There is no legal requirement in California that an employer provide its employees with either paid or unpaid vacation time. However, if an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay. Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation. Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. (Suastez v. Plastic Dress Up (1982) 31 C3d 774) An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. (Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595) And, unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay. Labor Code Section 227.3 The California Legislature, in order to ensure that vacation plans were fairly and equitably handled, provided that the Labor Commissioner was to “apply the principles of equity and fairness” in resolving vacation claims.
Q.My employer’s vacation plan states that no vacation is earned during the first six months of employment. Is this legal?
A. Yes. DLSE’s enforcement policy does not preclude an employer from providing a specific period of time at the beginning of the employment relationship during which an employee does not earn any vacation benefits. This could apply to a probationary or introductory period, and can even apply to the whole first year of employment. of the employment relationship during which an employee does not earn any vacation benefits. This could apply to a probationary or introductory period, and can even apply to the whole first year of employment.
Such a provision in a vacation plan will only be recognized, however, if it is not a subterfuge (phony reason) and in fact, no vacation is implicitly earned or accrued during that first year or other period. For example, a plan with the following provisions would be an obvious subterfuge and not recognized as valid:
- Year 1: No vacation
- Year 2: 4 weeks vacation
- Year 3: 2 weeks vacation
The four weeks’ vacation earned in the second year, when viewed in the context of the two weeks’ vacation earned in the third year, makes it clear that two of the four weeks earned in year two are actually vacation earned in year one.
A valid vacation plan could look like the following:
- Year 1: No vacation
- Year 2: 2 weeks vacation
- Year 3: 3 weeks vacation
- Years 4 through 10: 4 weeks vacation
In those instances where a “waiting period” (Year 1 in the examples above) is found to be a subterfuge, employees who separate from their employment during the “waiting period” will be entitled to prorated vacation pay at their final rate of pay. On the other hand, where the employer’s vacation plan has a valid “waiting period” provision, employees who separate from their employment during that period will be ineligible for any vacation pay.
Q. How is vacation earned?
A. In California, because paid vacation is a form of wages, it is earned as labor is performed. An employer’s vacation plan may provide for the earning of vacation benefits on a day-by-day, by the week, by the pay period, or some other period basis. For example, an employer’s policy may provide that an employee will earn a proportionate share of his or her annual vacation entitlement for each week of a calendar year in which the employee either works at least one full day or receives at least one full days’ pay during such week. Thus, for example, if an employee is entitled to two weeks (10 work days) annual vacation, and works full-time, eight hours per day, 40 hours per week, in the above example for each week the employee works at least one full day, he or she will earn 1.538 hours of paid vacation, calculated as follows:
- 10 work days entitlement per year x 8 hours/day = 80 hours vacation entitlement per year
- 80 hours vacation entitlement per year ÷ 52 weeks per year = 1.538 hours of vacation earned per week
In contrast to how vacation pay may be earned, the calculation of vacation pay for terminating employees (a quit, discharge, death, end of contract, etc.) who have earned and accrued and unused vacation on the books at the time of termination must be prorated on a daily basis and must be paid at the final rate of pay in effect as of the date of the separation. For example, an employee who is entitled to three weeks of annual vacation (15 work days entitlement per year x 8 hours/day = 120 hours vacation entitlement per year) who quits on August 7, 2002 (the 219th day of the year) without having taken any vacation in 2002, who has no vacation carry-over from prior years, and whose final rate of pay is $13.00 per hour, would be entitled to $936.00 vacation pay upon separation, calculated as follows:
Pro rata daily basis:
- 219 days (August 7, 2002, date of quit) ÷ 365 days/year = 60%
- 60% of 120 hours vacation entitlement = 72 hours vacation earned and accrued through August 7, 2002
- Vacation days used in 2002 = 0
- Vacation earned but not taken at time of separation = 72 hours
- 72 hours x $13.00/hour = $936.00 vacation pay due at separation.
Q. I am a part-time employee, and am excluded from my employer’s vacation plan (only full-time employees get vacation). Is this legal?
A. Yes, it is legal. If an employer’s vacation plan/policy excludes certain classes of employees, such as part-time, temporary, casual, probationary, etc., such a provision is valid, and the agreement will govern. To avoid any misunderstandings in this area, the vacation plan/policy should state clearly and specifically which employee classification(s) are excluded.
Q. My employer’s vacation policy provides that if I do not use all of my annual vacation entitlement by the end of the year, that I lose the unused balance. Is this legal?
A. No, such a provision is not legal. In California, vacation pay is another form of wages which vests as it is earned (in this context, “vests” means you are invested or endowed with rights in the wages). Accordingly, a policy that provides for the forfeiture of vacation pay that is not used by a specified date (“use it or lose it”) is an illegal policy under California law and will not be recognized by the Labor Commissioner.
Q. My employer’s vacation policy provides that once an employee earns 200 hours of vacation, no more vacation may be earned (accrued) until the vacation balance falls below that level. Is this legal?
