Final paycheck timing — separation deadline
Illinois requires employers to pay all final compensation to separated employees in full at the time of separation if possible, but no later than the next regularly scheduled payday for that employee. The rule applies to both involuntary terminations and resignations. Final compensation includes wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays owed under the employment agreement.
Source: Illinois Department of Labor – Wage Payment and Collection Act FAQ (citing 820 ILCS 115/5)
Accrued vacation payout — earned-vacation rule and forfeiture prohibition
Illinois requires employers to pay the monetary equivalent of all earned, accrued vacation at separation when the employer maintains a vacation or general PTO policy. The requirement flows from the Illinois Wage Payment and Collection Act (IWPCA), which defines "final compensation" to include earned vacation, and from the Illinois Department of Labor's implementing regulations at 56 Ill. Admin. Code § 300.520.
Pro rata accrual. Whenever an employment contract or policy provides for paid vacation earned by length of service, vacation time is earned pro rata as the employee renders service to the employer—not in a lump sum at a future anniversary or year-end date. This means that even if an employer's policy states that five days of vacation "vest" on July 1 after one year of service, and the employee separates on October 1, the employee is entitled to the five days earned as of July 1 plus a pro rata share of the next twelve months' accrual (in the example, three months of service toward the next year's accrual, or approximately 1.25 additional days if the next year also grants five days). The Illinois Department of Labor sets out this calculation in detail in its Vacation FAQ with a worked example matching these facts.
No forfeiture at separation. An employer cannot effectuate a forfeiture of earned vacation through a written employment policy or practice. Even if the employer's handbook includes a "use it or lose it" provision stating that unused vacation is forfeited at termination, that clause is unenforceable under 56 Ill. Admin. Code § 300.520(h) (added by emergency amendment in 2011, finalized July 20, 2011). The regulation permits use-it-or-lose-it policies during employment—requiring that an employee take vacation by a certain date or lose it—but only if the employee is given a reasonable opportunity to take the vacation. At separation, however, all earned vacation must be paid.
What creates the duty. Oral promises, handbooks, memoranda, and uniform patterns of practice may create a duty to pay the monetary equivalent of earned vacation. An employer need not have executed a formal written contract; if the employer has a past practice of granting vacation, or a handbook provision guaranteeing it, the duty arises even when the handbook contains a disclaimer stating it is not an employment contract. This interpretation, codified in 56 Ill. Admin. Code § 300.520(b) and cross-referenced in § 300.450 (defining "agreement"), means that an employer cannot avoid the payout obligation through boilerplate disclaimer language.
PLAWA interaction. Under the Paid Leave for All Workers Act (effective January 1, 2024), unused paid leave provided under PLAWA does not have to be paid out at separation unless it is credited to a vacation bank or general PTO bank. If an employer maintains separate tracking—one bank for vacation, one for PLAWA paid leave—only the vacation bank is subject to the payout rule. If, however, the employer credits PLAWA leave to a combined PTO account, the entire balance is treated as vacation for payout purposes and must be paid under IWPCA. Employers with 50 or fewer employees are exempt from the payout requirement for standalone PLAWA leave but remain subject to the IWPCA vacation-payout rule for any vacation or general PTO policy.
Advanced (unearned) vacation. If an employer permits an employee to take vacation that has not yet been earned, and the employee resigns or is terminated, the employer may not deduct the unearned vacation pay from the employee's wages or final compensation without a written agreement signed by both parties specifying the advance and the method of repayment (56 Ill. Admin. Code §§ 300.720, 300.750, 300.760).
Source: 56 Ill. Admin. Code § 300.520 Source: Illinois Department of Labor – Vacation FAQ