For the last several years, employers have struggled to understand California's rules concerning vacation accrual caps.
California law does not allow a use it or lose it vacation policy. Once an employee earns vacation time, it belongs to the employee.
If he or she quits or is fired, any unused vacation must be paid in their final paycheck. While an employer can't take away vacation time the employee has already earned, you can place a cap on the amount of time that can be accumulated and not used.
For example, I can tell my employees that once they reach four weeks of unused vacation, they will not earn any more until they take some time off.
Can you tell an employee they must use their vacation time in the year in which they earn it or stop accruing more? No, it's considered unfair to stop accrual without giving the employee time to use vacation already earned.
Otherwise, the employee faces the choice of either taking vacation time before it is earned or having a cap apply until they can take some time off in January or February of the following year.
So, what's reasonable? An opinion letter issued by the Department of Labor Standards Enforcement, or DLSE, in 1993 stated that a reasonable cap must allow an employee nine months to use accrued vacation time. On that basis, many employers instituted caps that allowed employees to accrue up to the vacation time they would earn in a year and nine months.
For example, if an employee earns 80 hours a year, the cap is 140 hours (80 plus 60).
In late 2005, the DLSE withdrew the opinion letter that prescribed this generous cap, but it has not established a standard for what is a reasonable time to use accrued vacation.
In an internal memo in 2005, then-Labor Commissioner Donna Dell purportedly told deputy commissioners that a fiscal quarter or 90 days, whichever is longer, would be considered a reasonable amount of time for employees to use accrued vacation before the cap applies. This may provide some guidance, but it represents the opinion of one Labor Commissioner who is no longer in office and whose opinion is not a law or regulation and can't be cited to a judge.
So as of today, the law remains unclear. Attorneys love to give you safe advice, I'd probably tell you to use the year and nine months standard.
But if you're up for the risk, you might set an accrual cap at a year and three months or a year and a half. Be aware that if you're wrong, there are penalties that the Labor Commissioner's office can assess, and you could owe employees back pay for lost vacation time.
Also, if an employee sues you for their missing vacation time after leaving the company, you could also have to pay them a waiting time penalty of 30 days pay, in addition to any lost wages, attorney fees and interest associated with those claims.
By the way, some employers routinely let employees take vacation before they've earned it. For example, say I started in January and earn two weeks of vacation a year.
If I take those two weeks in July, the employer has actually advanced me one week of vacation. I have to work through the end of the year in order to earn that vacation time.
If I leave or if I am fired in September, I may owe the company a few days of vacation pay. But according to the law, the employer cannot deduct that advance from my final check.
Employers who advance money or time to any employee should have a written agreement that the employee will pay it back if their employment ends before they earn back the advance. Even then, you can only enforce the debt through legal means, you cannot take it out of a final check.
California law does not allow a use it or lose it vacation policy. Once an employee earns vacation time, it belongs to the employee.
If he or she quits or is fired, any unused vacation must be paid in their final paycheck. While an employer can't take away vacation time the employee has already earned, you can place a cap on the amount of time that can be accumulated and not used.
For example, I can tell my employees that once they reach four weeks of unused vacation, they will not earn any more until they take some time off.
Can you tell an employee they must use their vacation time in the year in which they earn it or stop accruing more? No, it's considered unfair to stop accrual without giving the employee time to use vacation already earned.
Otherwise, the employee faces the choice of either taking vacation time before it is earned or having a cap apply until they can take some time off in January or February of the following year.
So, what's reasonable? An opinion letter issued by the Department of Labor Standards Enforcement, or DLSE, in 1993 stated that a reasonable cap must allow an employee nine months to use accrued vacation time. On that basis, many employers instituted caps that allowed employees to accrue up to the vacation time they would earn in a year and nine months.
For example, if an employee earns 80 hours a year, the cap is 140 hours (80 plus 60).
In late 2005, the DLSE withdrew the opinion letter that prescribed this generous cap, but it has not established a standard for what is a reasonable time to use accrued vacation.
In an internal memo in 2005, then-Labor Commissioner Donna Dell purportedly told deputy commissioners that a fiscal quarter or 90 days, whichever is longer, would be considered a reasonable amount of time for employees to use accrued vacation before the cap applies. This may provide some guidance, but it represents the opinion of one Labor Commissioner who is no longer in office and whose opinion is not a law or regulation and can't be cited to a judge.
So as of today, the law remains unclear. Attorneys love to give you safe advice, I'd probably tell you to use the year and nine months standard.
But if you're up for the risk, you might set an accrual cap at a year and three months or a year and a half. Be aware that if you're wrong, there are penalties that the Labor Commissioner's office can assess, and you could owe employees back pay for lost vacation time.
Also, if an employee sues you for their missing vacation time after leaving the company, you could also have to pay them a waiting time penalty of 30 days pay, in addition to any lost wages, attorney fees and interest associated with those claims.
By the way, some employers routinely let employees take vacation before they've earned it. For example, say I started in January and earn two weeks of vacation a year.
If I take those two weeks in July, the employer has actually advanced me one week of vacation. I have to work through the end of the year in order to earn that vacation time.
If I leave or if I am fired in September, I may owe the company a few days of vacation pay. But according to the law, the employer cannot deduct that advance from my final check.
Employers who advance money or time to any employee should have a written agreement that the employee will pay it back if their employment ends before they earn back the advance. Even then, you can only enforce the debt through legal means, you cannot take it out of a final check.