Unlimited PTO vs Accrued: Pros, Pitfalls, and a Clean Playbook
You want time off that people actually use—and a policy you can enforce without turning into the PTO police. “Unlimited PTO” sounds sexy. Accrued PTO sounds safe. The truth? Both can work if you write them clearly, align them to your operations, and obey state payout rules.
I’ll give you the straight talk on when unlimited wins, when accrual wins, how to prevent abuse, and exactly what to write in your policy so you don’t get burned at termination.
First, the ground rules (no spin)
No federal PTO mandate. The FLSA doesn’t require employers to provide vacation or PTO. If you offer it, you’re writing the rules—subject to your state’s wage laws.
State law may turn PTO into “wages.” In places like California and Colorado, accrued vacation/PTO is treated as earned wages that cannot be forfeited and must be paid out at separation. Design your policy like that reality exists—because for many of you, it does.
“Unlimited” isn’t a magic shield. California’s McPherson v. EF case shows that if “unlimited” is unlimited in name only (managers quietly cap use), a court can still require a payout at termination. In other words: if you imply limits, write limits.
Paid sick leave mandates are separate. Many states and cities require paid sick leave accruals and specific carryover rules. Unlimited PTO doesn’t erase those obligations; you may still need a separate, compliant sick bank or written mechanism that guarantees at least the statutory sick leave.
Unlimited PTO: What it really buys you
Upside you’ll feel fast
Talent magnet & trust signal. It reads modern and employee-centric. (It also reduces tracking overhead if you keep a separate sick bank for compliance.)
No accrual liability on the balance sheet. Because time doesn’t accrue, there’s no bank to pay out at termination—if your policy is truly unlimited and compliant with local sick rules.
Where it backfires
People take less time. Without a target, employees—especially high performers—often don’t unplug. That kills morale and retention. (SHRM has been banging this drum for years.)
Fairness fights. If one team takes long stretches and another can’t, resentment builds. You’ll need approval standards and coverage plans to keep it fair.
Legal tripwires. In some states, “unlimited” must be genuinely unlimited (no implied caps), or you risk payout claims at separation.
Best fit: Trust-heavy cultures, project-based knowledge work, and teams with good manager discipline. Not great for roles with rigid coverage requirements unless you spell those rules out.
Accrued PTO: Boring—and beautifully predictable
Upside
Clear math & coverage. Banks accrue. People plan. Managers schedule around real numbers.
Lower legal ambiguity. You can set caps (where allowed), define carryover, and meet sick-leave mandates with a PTO + sick setup or a single bank (if legal in your state).
Downside
Balance-sheet liability & payouts. In states like CA/CO/MA, accrued vacation/PTO is wages and must be paid out at termination; “use-it-or-lose-it” is banned. In others, payout depends on your written policy. You must know your states.
Best fit: Shift work, client-coverage roles, or any environment where scheduling precision matters more than marketing flair.
Payout rules you cannot ignore
Here’s the simple way to think about it:
States that ban forfeiture / require payout if vacation is offered:
California (vacation = wages), Colorado (Nieto v. Clark’s Market), Massachusetts (Wage Act & AG advisory), plus others where payout is typically required. When in doubt, assume payout.States that allow policy-driven rules: Many states let your written policy control whether unused PTO is paid at termination. Draft it clearly. (Multi-state summaries from reputable HR tech firms can help you spot differences.)
Two big takeaways:
Your handbook language matters as much as the plan type.
If you operate in strict states (CA/CO/MA and friends), build your budget assuming payout for any accrued vacation/PTO.
How unlimited PTO collides with state law (and how to avoid it)
In California, the court in McPherson said: if an “unlimited” plan operates like a de facto cap (e.g., people can only take 2–4 weeks), you may owe payout. To avoid this, your policy must truly be unlimited, explain no accrual/no payout, and tell employees they can take reasonable time off without implicit caps. Document that managers don’t set hidden limits.
In Colorado, vacation (and PTO used as vacation) is wages that cannot be forfeited once earned; use-it-or-lose-it is void. Unlimited policies reduce risk only if they don’t accrue and don’t act like accruals.
Paid sick leave is often non-payout at separation, but it must accrue and carry over per statute. If you offer unlimited PTO, you still need to meet sick-leave accrual and use rules (or clearly show your unlimited policy guarantees at least the statutory sick leave without manager vetoes).
Abuse prevention without killing trust
Whether you choose unlimited or accrued, the abuse controls are the same:
Approval standards. Spell out how far in advance to request non-urgent time, who approves, and when “blackout dates” apply (e.g., inventory, tax deadlines, product launches).
Coverage plans. Require employees to propose coverage (handoff doc, on-call backup), and train managers to say “not that week, but yes the next”—fair and consistent.
Minimum usage. With unlimited, set a floor (e.g., take at least 10 days/year) so people actually rest. Track it.
Manager metrics. Measure time-off equity across teams. If one manager never approves PTO, fix the manager, not the policy.
Documentation. For unlimited, keep brief records: dates taken, approvals, and any denials with business reasons. It proves the policy is real and non-discriminatory if challenged.
