While California has no legal requirement for an employer to provide its employees with either paid or unpaid vacation time, if an employer does have an established policy to provide vacation, then the employer must follow certain rules and regulations that govern the accrual and use of such vacation in California. Below is a non-comprehensive summary of some of the rules and regulations that govern vacation in California:
No Use-It-Or-Lose-It Policy Is Permitted
Under California law, vacation is treated the same as earned wages and vest as the employee performs work. Because vacation is earned proportionally as the employee works, policies requiring employees to lose vacation already earned is illegal under California law.
Reasonable Vacation Accrual Caps Are Permissible
While California employers cannot implement a “use-it-or-lose-it” policy, they can place a reasonable cap, or ceiling, on vacation accrual. The Department of Labor Standards Enforcement (DLSE) – the agency that enforces California wage and hour laws – explains as follows:
Unlike “use it or lose it” policies, a vacation policy that places a “cap” or “ceiling” on vacation pay accruals is permissible. Whereas a “use it or lose it” policy results in a forfeiture of accrued vacation pay, a “cap” simply places a limit on the amount of vacation that can accrue; that is, once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap. The time periods involved for taking vacation must, of course, be reasonable. If implementation of a “cap” is a subterfuge to deny employees vacation or vacation benefits, the policy will not be recognized by the Labor Commissioner.
Employers are given a lot of freedom when it comes to vacation scheduling of employees. Indeed, the employer is free to set the parameters in which vacation is scheduled and can generally dictate when and how employees may schedule their time off from work. For example, an employer can require that employees submit any vacation request a certain number of days or weeks in advance. Employers can also set aside certain “blackout” dates during which employees are not permitted to take a vacation. Employers can also place limits on the number of employees who can be out on vacation at the same time.
Payout of Accrued Vacation Upon Separation of Employment
All accrued, but unused, vacation must be paid to an employee who separates from the employer. Vacation is considered earned wages and must be paid at the same time as the employee’s final wages:
If an employee is fired, the final paycheck is due at the time of discharge.
If an employee quits with 72 hours’ notice, the final paycheck is due at the time of quitting.
If an employee quits with less than 72 hours’ notice, the final paycheck is due within 72 hours of the time of quitting.
Waiting Time Penalties
Because vacation is considered earned wages, an employer may be liable for “waiting time penalties” for failing to timely pay out vacation with the final paycheck. The waiting time penalty is the employee’s average daily wage, for up to 30 days. Employees who don’t receive their vacation in their final paychecks can file a wage claim with the DLSE, or sue in court, to recover this penalty.