Question:  I offer my full time employees paid vacation benefits.  Some of my employees have asked for vacation during the upcoming U.S. Open.  As a restaurant, I will need all hands on deck during this busy time.  Can I deny vacation requests even when an employee has accrued vacation?

Answer:  Yes.

California employers are not required to provide paid vacation or paid-time-off (PTO) under California law, but if they choose to do so there are rules that must be followed.  It is important to have a written vacation pay policy so your employees understand the rules.  You may place reasonable restrictions on the use of paid vacation time, and many businesses in the hospitality and retail industries restrict their employees from using vacation time during the busy tourist season and special events.  Conversely, employers may require employees to take vacation time off during specified periods.  It is important to let employees know about these restrictions ahead of time, and to administer the policy fairly.

Your vacation policy can state that an employee has to work for you for a specific period of time before vacation benefits begin to accrue. In California, employers cannot adopt a “use it or lose it” vacation policy. Earned vacation time is considered wages, and vacation time is earned as work is performed. For example, if an employee is entitled to 10 days of vacation per year, after six months of work the employee will have earned five days of vacation. Vacation pay accrues as it is earned and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.

It is also important to define how vacation time will be accrued.  For example, an employer’s vacation plan may provide for the earning of vacation benefits on a daily or weekly basis, each pay period, or some other periodic basis. Many employers use a pay period method of accrual.  While employers are not required to list employees’ accrued vacation on the employees’ paystubs, they are required to keep accurate records of accrual and use of vacation time.

In order to encourage employees to take time off for rest and relaxation, and to control vacation accrual liability, many employers place a cap on the number of vacation hours an employee can accrue.  In California, employers must provide employees a “reasonable” amount of time to use their accrued vacation, so most vacation caps are 2 times the employee’s annual accrual.  For example, if an employee accrues 80 hours of vacation time each year, that employee’s vacation cap would be 160 hours.  If the employee’s accrual reached the cap, accrual would stop until the employee used some vacation time to bring the accrued vacation under the 160 hour cap.  Another option is to cash out unused accrued vacation time at the end of the year.

Employers can require employees to follow a procedure to request vacation time off.  For business planning purposes, most employers require employees to request vacation time in writing at least 30 days in advance.  Your policy can also allow employees to take vacation time in full or partial day increments.

When the employment relationship ends, remember that all accrued but unused vacation or PTO must be paid at the employee’s final rate of pay and included in the employee’s final paycheck unless otherwise stipulated by a collective bargaining agreement.