Nowhere to Go and Nothing to Do: Managing Vacation Time in California

The coronavirus pandemic has squelched the summer plans of many Californians. Cruise ships are docked, tourist attractions are shuttered, and would-be travelers seem leery of venturing too far from home.

With no vacations to anticipate—and limited options for child care and camp—employees may prefer to work steadily throughout the summer months, accruing vacation days they plan to tap later this year or in 2021. That situation is not ideal for employers: Banked vacation time is a liability on their books, and workers who don't take time to recharge are more vulnerable to burnout.

Because employees accrue vacation time as they work, California considers earned vacation time to be a form of wages. It cannot be forfeited when a worker leaves, retires or is fired.

California is one of just three states—in addition to Montana and Nebraska—that bars employers from instituting a "use it or lose it" vacation policy.

Workers who don't deplete one year's vacation days can carry them into the next, though an employer can cap the amount workers accrue and require them to "spend down" those days before they can begin accumulating more. The California Department of Labor Standards Enforcement says a cap on vacation time accrual must be "reasonable," and various labor and employment experts interpret that to mean 1 1/2 to 2 times the workers' annual accrual rate.

Save, Pay Out or Use It Up

California businesses are thinking creatively about how to handle accrued vacation time. Since early May, a tech company that provides four weeks of paid vacation each year has required its 45 employees to take every Friday as a vacation day. The policy, which may continue through July, is an effort to prevent workers from hitting the eight-week limit on vacation time, said Debbie Sarni, owner of HR Support Team in Fullerton. "They feared the cap would accumulate so quickly if no one took vacations for a few months," she said of her client. "They went this route to eliminate high balances for people."

Another client, a manufacturer with 90 employees, is encouraging—but not requiring—workers to take vacation time. A third, a 25-person construction business, is assuring employees that they will be paid at year's end for accrued vacation time. That business provides two weeks of paid vacation a year and caps accrual at four weeks. Because the company is so small, its owners are concerned that having too many employees on vacation simultaneously will affect operations, so its leaders prefer to pay workers, Sarni said.

Businesses with a large amount of accrued vacation time on their books may face challenges securing a line of credit, as one of Colleen McCarthy's clients discovered. That client, which did not have a policy to cap accrued vacation time, is asking employees to either take time off or be paid for some of their time. The business will then put a cap in place, said McCarthy, an attorney with Ferruzzo & Ferruzzo in Newport Beach.

In light of the coronavirus pandemic, employers could consider making an exception to their policies governing accruals and caps, said Keven Steinberg, an attorney with Steinberg Law in Sherman Oaks. "If they can afford it," he said, "I'd encourage employers to be as generous as possible because employees are the blood of the business and without them the business doesn't run."

Management should provide a written notice of the new accrual cap and set a deadline for employees to use the time. The state has recommended that employers provide "reasonable notice"—roughly three months—if they are requiring workers to take vacation time.

California employers have wide latitude in governing when and for how long their workers can take vacation time, and businesses can impose blackout periods and limit the number of employees who are away at a given time.

[SHRM members-only HR Q&A: What are the rules in California regarding vacation or paid time off (PTO) policies?]

As Gov. Gavin Newsom and county officials begin to relax coronavirus-related restrictions, business leaders should consider how their operations would be affected if an unusually high percentage of their workforce request extended winter breaks. Failure to plan now could leave retailers, hotels and seasonal businesses short-staffed during their busiest season. "Employers need to have the foresight to impose some blackout dates now," Steinberg said.

Unlimited Vacation Time

Some California businesses use the perk of unlimited vacation time as a recruiting and retention tool. Under this arrangement, workers are not paid for any unused vacation days when they leave employment because they do not accrue vacation time as they work. Employers can still, however, limit when and for how long workers take vacation time.

A recent state appeals court decision held that a company that never told a worker she had unlimited vacation time had to pay her for vacation days she accrued. The court emphasized, however, that its decision applied only to the facts in that particular case.

June D. Bell, who is based in the Bay Area, covers California labor and employment law for SHRM.