Do Employers Have to Pay Out Vacation Time When You Quit?

California employers must pay unused vacation time upon termination if accrued, as vacation is considered earned wages. Final paychecks must include vacation pay, adhering to state labor laws prohibiting “use-it-or-lose-it” policies.

By Douglas Wade, Attorney

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Table of Contents

1. Do you get paid for unused vacation time when you leave a job?

2. Accrual of Vacation

3. Maximum Allowable Vacation Time and Other Restrictions

4. Use It or Lose It Policies

5. California Holidays, Personal Days, and Floating Holidays

6. Payout for Paid Time Off

7. Paid Time Off Upon Termination

8. Duties Regarding Vacation Pay

9. Common Concerns Regarding California’s Vacation Law

10. Wage Claims and California Law

Do you get paid for unused vacation time when you leave a job?

California law does not mandate that businesses grant their workers paid or unpaid vacation. Nevertheless, there are specific limitations on how an employer can meet its duty to pay vacation if there is an existing policy, practice, or agreement to do so. Time off is considered pay in California, and workers earn it, or “vest,” as they put in time on the job.

Employers in California are required by law to allow employees to retain their earned vacation days indefinitely if they provide paid time off (PTO). In California, vacation time is not subject to expiration and employees can get their money back if they leave the company with unused vacation time.

For instance, after six months on the job, an employee will have accrued five days of vacation time if their annual vacation entitlement is two weeks (or ten work days). Vacation pay is non-transferable and builds up as earned; it is not refundable in the event of dismissal from employment, for whatever cause.

It is the policy of the company to pay out all vacation time, both used and earned, at the employee’s last salary, unless otherwise specified in a collective bargaining agreement. For vacation plans to be administered in a fair and equitable manner, the California law mandated that the Labor Commissioner follow the principles of impartiality and fairness while handling vacation claims.

Accrual of Vacation

There is a pro rata accumulation of vacation days throughout the year according to California labor standards. Thus, 12 vacation days offered by an employer do not add up to a total of 12 days at year’s end. The right to accrue paid time off (PTO) is based on the number of hours worked.

In order to determine the amount of compensation you are due for your earned vacation time upon release, this is often essential information to have.

In addition, California law does not mandate that businesses provide paid vacation. Although vacation benefits are not legally required, many California companies do provide them. By doing this, they hope to improve their hiring process and maintain a healthy and happy workforce.

Maximum Allowable Vacation Time and Other Restrictions

There is a legal limit to how much paid time off an employer can impose. Included in this is the total amount of vacation time. It would be illegal for an employer to limit paid time off accrual if doing so would constitute discrimination.

Employers in California often include the following restrictions in their PTO policies:

A cap on the total number of vacation days an employee can accrue
A minimum amount of time before vacation days can be used
Various paid time off (PTO) plans for managers, full-time employees, and part-time workers
Restrictions on when PTO can be used, such as a “blackout” during peak seasons when all workers must be available
Limitations on the number of consecutive vacation days an employee can use

It is possible that these constraints will be significant. A “use it or lose it” approach would be illegal in California, but companies can still limit how much vacation time you can accrue by imposing a cap. The employee handbook or PTO policy will often outline the employer’s policy regarding the California vacation accrual rate.

On the other hand, the California Division of Labor Standards Enforcement (DLSE) has decided not to enforce certain restrictions because they are unjust. Forcing people to spend their vacation time in the same year they earned it is one example of an unjust policy. It would also be unjust to make you use up any vacation time you had accrued from the previous year before you could accrue any more.

On the other hand, an employer has the ability to limit the amount of hours that you are able to accumulate, and if this occurs, you will not be able to accumulate any additional vacation hours until the total number of hours that you have accumulated falls below the limit.

Use It or Lose It Policies

California does not follow the “use-it-or-lose-it” vacation policy that is common in other states. When vacation time is not used by a specific date, typically at the end of the year, it is considered forfeited under a “use-it-or-lose-it” policy. The California Supreme Court ruled that use-it-or-lose-it practices violate employees’ rights to earned earnings since vacation time is deemed wages.

California Holidays, Personal Days, and Floating Holidays

It is also not necessary to pay out holiday pay for scheduled holidays like New Year’s Day or the Fourth of July upon separation because these do not constitute vacation. “Floating holidays” or “personal days” are not associated with a specific date but are nonetheless considered vacation time and adhere to the same regulations.

