Vacation Pay

Quick Summary

Vacation pay benefits are voluntary in California. But, if provided as an employee benefit, earned but unused pay cannot be forfeited and must be paid upon termination of employment. An employer can, however, cap the amount of vacation pay that is earned.

Law Review

Vacation pay is not required in California

There is no law in California requiring that employees be provided with paid vacation time. Of course, most employers provide this benefit to at least their full-time employees so that they will attract and retain good employees.

Vacation pay is considered earned wages

When an employer does provide for paid vacation time, this time constitutes earned wages. There are two very important ramifications:

First, the employees must be paid their earned but unused vacation time when they leave employment.

Second, earned vacation time cannot be forfeited. An employee cannot forfeit earned but unpaid wages, and this principal also applies to vacation pay.

Vacation pay is earned daily

Vacation time is earned proportionately as labor is rendered. Upon termination, an employee is entitled to a pro rata share of vested vacation pay.

Earned vacation pay may be capped

An employer will often find it desirous to limit the amount of vacation time an employee can earn. Since earned vacation time is considered wages, it is unlawful to have a use it or lose it policy. Earned wages cannot be forfeited by an employee. Likewise, earned vacation time cannot be waived by an employee for failing to use it. A limit to earned vacation time, however, can be obtained by using a no additional accrual policy.

Sample illegal vacation policy

"After one year, you are entitled to five days paid vacation. The vacation time must be used within the twelve month period after it was earned, or it will be lost. Lost vacation time cannot be made up during the following year."

Sample legal vacation policy

"After one year, you are entitled to five days paid vacation. You are encouraged to take your vacation time within the year after you earn it. Once you have accrued five days of vacation time, no more will be accrued until you have used it and reduced the available time below five days."

Employers can control when vacation time is used

An employer has the right to control when vacation time is taken, and how much can be taken at one time. An employer can thus prevent all of its employees from taking vacation leave at the same time, and limit how much vacation may be taken at a time, in the event an employee has accrued several months of vacation time.