Question:

With summer around the corner, I’m considering giving my employees paid time off for vacation. Can you give me the basics of what I need to know about providing paid vacation benefits to employees in California?

Answer:

Paid vacation benefits give employees the opportunity to take a break from their regular work routine, for rest, relaxation, and personal pursuits. According to a recent study by the Bureau of Labor Statistics, 77% of employees in private industry receive paid vacation benefits.
Neither federal nor California law require employers to provide vacation benefits (paid or unpaid) to their employees. Instead, an employee’s right to paid vacation benefits generally arises from an employment contract, collective bargaining agreement, or employer policy or practice. In such cases, California law protects employees by placing certain restrictions on how the employer administers paid vacation benefits to its employees.
One key fact to keep in mind is that earned paid vacation time is considered wages that cannot be forfeited by the employee. Therefore, earned but unused paid vacation benefits must be paid to the employee upon termination of employment, regardless of the reason for the termination.
If you decide to offer paid vacation benefits to your employees, it is best to have a written vacation policy clearly defining and explaining its essential terms and conditions of use, including who is eligible for vacation, how much vacation employees get, how it accrues, and what type of notice an employee needs to provide before taking vacation. Vacation policies should address:
• Eligibility and waiting periods: You may choose to provide paid vacation only to fulltime employees, and exclude part-time or temporary employees, or pro-rate benefits for part time employees. The policy may also state that employees cannot use or do not accrue benefits until completing a certain length of employment, such as a 90-day introductory period, or one year of service.
• Accrual rate: Your paid vacation policy may permit employees to earn vacation benefits using any measurable basis of time, such as two weeks’ paid vacation per one year of employment. The policy should state whether accrual is incremental, and whether accrual increases based on the employee’s length of service.
• Accrual caps: Although you cannot adopt a “use it or lose it” vacation policy (because earned vacation benefits are “wages”), you may place a reasonable “cap” on the maximum amount of paid vacation time an employee may accrue, providing that upon reaching the cap, the employee will no longer continue to accrue paid vacation benefits until he or she uses enough vacation time to fall below the maximum. The recommended cap is two times the employee’s annual accrual.
• Vacation requests and scheduling restrictions: Employers can manage their company’s vacation scheduling. For example, retail establishments may prohibit employees from taking vacation during peak business seasons. Employers can also require vacation requests to be submitted 30 or 60 days in advance, and provide that vacation may or may not be granted, based on your company’s business or staffing needs.
Providing paid vacation time may improve employee morale, productivity, and loyalty, and is worth considering, even for small businesses. Be sure to have a clear, fair, and consistently implemented policy in place.