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Work-Life  >>   Vacation Policy in California Search Discussion Posts
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Vacation Policy in California  
Posted: 09/22/2009 10:03am   112 Views

Does anyone have a rule about capping the accrual for vacation/PTO time in California?

We would like to limit our financial exposure when employees terminate and are looking for best practices around formulas. For example, do you freeze accruals once an employee has accumulated 150% of his/her annual amount, until he/she uses some of it?

Thanks, Danielle


Vacation Policy in California  
Posted: 09/22/2009 10:28am  

Many firms in California do cap vacation accrual.  Legally speaking, that's fine to do.  As to how you want to apply a cap, well, that fluctuates all over the place.  My suggestion would be to identify your peer companies that you compete with for talent, and take a look at their policies, ensuring that you're not shorting your own employees.

Personally, I would say that 150% of an annual accrual is a litle on the low-side.


Vacation Policy in California  
Posted: 11/24/2009 05:57pm  

The position of the Labor Commissioner was 175% at the end of 2008.  I don't think it has changed.


Vacation Policy in California  
Posted: 11/24/2009 09:25pm  

I found same as Ryan, no limit, per all the 2009 sources I found, from BLR to AllExpertsEmploymentLaw.  A “use it or lose it” vacation policy seems to be unlawful under California law, but employers are permitted to place a limit such as 1.5 or 2.0 times as an accrual cap until some has been used up.


Vacation Policy in California  
Posted: 11/25/2009 06:03am  

Interesting commentary from one law office that expands on earlier discussion:

California Vacation Law

California Labor Law protects your right to keep vested vacation pay. Under California Law, vacation and PTO are wages that have been earned, but not yet paid to the employee. As such, once you earn the vacation, it can not be taken away, and "use it or lose it" policies are illegal.

There is on requirement that your employer have a vacation policy or plan. However, if they do have one, it must comply with the law.

California Labor Law for Vacation

California Labor Code Section 227.3 states that:

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.

Probation Periods and Caps

The employer is allowed to establish a probationary period in which you do not earn any vacation. This period can be as long as the employer wants -- 6 months, 1 year, 10 years, anything. The law only applies to your vacation once you have started to earn it under the policy implemented by the employer.

The employer is also allowed to implement a cap on how much vacation you earn without taking it. For instance, an employer can set a policy that you can only accrue 4 weeks on vacation. From that point on, you will not accrue any new vacation until you actually take some vacation. This policy is legal because it is not a "use it or lose it" policy. It is a "use it or stop getting more until you take it" policy. Thus, an employer is allowed to stop you from accruing more vacation, but they can not take away what you have.

Examples of Illegal Policies

A policy that requires that you take all your vacation within the year or lose it is illegal. However, if they employer pays out the unused portion at the end of the year, then that is legal.

A policy in which you lose your vacation if you quit or otherwise leave employment is illegal. All unused vacation time must be paid out upon termination.

A policy that uses "floating holidays" that can not carry over to the next year is illegal. It does not matter what the employer calls the vacation time. They can call it PTO, they can call it Floating Holidays, they can call it Quiet Me Time. If the time is to be used for personal reasons of the employee and scheduled at his convenience without restrictions on the use, then it is vacation time and must be treated as such.

Typical Problems or Issues

Sick pay and fixed holidays are not considered vacation time. Sick days can be separate from vacation days. Because sick days are subject to restrictions on taking them -- namely, you must be sick, they are not considered vacation days. An employer can have a policy of allowing you only 5 sick days a year that do not carry over. Such a policy for vacation would be illegal, but legal for sick days.

If the employer lumps both sick and vacation together into "PTO" or some other type of general leave plan, then all the time will be considered vacation time and must roll over from year to year and be paid upon termination.

Vacation must be accrued in a pro-rata fashion. That is, if your employer has a policy of accruing "12 days a year," each month you would accrue 1 day, each week you would accrue approximately 1/4 of a day. Any policy in which you accrue the full amount at the end of they year would be illegal. Each pay period that you work in, you accrue a pro-rate share of the vacation.


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