Overview
The most important thing to understand about vacation pay in California is that it is a form of wages.
Although vacation pay is not required to be given to employees, if it is provided the accrued pay can never be forfeited, just like wages cannot be forfeited.
Is Vacation Pay Required?
No. An employer is not required to offer vacation pay.
Are Vacations Required for Full Time Employees?
No. There is no requirement that any full-time, manager, or executive be given vacation pay.
If California Vacation Pay is Offered How Much is Required?
If a company offers a vacation pay benefit there is no requirement about how much or how little vacation pay must be offered.
This is a matter of contract between the business and its employees.
When Does Vacation Pay Begin Accruing?
California vacation pay law says the vacation part of wages begin accruing immediately.
Example: A company policy says one week of vacation can be taken after an employee has worked for one year. The California Supreme Court has said this means one week does not suddenly materialize after one year. Rather, it accrues daily until one week has been earned after a year. This means if an employee is terminated after six months they are entitled to half a week of vacation pay.
A company policy can say vacation pay does not vest during a limited period of time, such as an introductory probationary period for new employees.
Is Vacation Time Lost if Not Used?
No. Since vacation pay in California is a form of wages it cannot be lost. Once accrued it belongs to the employee and is never lost.
This means a company cannot have a policy that if vacation time is not taken during a year it is lost.
Can Vacation Time be Capped?
Yes. California laws say the amount of vacation time an employee earns can be capped.
Example: A company policy can state an employee earns one week of vacation time per year, with a cap of three weeks after which no additional vacation time accrues.
Who Controls When and How Much Vacation Time is Taken?
The employer has a right to control employee scheduling and can control when and how much time off is taken at a time. This is reasonable to prevent the entire workforce from going on vacation at Christmas.
Is Vacation Pay Taxable?
Yes. As a form of wages it is subject to regular payroll deductions.
Vacation pay is also taxable to the employee as part of their income.
How Much is the Vacation Pay Upon Termination?
An employee is paid at their final hourly rate or salary, even if some of the vacation pay accrued at an earlier, different rate.
Since California vacation pay is form of wages all owed and unused vacation time must be paid at the time of termination along with the employee's regular wages.
What if All Vacation Pay is Not Paid at Termination?
If 100% of an employee's wages are not timely paid, including vacation pay, then severe "waiting time penalties" can be triggered.
Basically, an employee's full daily wages continue every calendar day, for up to 30 days, until they are full paid. There is more detail about these penalties, which also apply to vacation wages, in the waiting time penalties article.
Example: An employee earns $150 per day and is owed $40 of vacation time when her employment ends. If the $40 of vacation pay is not included in her final paycheck then a $150 per day penalty starts accruing which must be paid to the employee. The penalty, and payment of attorney fees on top of the penalty, is a major reason why attorneys are consulted for vacation pay at termination issues.
In this example, a $4500 penalty could eventually be owed for failing to pay $40 in vacation pay, plus attorney fees.
Related:
California Final Paycheck Law
Waiting Time Penalties
