State Rules Ban “Use It or Lose It”
California businesses do not have to offer workers paid vacations. However, the Labor Code dictates that if implemented, such pay is an accrued or accruing benefit, prohibiting a “use it or lose it” plan.
Since an employee continually earns the benefit as she/he works, a policy that simply provides a few weeks of paid vacation each year without limit could become a problem. For instance, a worker who hadn’t bothered taking his/her two-three weeks of paid vacation/year over a couple of decades could suddenly have over a year of pay coming upon termination or retirement.
A written paid vacation policy should thus specify a ceiling accrual amount (for example, 18 months of benefits) after which the employee cannot earn more until he/she utilizes at least some of the benefit already earned.
As a vacation benefit “accrues” or “vests” over a work year, the employer must pay an employee that proportion earned up to her/his departure date during that benefit year (in addition to any vacation benefit accrued but unused from prior years). A company that overlooks paying this pro-rated amount on a midyear termination or resignation could be subject to a “waiting time” penalty up to one month’s wages.
Labor Commissioner FAQs offer more detailed information including permitted earning limitations for new hires, employer rights to regulate vacation times, and much more.
Take away: If a business opts to offer it, management should take care to issue clearly stated paid vacation benefit rules and procedures. With its distinct characteristics, the policy should be separate from paid holiday, sick pay and other leave provisions.
See also,
- Workplace Rhythm & Cues – Our Employee Handbook & Forms for 2021 Including Updated COVID-19 Guidelines (January 21, 2021)
- For the Record – Sound Management Practices for Personnel Documentation(August 14, 2020)
- Give Me a Break! – Time Off for Fire Fighting, Crime Victims, Drug Rehab, School Visits, and More (June 22, 2018)
- When a Door Shuts …. Make Sure It’s Fully Closed – Figuring Out the Final Paycheck (May 25, 2018)
- Prepare for Summer – Effectively Manage Paid Vacations (May 10, 2018)
Tim Bowles
May 21, 2021