California employers must follow complex state and local laws when managing employee time off.  With proper planning, they can either separate mandatory sick leave from vacation or paid time off (PTO) or combine them into a single policy.  Each approach carries specific legal obligations.

Sick Leave:

California law requires employers to provide at least 40 hours (or five days) of paid sick leave annually, using one of two methods:

• Accrual: Employees earn one hour for every 30 hours worked. Unused time carries over, usually capped at 80 hours.

• Front Load: Employers provide at least 40 hours at the start of each year.  This method avoids accrual and carryover but isn’t permitted if sick leave is part of a combined PTO policy.

Employers must comply with any applicable local ordinances, e.g., Los Angeles, San Francisco, and provide the most generous applicable benefits.

Unused sick leave is not payable at separation unless it is part of a combined PTO plan.

Vacation:

California law doesn’t require vacation time, but if offered, it is considered earned wages. Vacation benefit must accrue over time; lump sum is not permitted.  Employers must pay out all accrued, unused vacation at separation and cannot impose “use-it-or-lose-it” rules. Employers must also provide separate paid sick leave benefits.

Combined PTO Policies:

Employers may combine vacation, sick leave, and personal time into one PTO bank. Benefits must accrue over time, cannot allow forfeiture, and must be paid out at separation. It must also comply with all aspects of paid sick leave law, including accrual tracking, usage rights, and recordkeeping requirements.

Pay Stub Requirements:

Employers must show available sick leave or combined PTO on each pay stub or via a separate notice each payday.

While regular pay stubs don’t need to list vacation balances, the final pay stub must include any payout details.

Take-Aways:

Regularly review and update leave policies and payroll practices to stay compliant with changing laws. A well-structured, legally sound time-off policy can reduce costly errors and foster a positive workplace culture.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• No Time Like the Present – Workplace Policy Handbook & Forms for 2025 (July 10, 2025)
• Expanded Paid Sick Leave Requirements State Clarifies Benefits for Part-Timers (March 29, 2024)
• We Offer an Ounce of Prevention; Make a Wage Audit a Priority (February 15, 2024)
• Expanded Paid Sick Leave Requirements; California Employers Must Now Provide 40 Hours or Five Days of Sick Pay (October 11, 2023)

Cindy Bamforth
July 17, 2025