California Vacation Pay Rules and Time Off Rules that Most Employees Do Not Know
California vacation pay rules are among the most stringent in the United States. California labor law provides that both vacation pay, once earned, cannot be taken away. In other words, it is illegal for employers to institute a “use it or lose it” policy. It is not required that your employer have a vacation policy, however, if they do have one it must comply with California labor law.
A prominent case in California labor law is Wal-Mart Stores Inc. Wage and Hour Litigation, filed in the U.S. District Court in the Northern District of California. This particular case is separate from Walmart’s 2008 payment of $640 million to settle 63 federal and state class-action lawsuits which also alleged numerous wage and hour violations.
Below is the pertinent part of California labor law that applies to vacations:
California Labor Code Section 227.3:
Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination. The Labor Commissioner or a designated representative, in the resolution of any dispute with regard to vested vacation time, shall apply the principles of equity and fairness. The full statute can be found here
Probation Periods and Caps
It is permissible for your employer to implement a probationary period for which employees do not earn any vacation time. The employer can select the length of time that employees must wait to begin to earn vacation time. It can be one month, three months, or 1 year or actually any period of time the employer selects. This law applies to the employee’s vacation once it begins to be earned.
Your employer may also place a cap on the amount of vacation you can earn without taking it. For example, an employer can allow you to earn three weeks of vacation without taking it, but not allow you to accrue anymore with using some of your accrued vacation. This policy is legal since it is not a “use it or lose it” policy. In other words, an employer can place a cap on vacation that is earned, but they cannot take away vacation that is already earned if you do not use it. Another legal policy, is if an employer requires that the vacation pay be “cashed out” or paid out after, for example, one year.
Other Vacation Policy Issues
Once an employee leaves employment all vacation pay that has accrued must be paid out at the time of separation of employment. Many employees call vacation time by many names. Floating holidays, gift days, PTO (paid time off) are some common names. However, regardless of the name placed on vacation time, if the employee can use this time for personal reasons, at the convenience and without restriction, this time is actually vacation time.
What is and What is not Vacation Time?
Holidays and sick pay are not vacation time. The main reason this type of leave is not considered vacation time is that they are subject to restrictions i.e. Taking a sick day only when you are actually sick. Sick days not used in a specified period of time according to company policy, are not required to be carried over by an employer. This practice is legal. If, however, the employer groups vacation and sick days together into some sort of PTO policy or general leave plan, all of this time is considered vacation time and cannot be forfeited
A very important distinction that is commonly missed by both employers and employees is that vacation time is accrued in a pro-rata fashion. For example if an employer provides 6 vacation days per year, this means that each month an employee would accrue ½ of a vacation day and each week 1/8 of a vacation day. Any policy whereby an employee earns a lump sum of vacation at the end of a year, for example, would be illegal. Each pay period that you work, would allow you to accrue a pro-rata share of vacation.
If you feel that you have not been paid the proper amount of vacation upon separation of employment or if your employer is currently depriving you of the correct amount of California vacation pay, it is important to talk to a California employment lawyer at once.
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