Payout for Paid Time Off

It is possible to cash out vacation time in California upon separation. Your employer owes you vacation time once you’ve accumulated it. You can take advantage of your vacation time balance by taking paid time off, or even cashing it out while you’re still working if your employer offers that option.

Paid Time Off Upon Termination

If an employee leaves their job without using their vacation time, the company is required to pay them what they’ve earned. Paid vacation and other earned wages are due simultaneously with the employee’s last paycheck.

Paychecks are due in full upon termination of employment.
The final payment is owed when an employee leaves their job, provided that they give at least 72 hours’ notice.
An employee’s last paycheck is due no later than 72 hours after they resign if they give less than a 72-hour notice.
Employees are not required to have their paid sick days repaid when they leave the company if they have accrued them as part of an independent sick leave program. All PTO, including sick days, is considered vacation time and is payable upon separation when an employee leaves the company.

Additionally, the employer may be subject to a waiting time penalty in the event that these final wages are not paid in a timely manner. The company will be subject to penalties equal to one day’s wages for every day that the final paycheck is delayed, up to a maximum of thirty days.

Duties Regarding Vacation Pay

The procedure for the distribution of unused PTO is governed by the collective bargaining agreement, if applicable.

There is also the possibility that you and your employer can make arrangements to pay out or cash out vacation time that you have accumulated while you are still working. The job contract will usually spell out these details. It may only be available once a year at the end of the calendar at certain companies. However, in other companies, it might happen at any moment.

The fact remains that you should get compensation for the vacation time you’ve already accumulated. They represent a type of pay you have earned. It is illegal for employers to deduct employees’ vacation time. They can’t use vacation time as a weapon against other forms of workplace misbehavior either. California vacation days similarly do not “expire.” Therefore, the state has outlawed vacation policies that are based on the “use it or lose it” principle.

You have the right to sue your employer for nonpayment of wages in accordance with California’s wage and hour regulations if they engage in any of the mentioned practices.

Common Concerns Regarding California’s Vacation Law

Under California’s vacation law, employers are not obligated to offer paid time off. Still, a lot of businesses see vacation time as an important perk of working for them. What follows is a discussion of three key points about the California vacation pay law.

1. No deadline for vacation days

Employers in California are required by law to provide their workers the option to “bank” their unused vacation days. No matter how long ago an employee earned vacation time, their employer must honor it. The state of California has outlawed the “use-it-or-lose-it” vacation policy.

2. Fired or Quit with Unused PTO

Under California law, vacation time is considered to be an employee’s earned wage. Any unused vacation time is redeemable when an employee departs from the company, whether by resignation or termination. Employers in California must pay their employees for any earned paid time off at their usual rate.

3. Paid Sick Leave

Vacation time is not mandated by law in California. Sick leave is a different story. Employers in California are now required by law to offer their employees paid sick leave for a minimum of three days each year. An employer who provides a more liberal vacation policy, on the other hand, may include sick time as part of the vacation program.

Wage Claims and California Law

In the event that you were terminated from your position and your final paycheck did not contain any vacation days, you have two options: you may either submit a wage claim to the Division of Labor Standards Enforcement (also known as the Labor Commissioner’s Office), or you may file a lawsuit against your company in order to compensate for the money that you have lost. Also, under Section 203 of the California Labor Code, you can seek compensation for the waiting time penalty even after you’ve left this company.

A labor commissioner will review the details of your claim and the material you provided after it has been filed with the local DLSE office. The commissioner’s decision will be based on the claim’s specifics. The first step in handling the claim is to decide whether to reject it, refer it to a hearing or conference, or both.

Everyone involved will get a letter with the conference’s location, time, and date if that’s the decision. At this conference, we will try to figure out whether the claim has any merit and whether a hearing is necessary to address it. Following a failed conference, the claim is often either dismissed due to a lack of evidence or referred to a hearing.

All parties and witnesses are required to testify under oath during the hearing, which is also video recorded. The Labor Commissioner will serve the parties with an ODA (Order, Decision, or Award) following the hearing.

A competent civil court may hear an appeal from either party against the ODA. Once the court sets a trial date, all sides will have a chance to submit their case and witnesses. The court’s ruling will not be based on the evidence and testimony offered at the hearing before the Labor Commissioner. If an employer decides to appeal, DLSE may step in and represent an employee who can’t afford legal representation.

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