Find out how California bans use it or lose it vacation policies and treats paid time off as earned wages. See which accrual caps are allowed, what employers cannot do, and how unused vacation and PTO must be paid out.
By Brad Nakase, Attorney
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The use-it-or-lose-it vacation policy is illegal in California. Employers are only forbidden from reclaiming leave that has already been accrued, though. Other steps, including regulating the number of days of vacation you can accrue, might be used to restrict the amount of time off you can accrue.
Benefits such as paid time off are regarded as “wages” in California. Once your wages are earned, you have the right to keep them. As a result, you have the right to take and retain your vacation time after earning it.
This renders use it or lose it vacation policy—as well as comparable rules for other types of paid time off—illegal in California.
One of the handful of states in the US that offers protections against the use-it-or-lose-it vacation policy is California. State law treats paid time off and days off as a “wage”. The majority of other states either have no regulations limiting these PTO practices or specifically allow them.
However, keep in mind that your company is not required by California vacation legislation to offer unpaid or paid vacation time. To draw in better employees, many, however, decide to offer vacation benefits in addition to other PTO, such as paid time off for illness and personal days.
Employers in California are still free to restrict vacation time or paid time off in other ways even though they are not allowed to implement a use it or lose it vacation policy. Typical methods to get past California’s ban include:
This final rule, which limits the amount of time you can accumulate, is comparable to a use it or lose it vacation policy. You simply cannot get additional vacation time until you utilize some of it, as opposed to losing it. But according to the California Labor Commissioner’s Office, there must be a fair limit on vacation time accrual.
In California, such rules can be used to restrict an employee’s vacation time, provided that the company does not use them in a discriminatory manner.
Nevertheless, the California DLSE (Division of Labor Standards Enforcement) prohibits certain methods of vacation time limitation. The DLSE claims that the following restrictions on how you can utilize your vacation time are unjust and will not be implemented in the state:
Many California companies continue to implement these rules, according to numerous employment lawyers. At the conclusion of the year, some would even deduct vacation accrual. They might not be aware that California labor law makes these policies illegal. However, they may be aware that they are breaking the law, but they still hope that their staff is unaware of it.
You have the right to cash out any accrued vacation time when your work ends, since state employment law recognizes it as a type of pay, and you are entitled to your earnings once they are received. Despite the fact that you are laid off or fired, you are entitled to it.
Your employer is prohibited by California law from deducting vacation time:
“Vented vacation time cannot be forfeited upon termination under a contract of employment or workplace policy.”
Your last paycheck would contain the reimbursement for the vacation time you did not use. The salary you earned during your last pay period would likewise be covered by this paycheck. The money must be paid:
An employer may be subject to a waiting-time penalty if they do not pay an employee’s last paycheck during this time frame. Up to a maximum waiting duration of 30 days, this penalty is equal to your daily salary for each day that your earnings are late.
Your ultimate pay rate, not your rate on the days you accrued vacation, determines how much you will be paid for the time you have accrued.
Upon quitting or being released from employment, you also have the right to cash out your remaining paid time off, such as sick days.
Some firms allow their employees to cash out paid time off (PTO) while they remain employed, according to our research. To find out if your company has such an arrangement or if your PTO payout is made accessible only upon termination of work, see your contract of employment or employee handbook.
The rules of any collective bargaining agreement, as opposed to California PTO regulations, would control the distribution of unused vacation days.
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