Employment Law Bulletin | June 2019

Ready, get set, summer is here! Are your company’s vacation policies ready?

Vacation season is upon us.  It’s important to keep in mind some key concepts and practices related to the use of this very treasured and valuable ability to take time off with pay.  This article addresses key points and concepts aimed at helping employers legally and safely adopt and administer a vacation policy.  Please note that this article does not address paid or unpaid sick leave, and all references to time off with pay refer to vacation time, not sick leave.  All references to vacation apply equally to the portions of paid time off (PTO) policies not directed at sick leave.

For starters, vacation is NOT required by law, even in California.  There are still employers who do not provide any form of paid time off other than mandated sick leave.  Having zero paid vacation would likely have a negative impact on recruiting and retention in most work places, but it is legal.

Once a California employer decides to provide paid vacation, it is heavily regulated.  And, most employees greatly value and count on their vacation time off, so this is one of those policies in your Employee Handbook that needs to be clear and easy to understand and follow because it’s very likely that your employees will be reading it carefully.

Key #1:  Be sure your written vacation policy accurately describes the policy you intend to have.

If you haven’t read your vacation policy lately, please take the time to do so.  The employer will be legally bound to provide nothing less than what is described in the written language of the policy.  Look at it with fresh eyes, and try to put yourself in the place of a non-HR professional:  what would it mean to you if you were a new hire? A long-term employee? An exempt employee? An employee who works remotely or offsite on a routine basis? If it isn’t a clear and workable written policy from all perspectives, then it should be revised. It is especially important to be sure the standards related to accrual and usage are clearly spelled out.  Examples can be very helpful if you have a complicated formula or policy.

Vacation policies can be changed with reasonable advance notice, so be sure that any policy changes take place at least a week or two after they are announced.  The more drastic the change, the longer the advance notice should be.  No change can result in a forfeiture of previously accrued vacation time.  If you have any employees with written employment contracts containing vacation terms, check the terms of each contract to see the requirements for amending the contract.

Key #2:  Be sure to address all of the important vacation terms and conditions in your policy.  Once adopted, be sure to administer the accrual and use of vacation consistent with the written policy and the law.

There are several main areas to address:

  • Eligibility:  The policy should clearly identify which employees are eligible to earn vacation benefits.  Eligible and ineligible employees may be defined by employment status (regular, temporary, probationary), job categories (exempt, non-exempt, office, field employees) and/or the number of hours they are regularly scheduled to work (40 hours, 32 hours per week).
  • Accrual:  This should be mathematical and not discretionary.  Employees should be able to understand (1) when accrual begins, (2) whether there are times when accrual pauses (i.e., during leaves of absence or when they reach a stated maximum accrual), and (3) how much vacation they have available at any given time.  We strongly recommend that vacation accrual and usage be shown on paystubs on an ongoing basis to avoid errors and misunderstandings.
  • Usage:  The parameters for usage should be explicitly spelled out.  Some employers require completion of a specific length of employment (i.e., 3, 6 or 12 months) before accrued vacation can be taken.  While most employers require that vacation not be taken in advance of accrual, some employers allow use prior to accrual (“going negative” in general, or only under certain limited circumstances).  Be sure to address this in your policy.
  • Scheduling:  If a specific amount of advance notice is required, that should be specified (2 weeks, 30 days, etc.)  Some employers have blackout times (during crush for wineries, during December for retail, during tax season for accounting firms, during a Performance Improvement Plan) when no vacation may be taken.  Some employers require the use of vacation during certain times (when the doctor is out of the office for X number of work days, during an anticipated slow period or time of year).  We recommend that employers reserve the right to schedule an individual employee’s vacation in any situation deemed appropriate, but to exercise that right rarely and carefully (suspected embezzlement, certain investigation situations, etc.).  The method of requesting vacation time off should also be specified (in writing, using a specified form, to a certain person or position, etc.).  As with any employee policy, any exceptions made should be documented to show the reasons for the exception, so another employee can’t later successfully claim that the denial of their own request for an exception was based on protected status.  Be careful not to let your exceptions swallow the rule.  Employees who follow the rules should see that the same standards apply to everyone.
  • Forfeiture/Accrual Cap:  There is no circumstance where forfeiture of accrued vacation is permissible under California law.  (See Suastez v. Plastic Dress-Up Company, which has to be the best name ever for an important published decision.)  Put another way, California does not allow “use it or lose it” policies.  However, some of the same goals can be achieved by a carefully worded accrual cap.  This stops further vacation from accruing, but does not allow forfeiture of any previously accrued vacation.  Accrual caps are allowed only when the employee is allowed a reasonable amount of time in order to use the accrued vacation.  The general minimum accrual cap allowed is a “1.5 times” rule, which means that the cap cannot kick in until the employee has accrued at least 1.5 times his or her then-current annual accrual amount.

For example, the accrual cap for an employee currently accruing two weeks of vacation per year must be set no lower than three weeks.  In addition, if the employee’s workload is such that the employee cannot reasonably take vacation time off, or if the employer has denied one or more requests to take vacation time off, then the employee has an argument that the timing of the accrual cap is not reasonable, because there was not a reasonable opportunity to take the accrued time off before the accrual cap kicked in.

If an employer requires any employee to forfeit accrued vacation and the forfeiture is not corrected prior to the end of employment, that employee is eligible to file a claim for failure to pay all final pay when due, likely leading to liability against the employer for the dollar value of all previously forfeited vacation at the employee’s final rate of pay plus 30 days of waiting time penalties under Labor Code section 203.  This is a steep penalty that is routinely granted in vacation forfeiture situations.

  • Asking for Vacation Time Off Should be a Request:  Be sure that both your policy and administration of the policy is clear:  the employee is asking permission to take vacation time off at a certain time, they are not giving you notice of when they will be off work.  Some policies contain language reminding employees that it is a request, and not to pay for non-refundable tickets or accommodations prior to receiving appropriate approval in writing.  It’s important for the staff in charge of handling vacation requests to respond promptly and in writing, and to be respectful and regretful when circumstances do not allow approval of the request.


Key #3:  Accurately track vacation accrual and usage.

Make sure you have systems in place to accurately track each employee’s earning and use of vacation.  You should be able to identify each hour/day of vacation taken and to track all “deposits” and “withdraws” from each employee’s “vacation bank.”

Key #4:  If you use timekeeping software to track vacation or a third party handles your payroll, check to make sure they are properly implementing your vacation policy.

Audit your timekeeping software and outside payroll company, accountant or bookkeeper periodically to make sure they are accruing and tracking vacation in accordance with your policy.  If you change your vacation policy, make sure to provide it to the third party and ask them to update their systems.  Employers are responsible to their employees for payroll errors, so it’s important to make sure your systems and outside administrators are carrying out your policy.

We hope your vacation policies are in shape for summer but, if you feel like there is room for improvement or have questions about the concepts discussed in this article, please contact an SMT employment attorney.  We are here to help.

Jan Gabrielson Tansil

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SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish.  Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims.  Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown