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Vacation — it’s different in California

July 19, 2011

And not just because we have miles of sandy beaches, Napa Valley, Yosemite, and Disneyland.  No, California law also has its own take on workplace vacation policies.  Not knowing the differences can be painful and expensive.

There’s no requirement that an employer provide any vacation pay at all, even in California.  But if you do provide it, you’ll appreciate this quick rundown on how it’s different out here.

  • No “use it or lose it.”  Under California law, vacation pay is considered to be earned on a daily basis, as an employee works.  Once earned it can’t be taken away.  The employee has to be allowed to take all accrued vacation, or to be paid for it upon termination of employment.
  • Don’t try to get around the “no use it or lose it” rule, either.  We will find you, and you will pay.  (That sounded so much better when the Terminator was our governor.)  Courts have nixed arrangements where employees were required to use all vacation earned during the year it was earned, because it unfairly required the employee to use vacation or lose the right to do so.  Another attempt at an end run was also held illegal, where a school district attempted to force administrators to take vacation time rather than serve out the remainder of their terms.  When an employee with a vacation balance leaves, you need to pay her the balance.  In the case of involuntary terminations, or voluntary quits with more than 72 hours’ notice, that needs to be paid (as well as other accrued but unpaid wages) on the employee’s last day at work.
  • Accrued but unused vacation must be paid at the employees “last rate.”  That employee who has worked for you for 10 years, received several raises, and never taken vacation?  She gets the balance paid at her last (usually her highest) wage rate.
  • Accrual caps are OK.  A policy that stops an employee from accruing vacation when she reaches a cap (generally a 150% of annual accrual, or more) is fine.  But, it must be fairly enforced.  An employee cannot be prevented from taking vacation and then have her failure to take vacation asserted as a basis for her not earning any more.
  • Recovering advances against vacation is a dicey prospect.  The Labor commissioner has taken conflicting views on whether an employee who takes more vacation than she was entitled to has to pay it back upon termination.  a 1986 opinion of the Labor commissioner said it was OK to charge back unearned (i.e., advanced) vacation time from the employee’s final paycheck — but only if the employee was told that would happen before she took the extra vacation.  A 1991 opinion from the Labor commissioner was more skeptical of such a clawback.
  • There is no real statute of limitations on accrued vacation.  Meaning that an employee who has worked for you for 35 years and taken no vacation at all must be paid for all of it when her employment terminates.  The look back period for purposes of vacation pay is the entirety of the employee’s tenure.
  • Different rules apply to true paid sick leave.  Sick leave — time off contingent upon the employee or a family member being sick — is not covered under the rules relating to vacation pay.  So a real sick leave policy can be “use it or lose it,” and an employee is not entitled to be paid for unused sick leave upon termination.
  • But “PTO” and vacation are the same thing to the Labor commissioner.  In the past decade or so, many employers have eliminated the distinction between vacation and sick and other personal leaves, lumping them all together into a category generally known as paid time off, or “PTO.”  That’s fine.  But the vacation rules mentioned above apply to all of the time included under the PTO umbrella.

Maybe it’s because there are so many vacation opportunities in California that we take vacation pay so seriously.  (Besides, there’s not much else we take seriously out here.)  Employers operating in California, take care to ensure your policies and procedures for California employees match the California way, or you’re in for a real bummer.  Uh, dude.

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