Vacation Payout Calculator
Calculates the cash value of unused vacation hours owed to an employee at termination or year-end cash-out. Essential for payroll teams processing final paychecks or employees verifying their payout amount.
About this calculator
When an employee leaves a job or opts for a vacation cash-out, any accrued but unused paid time off (PTO) is converted to a dollar amount. The formula is straightforward: Vacation Payout ($) = Unused Vacation Hours × Hourly Rate. For salaried employees, the hourly rate is derived by dividing the annual salary by total annual working hours (typically 2,080 for a 40-hour week). Many U.S. states legally require employers to pay out unused vacation upon termination, making accurate calculation critical. The payout is generally treated as regular wages and is subject to standard payroll taxes including federal income tax, Social Security, and Medicare. Always verify your state's specific PTO payout laws, as policies differ widely.
How to use
Suppose an employee has 48 unused vacation hours and earns $28.50 per hour. Applying the formula: Vacation Payout = 48 × $28.50 = $1,368.00. This is the gross amount owed before taxes. If the employee is salaried at $59,280 per year working 40 hours a week (2,080 annual hours), their effective hourly rate would be $59,280 / 2,080 = $28.50/hour — confirming the same result. After standard withholdings of roughly 25–30%, the employee's net payout would be approximately $957–$1,026, depending on their tax bracket.
Frequently asked questions
Is vacation payout required by law when an employee is terminated?
Whether an employer must pay out unused vacation at termination depends entirely on state law. States like California, Colorado, and Illinois treat accrued vacation as earned wages and legally require full payout upon separation. Other states, such as Florida and Texas, leave it to the employer's written policy. Some states allow employers to implement a 'use-it-or-lose-it' policy that forfeits unused PTO if not taken within the year. Always review your state's labor department guidelines and your company's employee handbook to understand your specific obligations.
How do you calculate vacation payout for a salaried employee?
For salaried employees, you first need to derive an equivalent hourly rate. Divide the annual salary by the total number of working hours in the year — typically 2,080 for a full-time employee working 40 hours per week across 52 weeks. Then multiply that hourly rate by the number of unused vacation hours. For example, a $62,400 annual salary equals $30.00/hour ($62,400 / 2,080), so 40 unused vacation hours would yield a $1,200 payout. Some employers use a slightly different denominator if their standard workweek differs.
Are vacation payout amounts subject to income tax?
Yes, vacation payouts are fully taxable as ordinary income, just like regular wages. The IRS classifies accrued vacation payouts as supplemental wages, which means employers may withhold at a flat federal rate of 22% (for amounts under $1 million) or combine it with regular wages for withholding purposes. State income tax, Social Security (6.2%), and Medicare (1.45%) taxes also apply. If a large lump-sum payout pushes the employee into a higher bracket temporarily, they may owe additional tax when filing their annual return.