SPECIFIC LAWS APPLY TO VACATION PAY, PTO AND SICK LEAVE
Employers that provide vacation or paid time off for employees must follow certain guidelines. Under California law, vacation days are a form of wages that cannot be taken away, cannot expire, must carry over and must be paid out if an employee leaves the company. Failure to pay vacation pay upon termination results in a claim for unpaid wages. These same rules apply to paid time off programs. Paid sick leave is separate and requires that employers in San Diego and throughout California provide employees with sick days each year.
Vacation time is often set forth in an employee handbook or specific vacation policies. Typically, days accrues over time as the employee works for the company. Employers may impose a waiting time at the beginning of employment before time off begins to accrue. Companies can also impose other reasonable limits on an employee’s ability to take vacation, such as requiring advance notice and approval.
The amount of vacation an employee earns depends on the policy. Companies can limit the amount of vacation an employee can earn in a year based on the accrual rate. For example, a company policy may state that employees earn two weeks per year. Thus, the employee would earn two weeks every year he or she worked for the company.
“USE IT OR LOSE IT” POLICIES ARE UNLAWFUL
California law does not allow “use-it-or-lose-it” policies. Earned time off cannot be taken away. This is considered an illegal forfeiture of wages and the same laws and penalties apply as if the company failed to pay employee overtime, wages or salaries.
VACATION ACCRUAL AND CARRY OVER CAPS
Companies can, however, cap the number of days that can carry over from one year to the next. This is called an accrual carry over cap. Carry over caps must be reasonable. Generally speaking, the cap must be at least one-and-a-half times the annual accrual rate. For example, if an employee can accrue a maximum of two weeks of vacation in a year, the cap must be at least three weeks. If an employee doesn’t take any time off in year one, the employee will enter year two with two full weeks and can accrue one more week in the next year. It would be illegal for the company to have an annual accrual rate of two weeks and then a carry over cap of two weeks, as that would be a “use-it-or-lose-it” policy.
UNUSED VACATION PAY MUST BE PAID OUT
If an employee leaves the company, earned vacation must always be paid out. It must be paid at the same rate that the employee earns at the time of the final paycheck. California law requires that final wages, including vacation and paid time off, are paid promptly in accordance with specific timelines:
- If an employee is fired, the balance is due on the employee’s last day of work
- If an employee quits and gives at least 72 hours’ notice, the balance is due on the employee’s last day of work
- If an employee quits with less than 72 hours’ notice, the balance is due within 72 hours
PAID SICK LEAVE
Paid sick leave under California laws and city ordinances is separate and in addition to any paid time off policy that is in effect with your company. Unlike vacation pay, however, paid sick leave is a legal requirement that California employers must provide under the law. Employees accrue paid sick leave based on the amount of time worked at the company and must be permitted to take paid sick days without fear of retaliation for doing so. Specific accrual and use laws may apply depending on the city or county you are located in.
Failure to comply with California wage and hour laws may result in a significant damages award to the aggrieved employee:
- Payment of unpaid overtime
- Interest on the amount owed
- Waiting time penalties
- Wage statement penalties (up to $4,000)
- Liquidated damages (double pay)
- Punitive damages
- Attorney’s fees and costs
WE CAN HELP GET THE PAY YOU’RE ENTITLED TO
Unpaid vacation and paid time off claims are often part of a larger dispute involving wages, meal and rest periods, and wrongful termination. If you believe that you didn’t receive your pay upon termination, contact us for a case evaluation.