Write it now: Two plug-and-play policy outlines
Option A — Unlimited PTO (with sick-leave compliance)
Use when trust is high, schedules are flexible, and you operate in states where you can still meet sick-leave mandates cleanly.
How to write it (core clauses):
Purpose: We offer unlimited, non-accruing paid time off to rest and handle life.
No accrual / no payout: Time does not accrue and is not paid out at exit. (State-law exceptions for accrued vacation don’t apply because there is no accrual. Add: “This policy does not reduce or replace any legally required paid sick leave; the Company maintains a separate sick-leave policy that meets or exceeds state/local law.”)
How to use: Request in the HR system [X business days] in advance for non-urgent time; leaders balance business needs and employee rest. We will approve reasonable requests that don’t create material business harm.
Blackouts: List specific periods where approval will be limited (year-end close, etc.).
Minimum rest: We encourage at least 10 days of PTO per year.
Sick-leave compliance: State that statutory sick leave accrues (or is otherwise guaranteed) separately, with the required carryover and usage rights. Link to your sick-leave policy or state notices.
Anti-retaliation & equal treatment: Using PTO won’t harm performance reviews or opportunities.
Manager training: Approvals are consistent; leaders cannot create hidden caps.
Why this works: It keeps the plan truly unlimited, preserves required sick-leave entitlements, and says the quiet parts out loud—reducing your McPherson-style risk.
Option B — Accrued PTO (with payout clarity)
Use for coverage-sensitive teams or multi-state operations where you want predictable scheduling and simple compliance.
How to write it (core clauses):
Accrual rate: Spell out hours per pay period and the cap (where legal).
Carryover: Define carryover and “use-by” rules, ensuring no forfeiture in states that ban it; use caps not use-it-or-lose-it where required (e.g., CA/CO).
Payout at separation: State exactly what’s paid out, consistent with each state’s rules (e.g., “We pay all accrued, unused vacation/PTO where required by law. In states that allow policy control, we either do or do not pay out PTO—see state addendum.”). Provide a state addendum for CA/CO/MA and others that require payout.
Sick leave: Keep a separate paid sick bank with the mandated accrual and carryover. Note that sick leave is generally not paid out at termination.
Scheduling & blackouts: Same as above—required notice, coverage, and fairness.
Why this works: It’s predictable for staffing and airtight in strict states.
Which one should you choose? Use this 5-question check
Coverage rigidity: If your work requires fixed coverage (clinics, field teams, retail), Accrued wins for scheduling discipline.
Manager maturity: If you’re not confident in consistent approvals, Accrued reduces subjective calls.
Multi-state complexity: If you operate in strict payout states, Accrued with a compliant payout clause is safer. If you’re mostly knowledge work in a few states and can maintain a separate sick bank, Unlimited can be a recruiting edge.
Balance-sheet optics: Want to erase accrual liabilities? Unlimited helps—if executed correctly.
Culture signal: Want to scream “we trust you”? Unlimited—but write it like a lawyer and manage it like a pro.
Red-flag mistakes (and quick fixes)
“Unlimited” that’s limited. If leaders block time in practice, you’re inviting a McPherson-style payout claim. Fix the culture or switch to Accrued.
Ignoring sick-leave mandates. Unlimited PTO does not satisfy many states’ paid sick leave accrual/carry rules. Keep a compliant sick bank or write an equivalent guarantee.
Use-it-or-lose-it in CA/CO. Don’t do it. Use caps on accrual instead; pay out per state law at separation.
Vague payout language. In policy-driven states, say plainly whether you pay out accrued PTO at termination. Ambiguity means disputes. (Check a current state-by-state reference.)
No data. Track approvals/denials and usage by team. If certain employees never take time, coach their managers.
Resources worth bookmarking
U.S. DOL: FLSA doesn’t require vacation/PTO. Useful baseline. DOL
California DIR: Vacation = wages; cannot be forfeited; payout required. Cal/OSHA
Colorado Supreme Court (Nieto): No “use-it-or-lose-it”; earned vacation must be paid at separation. Colorado Judicial Branch
Massachusetts AG Advisory: Vacation promised = wages; payout required. Mass.gov
McPherson v. EF (CA): “Unlimited” that acts like capped vacation can require payout. Littler Mendelson P.C.
Paid sick leave overview: NCSL & DOL briefs on state mandates. NCSL+1
State payout snapshots: Paylocity/Paycom HR guides (summaries—verify locally). Paylocity+1
Bottom line
If your managers will truly support time off and your work isn’t coverage-bound, Unlimited PTO with a separate, compliant sick-leave policy is a sharp recruiting play and removes accrual liability. If your world runs on coverage and predictability, Accrued PTO wins—just budget for payouts in strict states and write your policy like a lawyer, not a marketer.
Either way, clarity beats clever. Write the rules, train your managers, and back your people when they take the time they’ve earned.
Work with us
Black Mammoth Power Hour — PTO, Sorted
In 60 minutes, we’ll pick Unlimited vs Accrued, tune your policy language (including state addenda, sick-leave compliance, and payout rules), and hand you a rollout plan with manager scripts and HRIS settings. Straight talk, clean docs, faster launch.