How a PTO Payout Is Worked Out
- Unused hours = unused days × hours in a workday (or the hours themselves)
- Hourly rate = the hourly rate, or yearly salary ÷ (hours per week × 52)
- Gross payout = unused hours × hourly rate
General information, not legal advice: whether unused PTO must be paid out depends on the state and the employer’s written policy. California, for example, doesn’t allow earned vacation to be forfeited and requires it to be paid in the final paycheck.
Worked Example
A salaried employee earning $60,000 a year leaves with 5 unused days of PTO.
- Hourly rate: $60,000 ÷ (40 × 52) = $28.85.
- Unused hours: 5 days × 8 hours = 40 hours.
- Gross payout: 40 × $28.85 = $1,153.85, before taxes.
Frequently Asked Questions
How do you calculate a PTO payout?
Multiply the unused PTO hours by the employee’s regular hourly rate. For salaried staff, first turn the salary into an hourly rate — salary ÷ (hours per week × 52). Unused days are turned into hours with the length of a workday.
Do employers have to pay out unused PTO?
It depends on the state and on the employer’s written policy. Some states, including California, Colorado, Illinois, Massachusetts, Montana and Nebraska, treat earned vacation as wages that must be paid when someone leaves. In many other states the written policy decides. This is general information, not legal advice.
Is a PTO payout taxed?
Yes. In the US a PTO payout is wages, usually taxed as supplemental pay, with Social Security and Medicare withheld. This calculator shows the gross amount before any taxes or deductions.
Is sick leave paid out too?
Usually not. Most states that require vacation payout don’t require unused sick leave to be paid. If a policy combines vacation and sick time into one PTO bank, many states treat the whole bank like vacation.
Which rate is used — the current one or the one when PTO was earned?
Normally the rate at the time of separation. Check your state’s rules and your policy if the employee’s pay changed during the year.