While vacation time is not limited to the summer months, this is the traditional time for employees to vacate the workplace and get a little R&R. With visions of sun-drenched beaches, waterparks and road trips fresh in our minds, here is a reminder of the basic California rules on vacation, or paid time off. The rules are complex, and are different in significant ways than just about anywhere else in the country, so knock the water out of your ears and pay close attention.
Q. What’s the difference between vacation and PTO (paid time off)?
In California, there is no difference. Any paid time off that can be used at the employee’s discretion and is not tied to a particular event (like your birthday) is considered vacation. This includes unrestricted “personal days” and “floating holidays.” They’re all vacation.
Q. Can an employer implement a “use-it-or-lose-it” policy for vacations?
No. Unlike most everywhere else, California law does not permit employers to require forfeiture of vested vacation if employees do not take the vacation during a prescribed time period. For example, it is not okay in California to have a policy that says “You get two (2) weeks of vacation a year, but if you don’t use it by December 31, it will be lost.” Here in California, rather than being lost, the vacation balance rolls over in its entirety.
Q. But, can an employer cap the amount of vacation time an employee accrues?
Yes. In order to prevent vacation accruing ad infinitum, employers have two potential tools.
One: Have a vacation accrual cap in place. That is, when an employee accrues a maximum amount of vacation (say 1.5 times the annual accrual rate), all accruals will stop until the employee uses some vacation and the vacation balance falls below the cap. The employer’s policy on vacation accrual caps must be carefully drafted so that an employee has a reasonable time to use accrued vacation. Simply capping at the annual rate of accrual is not a reasonable amount.
Two: Have a policy that mandates when vacation must be used (see next week’s post on this).
Q. Does an employer have to pay out vacation when an employee terminates?
Yes. In California, accrued vacation is treated the same as wages. If an employee has accrued but unused vacation at the time employment ends, it must be paid out at the employee’s final rate of pay.
Q. Can an employer decide not to provide vacation pay to some employees, such as probationary, part-time or temporary employees?
Yes. Employers may exclude employees from their vacation policies during an initial period of time at the outset of employment, and may limit vacation to certain categories of employees. Again, the written policy should clearly specify who is eligible and when.
Q. Does an employee have to work until an anniversary date to earn their vacation pay?
No. The California authorities have decided that an employee accrues vacation time as worked is performed, on a daily basis. As mentioned above, on termination, the law requires that the employee be paid a pro rata share of their unused but accrued vacation pay, up to the day of termination.
Q. Does an employer have to provide employees vacation time?
No, providing paid vacation is not mandatory. If an express written company policy forewarns employees that their compensation package does not include paid vacation, then no vacation pay will be earned and none vested. But an employer not providing any paid vacation is relatively rare. Most employees expect paid vacation as a fringe benefit of full-time employment, and an employer who does not offer it in some form may be at a significant competitive disadvantage when recruiting talent.
Q. What about “unlimited time off” policies? Are they “vacation”?
This is a tricky area, but basically, the answer is No. Some employers have adopted explicit “unlimited time off” or “flexible time off” policies, under which employees are paid their regular wages or salary even for days or weeks that they do not work. Employees are expected to use their discretion and take time off in a manner that is consistent with the demands of their jobs. This concept tends to work best with exempt employees whose jobs are so demanding that the amount of time they can realistically take is limited, and whose performance can be readily measured by an objective standard.
Q. Is an employer required to provide an employee a “vacation from their vacation”?
We are not aware of any case law requiring such a respite (yet!). Employers are free to ask their employees to get back to being productive upon their return from vacation, even with a glowing tan.
Workplace Solution: Employers are well-advised to ensure that they understand and are properly implementing the rules around vacation in California. Coming next week: Can employers require their employees to use vacation?