It’s summer and California has eased COVID-19 restrictions, which makes it the perfect time for employers to refresh themselves on the rules and regulations governing vacation time for employees in California.

Vacation Not Required

While California is known for its complex web of leave requirements, there is no requirement for California employers to provide vacation time to employees. Moreover, employers are permitted to exclude certain classes of employees, such as part-time, temporary, or probationary employees from vacation plans or policies. To avoid misunderstandings, a clear and specific policy that states the classifications that are entitled to vacation time is recommended. When vacation is provided, the rules and regulations can be complicated.

Vacation Time is Considered Wages

Under California law, earned vacation time is considered wages, and vacation time is considered earned as an employee performs work for the employer. In practice, this means that vacation pay is accrued as it is earned and cannot be forfeited unless otherwise allowed by applicable law. Upon the termination of employment, an employee generally must be paid all earned and unused vacation time at the employee’s final rate of pay. Although sick leave is not paid out at separation, these payout rules apply to Paid Time Off (PTO) policies that combine vacation and sick leave.

Reasonable Cap

While an employee cannot usually forfeit vacation time once earned, an employer is permitted to place a reasonable cap on vacation benefits. Employers should note that the California Labor Commissioner has held that policies that require an employee to take all vacation in the same year it is earned are unfair.

A cap on vacation time may set a maximum amount of vacation time an employee may accrue. Once an employee reaches the maximum or cap, they will not accrue additional vacation time until they use some of their accrued time.

Controlling Vacation Time

Employers have the right to manage vacation pursuant to the terms of their policy. This right includes being able to direct how an employee requests vacation, when an employee can take vacation time, and how much an employee can take at a given time upon proper notice.

Some employers with seasonal upticks in work may elect to have vacation “blackout periods” in their policies or related rules pertaining to vacation time. Vacation policies should be carefully drafted to address the needs of the business but also ensure compliance with the law.

“Unlimited” Time Off

Some employers have adopted “discretionary” or “flexible” time off policies.  Under these policies, employees are given flexibility in the amount of time off that can be taken for a vacation purpose.  Under such policies employees do not accrue vacation hours, so they do not present the same forfeiture and payout obligations discussed above.  Instead, employees are allowed to take time off as workloads permit.

In drafting such flexible time-off policies where vacation does not accrue like a traditional vacation policy, employers should consider the following:

1. Is the policy in writing?

2. Does the policy clearly provide that an employee’s ability to take paid time off is not a form of additional wages for services performed but part of the employer’s promise to provide a flexible work schedule?

3. Does the policy spell out the rights and obligations of both the employee and employer and the consequences of failing to schedule time off?

4. In practice, does the policy allow sufficient opportunity for employees to take time off, or work fewer hours in lieu of taking time off?

5. Is the policy fairly administered so that it neither becomes a de facto ‘use it or lose it policy’ nor results in inequities, such as where one employee works many hours, taking minimal time off, and another works fewer hours and takes more time off?