Clear, Written Workplace Policies are Essential

There is no California law requiring a business to pay its employees for time off work, whether for vacation, holidays, sick time, or any other reason.  However,  employers do commonly have policies and plans that provide such compensation.  Once a company opts to provide any such benefits, California does have applicable law depending on just what sort of “time off” is involved.

California defines “vacation pay” as a form of wages that an employee earns (“accrues) as the working year progresses. For example, if an employer has a policy granting a worker two weeks of paid vacation per year, that employer will have earned half of that benefit (one week of paid vacation) after having worked six months of that year.  This means that a business must on termination pay an employee all of his or her accrued but unused vacation pay (no “use-it-or-lose-it”).

On the other hand, California defines “sick leave” as a non-accruing benefit.  For example, a company policy that specifies four paid sick days per calendar year obligates the business to pay that benefit only to the extent that an employee actually uses it in that year.  Come the next calendar year, the potential benefit renews but it does not accrue (mount-up) over time. Thus, sick pay in California is “use-it-or-lose-it.

Some employers opt to combine sick leave and vacation benefits into a single time block commonly referred to as “paid time off” or “PTO.”  Such policy permits the employee to choose when and for what purpose he/she will utilize the allotted paid time away.  However, California requires that all such PTO time is an accruing, earned throughout the year” wage-benefit.  Thus, as with a straight vacation policy, an employer must pay pay an employee on termination all of his or her accrued but unused PTO (again, no “use-it-or-lose-it”).

There is much more to a sound vacation pay or PTO policy on which a knowledgeable employment lawyer can help. For instance, a company’s written rules can (and should) define a maximum limit for such accrued benefit, after which the employee must actually take such paid time off before he/she can resume earning such vacation pay or PTO.  Otherwise, a company could face an employee leaving after, say, 20 years of service with a legitimate claim for immediate payment of an equivalent duration of accrued vacation that the person never bothered to take in all those years.  See, “Vacation Pay in California, No Picnic for Employers Who Don’t Know the Rules.”