’re not sure where you stand, a quick check with your state labor department or an employment attorney is well worth it.
FAQs
Is PTO rollover required by law?
No federal law requires employers to offer PTO or let it roll over. Rules are set at the state level and by your written policy. Some states, including California, Colorado, and Montana, prohibit forfeiting earned PTO, which effectively requires rollover, payout, or a reasonable accrual cap.
What is the difference between a PTO rollover limit and an accrual cap?
A rollover limit caps how many unused hours carry into the next year. An accrual cap limits the total balance an employee can hold at any time. Once the cap is reached, accrual pauses until the employee uses time. Employers can combine both, such as a 40-hour rollover limit with a 120-hour balance cap.
Do employers have to pay out unused PTO when an employee leaves?
In other states, such as Texas, payout is required only if your written policy or agreement promises it. New York works the other way: accrued vacation generally must be paid out at separation unless your written policy says it is forfeited.
Can an employer change its PTO rollover policy mid-year?
Generally, employers can change a policy going forward with clear written notice. They typically can’t take away time employees have already earned, and some states restrict this. Put changes in writing and update the handbook.
Can an employer set a PTO accrual cap?
Yes. Accrual caps are generally allowed, even in states that restrict forfeiture. California, Colorado, and Montana allow a cap that stops new accrual but not one that takes away time already earned. In California, the cap must also be reasonable.
