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Must Employers Pay Accrued Sick Leave to Departing Employees?

    Client Alerts
  • April 29, 2022

In recent years, several states have adopted new laws requiring paid sick leave for certain employees. While each state law differs, most of the new legislation specifically provides that employers do not have to pay employees for accrued but unused sick leave upon separation from employment. This raises larger issues about companies’ obligations to pay out accrued sick leave balances in the absence of clear statutory guidance.

Many states regulate the payment of accrued but unused vacation time, sometimes mandating such payment and sometimes requiring it only in circumstances where the employer’s policy fails to explicitly provide for forfeiture. Employers that combine vacation and sick time into a general paid-time-off policy are typically subject to these forfeiture restrictions. However, traditional sick leave benefits are usually not included in the definition of accrued benefits under state wage payment laws. Sick leave is intended to be used in the event that an employee becomes ill. If the employee never experiences a health event while employed, the benefit is not available. Therefore, there would be no accrued time that an employer is obligated to pay.

If an employer’s policy provides for payout or if it establishes a practice of regularly paying out accrued sick leave to departing employees, this may create a contractual obligation to do so in future situations. Each state’s laws may differ on this issue and should be consulted before deciding how to handle these benefits. However, in most cases, employers can differentiate between paying out accrued vacation and sick time.