What You Need to Know About Vacation Pay / PTO in California
California law does not require that employers provide employees with vacation or PTO. Further, an employer can legally require that employees work for a certain period of time without any vacation benefit, before they start accruing vacation time or PTO.
However, if the employer provides a vacation benefit, it may not have a policy that states that an employee loses that vacation time or PTO that has already been vested. This is because under California law, accrued vacation or PTO constitutes “wages” just like any other regular pay, which is payable to the employee at termination. California Labor Code Section 227.3 provides, in part, that whenever an employee is discharged "without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with ... [the] employer policy respecting eligibility or time served...." This means that if you are terminated or are laid off or choose to resign, your final check should include your unpaid but vested vacation time pay and PTO along with your final wages due. At the same time a policy that places a reasonable cap on accrual of vacation or PTO is generally allowed.
In one case, the employer tried to avoid paying their terminated employee any vacation pay by arguing that a terminated employee was not entitled to vested vacation because he didn't not reach a one-year anniversary of employment with them. The employer's policy provided, on one hand, vacation accrual to employees regardless of the amount of they amount of time their worked for the employer, but it was calculate on the per-year basis. The court rejected the employer's argument holding: "The right to a paid vacation, when offered in an employer's policy or contract of employment, constitutes deferred wages for services rendered.Case law from this state and others, as well as principles of equity and justice, compel the conclusion that a proportionate right to a paid vacation "vests" as the labor is rendered. Once vested, the right is protected from forfeiture by section 227.3. On termination of employment, therefore, the statute requires that an employee be paid in wages for a pro rata share of his vacation pay. Suastez v Plastic Dress-up Co. (1982).
However, if the employer provides a vacation benefit, it may not have a policy that states that an employee loses that vacation time or PTO that has already been vested. This is because under California law, accrued vacation or PTO constitutes “wages” just like any other regular pay, which is payable to the employee at termination. California Labor Code Section 227.3 provides, in part, that whenever an employee is discharged "without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with ... [the] employer policy respecting eligibility or time served...." This means that if you are terminated or are laid off or choose to resign, your final check should include your unpaid but vested vacation time pay and PTO along with your final wages due. At the same time a policy that places a reasonable cap on accrual of vacation or PTO is generally allowed.
In one case, the employer tried to avoid paying their terminated employee any vacation pay by arguing that a terminated employee was not entitled to vested vacation because he didn't not reach a one-year anniversary of employment with them. The employer's policy provided, on one hand, vacation accrual to employees regardless of the amount of they amount of time their worked for the employer, but it was calculate on the per-year basis. The court rejected the employer's argument holding: "The right to a paid vacation, when offered in an employer's policy or contract of employment, constitutes deferred wages for services rendered.Case law from this state and others, as well as principles of equity and justice, compel the conclusion that a proportionate right to a paid vacation "vests" as the labor is rendered. Once vested, the right is protected from forfeiture by section 227.3. On termination of employment, therefore, the statute requires that an employee be paid in wages for a pro rata share of his vacation pay. Suastez v Plastic Dress-up Co. (1982).