California Vacation Law:
Employer’s Guide

California vacation law, being designed to protect employees’ rights, provides very detailed requirements to leave policies. They tend to be confusing for both employees and employers, and it’s not uncommon that the companies develop leave management policies in a way that is illegal.

In this article, we’ll go through the main difficulties related to vacation laws in California and figure out how to create a leave policy that would comply with all legal requirements.

1

How much vacation time does Californian law prescribe?

Californian law does not require that employers provide any paid vacation/ paid time-off to their employees. However, employers mostly prefer to offer this benefit. Days off provided for an employee can be accrued as specific number of vacation days, sick days, personal days, floating holidays, etc., or as a single paid time-off balance that includes everything listed above, depending on the employer’s policy.

While there’s no state or federal law requirement to provide employees with vacation or paid time-off, the Californian labor code requires that the employees who offer paid time-off as a bonus follow all rules and policies set by the Industrial Welfare Commission.

2

How many vacation days can you get in California?

As there’s no specific legal requirement to accrue a certain number of vacation days, they are provided at the employer’s discretion. The differences are possible even within the team: employers are legally allowed to accrue vacation to specific groups of employees and to not accrue to others.

3

How many vacation days can you get in California?

No. “Use it or lose it” policies are illegal – in both variations:

  • An employee receives a specific number of vacation days per year, and at the end of the year all unused time off is cleared.
  • An employee receives a specific number of vacation days per year, and only part of the unused time is transferred to the next year and the other part is forfeited.

If many forms of paid time-off are used in a company, this rule applies to all of them. So employers cannot get around this requirement by calling part of time-off “personal time”, “floating holidays” etc.

With that said, employers are allowed to set caps for the number of accrued vacation days – we’ll discuss this later in this article.

4

Are employers obligated to pay off unused vacation time in California?

Yes. Vacation days are officially considered deferred wages, and employers are required to pay time off unused by employees at termination, resignation, or retirement.

  • In case of termination, the employer should deliver the payment for unused vacation by the time of termination.
  • In case of a voluntary resignation with at least 72 hours of notice, the compensation should be provided on the final day of employment.
  • In case of resignation with less than 72 hours of notice, the employer has 72 hours starting from the time of notice to cash out the wage.

Failure to compensate the unused time-off is subject to labor regulations requiring the employer to additionally pay waiting time penalties to the employee.

5

How is vacation time accrued?

As paid vacation is considered a form of wages, it is earned as work is performed. And, as it is not mandatory, some categories of employees can be not subject to the paid vacation policy. Quite often temporary or part-time employees don’t receive it at all.

According to the law, paid vacation is accrued on a pro-rata basis, i.e. all vacation days are accrued gradually over work time and:

  • Cannot be given to an employee in bulk at once: for example, if an employee receives 12 vacation days per year, they should be accrued at the rate of 1 day every month and not 12 days at the end of the year.
  • Cannot be accrued unevenly: for example, if said employee has a six-month probationary period, vacation days are accrued at the same rate of 1 day per month – they just cannot be used during the probationary period. Accruing 0 days during the probationary period and then 2 days per month can be considered illegal. Another option is specifying a probationary period in which no vacation is accrued, i.e. at the end of it 0 vacation days are available for the employee.

6

Can a company give no vacation during the first year of employment?

Yes. This is how vacation policies are often configured: an incremental growth of earned vacation time is provided. If this scheme is offered, it’s possible that no vacation is granted in the first year of employment.

However, this policy can only be valid if it doesn’t have a phony reason as a basis. The Department of Industrial Relations of California gives the following example of an invalid policy:

  • Year 1: 0 weeks of vacation.
  • Year 2: 4 weeks of vacation.
  • Year 3: 2 weeks of vacation.

This plan is considered a subterfuge, as it’s clear that the 4 weeks of vacation in the second year are actually 2 weeks earned but not given in the first year and 2 more weeks earned in the second year.

A valid plan can look as follows:

  • Year 1: 0 weeks of vacation.
  • Year 2: 2 weeks of vacation.
  • Year 3: 3 weeks of vacation.
  • Year 4 and further: 4 weeks of vacation.

7

I have remote workers in California, but my company is headquartered in a different state. Should I follow California vacation laws?

Yes. If you have out-of-state employees that work for your company remotely, you need to follow the labor regulations of the state where they live and work. This applies to vacation accrual too, so if you have employees in California but your company is based in another state, you need to comply with Californian time-off regulations.

8

Is it legal to set the limit to the maximum vacation time earned?

Yes. To prevent the employees from accumulating unlimited amounts of unused vacation, employers have the right to limit the total number of accrued vacation days, i.e. set a cap.

The legal status of vacation caps was established in 1992. There were attempts to establish a maximum rate for caps of 1.75 times the annual accrual rate, but currently the cap is defined as a “reasonable” rate. Usually, rates 1.75 and 1.5 are used.

9

Can an employer tell the employees when to take vacation?

Yes. Vacation scheduling is an important part of work planning, so employers are entitled to define:

  • When their employees can take vacation;
  • how many vacation days they can use at a time.

Preventing accumulation of unused vacation days is another aspect of vacation management. While forcing employees to use their PTO is not considered a good practice, it’s legal. This helps prevent increased costs and prevent employees’ burnout.

10

My company has a single paid time off balance, combining vacation and sick leave plans. Do I need to follow law requirements regarding unused vacation?

Yes. Vacation regulations that define how to proceed with unused time-off should be followed for all types of accruals. This regulation was introduced to discourage employers who were using alternative naming for different leave types in order to circumvent the rule that prohibits the “use it or lose it” policies.

11

What happens if my employee files a wage claim?

If an employee files a wage claim to recover payments for unused vacation (as lost wages), it is assigned to a Deputy Labor Commissioner, who decides how to proceed with it.

If the filed claim is very complex, it requires investigation conducted by the Division of Labor Standards Enforcement (DLSE). However, most of claims are resolved by conferences and hearings.

The purpose of a conference is determining the validity of the claim and whether it can be resolved without a hearing. If the claim can’t be resolved with a conference, a hearing is required. After the hearing, a Labor Commissioner’s order, decision or award is served, and the parties may appeal it to a civil court. If an employee can’t afford a counsel in a court proceeding, DLSE can represent them.

While the law in California doesn’t require employers to offer any time-off to their employees at all, it’s still considered a good practice that many companies choose to follow. The main point of configuring a leave management policy in compliance with California vacation laws is treating earned vacation time as deferred wages – be it a single PTO balance or several different accruals, such as vacation, sick days, personal days, etc. Complying with the legal requirements and accurately calculating vacation balance is crucial for maintaining a healthy and conflict-free environment at the workplace.

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