When Can I Withhold Pay Out PTO From Someone Exiting the Organization?

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September 26, 2014

This is a very common question, as employers often seek to withhold PTO upon termination until an employee complies with an obligation to the organization, or for purposes of offsetting an employee's debt to the organization.Other employers believe that the employee is not entitled to receive the PTO upon termination.

The answer is not universal, as the Fair Labor Standards Act does not require payment for time not worked, such as vacation time. Thus, the answer is two-fold, and can be determined by answering two additional questions:

  • How does your state law define "wages"?
  • What does your PTO policy say?

Some states, such as Wisconsin, have a broad definition of "wages," which includes vacation pay as provided to employees under an established policy. Thus, if the PTO is deemed to constitute wages under state law, employers must pay out PTO upon termination if the PTO has been earned by the employee, or risk a wage claim.

Which brings us to the second question, as an organization's PTO policy will determine whether the employee has actually earned the PTO upon termination. If, under the policy, the PTO has been "accrued" as opposed to "earned," the employer may not be required to pay it out upon termination. Similarily, many PTO policies specifically provide that unused PTO is forfeited if not used, or that employees are not entitled to carry over PTO or be paid PTO upon termination. In such cases, PTO can be withheld. However, if the employee has earned the PTO pursuant to the employer's established policy, then the organization cannot withhold paying out the PTO upon termination. In the end, the language of the PTO policy is the key to your answer.

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About the author:
Areas of Practice Labor & Employment Administrative Appellate Litigation Bar Admissions 1987 State of Wisconsin U.S. Districts Courts Eastern & Western Dist. of WI Seventh Circuit Court of Appeals Education J.D. Marquette University Law School, 1987; Magna cum laude; Thomas More Scholar B.A. University of WI - Milwaukee, 1973; cum laude; Ripon College Associations American Bar Association State Bar of Wisconsin -Office of Lawyer Regulation District Committee Association of Women Lawyers Milwaukee Bar Association Women’s FOCUS, Inc. Publications/Presentations Advisor to the Georgetown Journal of Gender and the Law - Fall, 2002 "Stretching the Employment-at-Will Doctrine," Jane Hausman and Karen Wright v. St. Croix Care Center, Wisconsin Lawyer Magazine, July 2000 Author, "Defining The Employment Relationship," Wisconsin Business Law Book, Chapter 1, State Bar of Wisconsin CLE Books - September, 2006. Adjunct Professor of Law, Marquette University Law School, 1999 - 2000

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