Vacation Deceleration

The new year is a great opportunity for employers to review and update employment policies.

Although it is not mandatory for California employers to provide paid vacation to their employees, if they choose to do so, there are many requirements that must be adhered to. One of these requirements is that accrued vacation must be treated as wages and be paid out to employees upon separation.

But what about those pesky, short-term employees who don’t work for your organization long enough to become contributing members?

Many California employers take advantage of waiting period policies where employees are ineligible to accrue vacation benefits until after a specified period has been completed. Having this type of policy in place can ensure that employers are only providing paid vacation benefits to employees who have proven their ability to contribute to the organization’s long-term goals.

However, if the policy isn’t set up correctly it can nullify an employer’s attempt to limit liability. The Labor Commissioner has made it clear that employers cannot effectively exclude introductory employees if they are given credit from their first day of employment once they have completed the introductory or waiting period, as this is seen as a subterfuge on the part of the employer. Paid vacation policies cannot include decelerated accrual rates. For example:

  • After a six-month waiting period, 1 week of vacation accrues at a rate of 1.538 hours/week.
  • During the second and third years of employment, 1 week of vacation accrues at a rate of 0.769 hours/week

It is clear in this example that the employee would be accruing vacation at a higher rate in the first year as opposed to the following years. In any instances where vacation accrual rates decelerate, separating employees will be owed a prorated amount of paid vacation on their exit date even if they leave during the waiting period. Employers must utilize valid accrual rates to reduce their liability and prevent short-term employees from cashing out while moving out. Thus, the following example would be one way to correct the policy above:

  • Employees are eligible to accrue vacation after completing six months of employment.
  • From 6 month – 3 years of employment, vacation accrues at a rate of 1 week off per year (0.769 hours/week).