A. Yes, such a provision would be acceptable to the Labor Commissioner. Unlike “use it or lose it” policies, a vacation policy that places a “cap” or “ceiling” on vacation pay accruals is permissible. Whereas a “use it or lose it” policy results in a forfeiture of accrued vacation pay, a “cap” simply places a limit on the amount of vacation that can accrue; that is, once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap. The time periods involved for taking vacation must, of course, be reasonable. If implementation of a “cap” is a subterfuge to deny employees vacation or vacation benefits, the policy will not be recognized by the Labor Commissioner.
DLSE has repeatedly found vacation policies which provide that all vacation must be taken in the year it is earned (or in a very limited period following the accrual period) are unfair and will not be enforced by the Division.
Q. Can my employer tell me when to take my vacation?
A. Yes, your employer has the right to manage its vacation pay responsibilities, and one of the ways it can do this is by controlling when vacation can be taken and the amount of vacation that may be taken at any particular time.
Q. My employer’s vacation policy provides that if I don’t use all of my vacation by the end of the year, he will pay me for the vacation that I earned and accrued that year, but did not take. Is this legal?
A. Yes, your employer has the right to manage its vacation pay responsibilities, and one of the ways it can do this is by paying you off each year for vacation that you earned and accrued that year, but did not take.
Q. My employer has combined its vacation and sick leave plans into one program that it calls “paid time off” (PTO). Under this program I have a certain number of paid days each year that I can take off from work for any purpose. Does this allow my employer to circumvent the law as it relates to vacations?
A. No, a “paid time off” (PTO) plan or policy does not allow your employer to circumvent the law with respect to vacations. Where an employer replaces its separate arrangements for vacation and sick leave with a program whereby employees are granted a certain number of “paid days off” each year that can be used for any purpose, including vacation and sick leave, the employees have an absolute right to take these days off. Consequently, again applying the principles of equity and fairness, DLSE takes the position that such a program is subject to the same rules as other vacation policies. Thus, for example, the “paid time off” is earned on a day-by-day basis, vested paid time off days cannot be forfeited, the number of earned and accrued paid time off days can be capped, and if an employee has earned and accrued paid time off days that have not been used at the time the employment relationship ends, the employee must be paid for these days.
Q. My employer allows its employees to take their vacation before it is actually earned or accrued. Last month I took my three weeks vacation before I had actually earned all of it. I quit my job this month and my employer deducted all of the unearned vacation days that I had taken from my final paycheck. Can he do this?
A. No, your employer cannot deduct “advanced” vacation (i.e., vacation that is taken before it is earned or accrued) from your final paycheck. Because of work schedules and the wishes of employees, many employers allow employees to take their vacation before it is actually earned. Under California law, vacation benefits are a form of wages, and an employer’s practice of allowing employees to take their vacation before it is actually earned or accrued is in effect an advance on wages. Thus, if an employee takes an advance on vacation and then quits or is discharged before all of that advanced vacation is earned or accrued, the effect is that there has been an overpayment of wages which is a debt owed to the employer.
The California courts have noted on a number of occasions that an advance on wages, as with any other debt owed (either to the employer or a third party), is subject to the provisions of the attachment law. However, since wages are exempt from prejudgment attachment, neither the employer nor any third party can recover the debt by way of attachment of the employee’s final pay, as to do so would violate the public policy considerations underlying the wage exemption statutes. Thus, in California since the wage garnishment law provides the exclusive judicial procedure by which a judgment creditor can execute against the wages of a judgment debtor, an employer may not resort to self-help to recover debts owed to the employer by an employee from the wages then due to the employee.
Q. What happens to my earned and accrued but unused vacation if I am discharged or quit my job?
A. Under California law, unless otherwise stipulated by a collective bargaining agreement, whenever the employment relationship ends, for any reason whatsoever, and the employee has not used all of his or her earned and accrued vacation, the employer must pay the employee at his or her final rate of pay for all of his or her earned and accrued and unused vacation days. Labor Code Section 227.3. Because paid vacation benefits are considered wages, such pay must be included in the employee’s final paycheck.
Q. My employer does not allow employees to carry-over any unused vacation days from year-to-year. When I was discharged last week none of these forfeited vacation days were included in my final paycheck? What can I do?
A. You can either file a wage claim with the Division of Labor Standards Enforcement (the Commissioner’s Office), or you can file a lawsuit in court against your employer to recover the lost wages. Please contact us to do so. Additionally, if you no longer work for this employer, you can make a claim for the waiting time penalty pursuant to Labor Code Section 203.
Q. What can I do if my employer retaliates against me because I informed him that in California vacation is wages and cannot be forfeited?
A. If your employer discriminates or retaliates against you in any manner whatsoever, for example, he discharges you because you objected to the fact that your vested vacation was being forfeited and not carried over from year-to-year, or because you file a claim or threaten to file a claim with the Labor Commissioner, you can file a discrimination/retaliation complaint with the Labor Commissioner’s Office. In the alternative, you can file a lawsuit in court against your employer.
The Information on this page is reprinted from the website of the California Department of Labor Standards Enforcement. It reflects that department’s view of California law (which may or may not be in accord with Federal law or the law of other states) and may or may not reflect the view of this law firm. No action should be taken in reliance on the information provided below without first contacting an attorney.