California employers are not legally required to provide their employees with paid or unpaid vacation time. However, if the employer does provide such benefits, it must comply with certain restrictions under California law:

• Vacation time is considered wages and is earned (or vests) as labor is performed;
• Accrued vacation cannot be forfeited, even upon termination of employment;
• Employers can decline to provide vacation benefits during a new hire’s introductory period or even the entire first year of employment so long as the accrual rate does not decelerate at any point thereafter.  For example, an invalid plan would provide no vacation in year one, four weeks’ vacation in year two; and two weeks’ vacation in year three;
• Employers can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain number of hours or days, but employees must be given a reasonable amount of time to use accrued vacation before they reach that cap;
• Alternately, employers can cash out accrued, unused vacation benefits on a yearly basis at the employee’s current pay rate;
• Employers can mandate and/or prohibit vacation scheduling at specific times of the year with reasonable advance notice, typically 90 days; and
• Upon termination of employment, accrued, unused vacation must be paid at the final rate of pay and must be documented in a separate line item on the pay stub.

Policy Drafting Tips:

• Specify which employees are eligible for vacation pay (i.e., regular full-time employees only);
• Describe any waiting period before new hires can begin to accrue the benefit;
• Provide the accrual rate for each year of employment;
• Specify any reasonable ceiling accrual amount/cap (for example, one and one-half year’s vacation pay);
• Determine whether employees can request and receive vacation benefits before they accrue;
• Explain when and how employees can request a scheduled vacation; and
• Define any specified slow or busy times of the year when the employer may either require and/or refuse vacation scheduling.

Take-Away:

Implement and regularly review your handbook to include a vacation benefits policy if applicable.

We publish this series to educate employers on best practices for a well-written handbook that assists applicants, employees, and management alike. To purchase our 2023 template handbook – which contains the above policy and much more – and accompanying forms or for more information, please contact Office Manager Aimee Rosales at 626.583.6600 or email her at officemgr@tbowleslaw.com.

See also:

• Is Dotted, Ts Crossed – Workplace Policy Handbook & Forms for 2023 (March 19, 2023)
• California Paid Vacation Can Be No Holiday – State Rules Ban “Use It or Lose It” (May 21, 2021)
• Prepare for Summer – Effectively Manage Paid Vacations (May 10, 2018)

Cindy Bamforth
June 2, 2023