California law does not require that employees be given paid or unpaid vacation time, though many employers choose to offer these benefits in order to attract and retain employees and remain competitive in the labor market. While providing vacation time is not mandatory, if an employer chooses to offer paid vacation, then state employment law requires the employer to abide by certain rules regarding how the employee is paid for time off.
In California, when an employee earns paid vacation time, the time is another form of wages. Because paid vacation is categorized as wages, payment for the accrued time cannot be forfeited, even if the employee is fired. Upon termination of employment, unless a collective bargaining agreement states otherwise, the employer must pay the employee any unused vacation time, and the payment has to be made at the employee’s final rate of pay.
The employer does have a right, however, to cap vacation benefits at a specific number of hours. A paid vacation policy may also stipulate that the employee will not begin accruing vacation benefits until after the employee has worked a certain amount of time. For example, the policy may require the employee to complete a probationary period that could last as long as a year.
In general, paid vacation policies have to be fair and reasonable. An employer generally would not be allowed to offer zero vacation in the first year, two weeks in the second year, and one week in the third year. That sort of vacation plan could be seen as invalid in the event of a legal dispute.
California’s Division of Labor Standards Enforcement provides a number of vacation-time scenarios that could arise under state law.
For more on California employers’ new obligations regarding paid sick leave, please see our previous post, “New employment law requirements for CA businesses take effect in 2015.”