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Navigating Employee Vacation Pay and Accrual in California: A Guide for Employers

A recent Ninth Circuit decision in Harstein v. Hyatt Corporation ruled that employees laid off during the early months of the COVID-19 pandemic were entitled to payment for accrued vacation time, even though they were not officially terminated until later. This blog post examines the legal requirements of vacation pay under California law and provides tips for employers to ensure compliance. Click here for article.

  • Vacation Pay as Wages: California law treats vacation pay as a form of wages, and employees have the right to accrue and use vested vacation time. Employers must pay employees for any unused accrued vacation time upon termination.

  • "Use It or Lose It" Policies: California prohibits "use it or lose it" vacation policies where employees forfeit accrued vacation time. Employers may cap vacation accrual, but the cap must be reasonable and allow employees a reasonable period to use their accrued vacation.

  • DLSE Guidance: The DLSE considers policies that require all vacation to be taken in the year it is earned to be unfair. Employers should provide at least nine months after vacation time accrues for employees to use it.

  • Compliance Tips:

  1. Compliant Policies: Draft a comprehensive vacation policy that complies with California law, including addressing accrual caps.

  2. Put it into Practice: Educate employees and management about vacation policies and develop clear procedures for payment upon termination.

  3. Consistency: Apply vacation policies consistently to all employees and keep accurate records of accrued and used vacation time.

  4. Staying Informed: Stay up-to-date with changes in California employment laws and consult legal counsel or HR professionals for compliance.

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